How Does Ethereum Work?

how does eth work

If you want to know the basics about Ethereum and how it works, here is a short guide to help you.

What is Ethereum?

Ethereum is really two things. Firstly, it is a worldwide decentralized money platform and it is also a platform for a new kind of application. Ethereum allows people to write code for controlling money and for building applications that are accessible worldwide.

Blockchain, Bitcoin and Building Applications

Bitcoin is arguably the most well-known cryptocurrency but understanding key differences in the crypto world can be a challenge for beginners. I’m old enough to remember a time when people were confused between what the Internet was compared to email. Well, to use that example, if Bitcoin is email, then blockchain is the Internet. But, Bitcoin is only one of many many applications using blockchain technology.

When once you needed to learn coding, mathematics, and cryptography to build a blockchain application, nowadays it’s much easier thanks to Ethereum. Developers are able to build their own decentralized applications much more easily.

How is Ethereum Different?

Ethereum does share characteristics with Bitcoin. For one, they are both distributed public blockchain networks. The biggest difference between the two is in their purpose and their capability. On the one hand, Bitcoin is a P2P cash system that allows payments to be made in Bitcoin. Its blockchain tracks the ownership of bitcoins. The Ethereum blockchain, on the other hand, runs code that programs any decentralized application, or dapp. In Ethereum, people mine Ether, which is a crypto token. As well as being a cryptocurrency for trading purposes (its first use), application developers also use Ether to pay for services and transaction fees on the network. Miners also have to send a second type of crypto token called ‘gas’. Each execution of a smart contract requires a payment of gas.

So, What are Smart Contracts?

This is just a term used for describing the computer codes that facilitate money, content, property, and share exchanges, amongst other valuables. Smart contracts are like self-operating programs that work when specific parameters are met. These run on the Ethereum blockchain perfectly without any problems like downtime, interference, fraud, or censorship.

Unlike other blockchains, Ethereum gives developers the possibility of creating whatever they want. The opportunities to create applications are infinite.

ETH Smart Contract

What is the EVM?

The Ethereum Virtual Machine is a complete software that runs on Ethereum’s network. Through the EVM, anyone can run a program and they don’t need to worry about the programming language. The EVM makes creating applications simpler and more efficient. Users don’t need to build an original blockchain for the creation of their application, they can simply build their application all on the Ethereum platform.

Using Ethereum, developers can build Dapps – decentralized applications. These serve particular functions for their users. Since Dapps are made from code on a blockchain network, there is no ownership or control by a central location or person. This is opening up big opportunities for many industries and companies. Dapps have great potential for banks, registries, regulatory compliance, and voting systems to name a few examples.

Ethereum Virtual Machine

Other Cryptocurrencies

Ethereum can be used for the launch of other cryptocurrencies too. Developers can create their own tokens and create funds with an ICO (initial coin offering). Already, there have been billions of dollars raised on the Ethereum platform by ICOs.

How to Access Ethereum?

There are a number of ways to access the Ethereum network. Arguably the easiest way to use the Mist browser. This is an interface and digital wallet that is particularly user-friendly. Users can store and trade Ether, as well as create, manage, execute, and use smart contracts. Mist is simply a portal that gives access, just like a web browser gives access to the internet.

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