3 July 2020


As you become more experienced in the cryptocurrency and blockchain technology world, it’s inevitable that you will hear about Ethereum.  So, what is Ethereum, and how does it work?

Ethereum is an open-source, public platform based on the blockchain, which gave birth to the second-largest cryptocurrency in the world – Ether.

Ethereum can also be defined as a distributed computing platform that uses blockchain to replace any internet third party that stores data or keeps track of complex financial instruments or transactions.

 In this article, we will cover everything you need to know about it.

What's Ethereum?

Origin of Ethereum

While several innovators played a role in founding Ethereum, most of the credit generally goes to Vitalik. Vitalik Buterin was 17 in 2012 when he was introduced to Bitcoin by his father. His interest in technology grew, and he co-founded Bitcoin Magazine where  he suggested improvements to the Bitcoin platform.

After many of his suggestions were not implemented by the Bitcoin community, Buterin partnered with Gavin Wood to create the Ethereum platform in 2015. The foundation of the new “world computer” was set.

What is Ethereum?

For starters, the goal behind Ethereum is to create a “world computer” that would decentralize the existing client-server models. Often, this draws a comparison to the role Microsoft played in building the Windows operating system which enabled companies to build software that made personal computers more user-friendly. In a similar way that Microsoft ushered in personal computing, Ethereum can usher in the next chapter of our connected lives. 

Essentially, Ethereum is designed to give you back in control of your data. In an Ethereum network, there is no single entity that has control over your information. The goal behind this is to make this sort of democratized and private environment available to everyone around the world. 

Decentralized Blockchain vs Centralized System
Source: Stack Overflow

As part of the typical online experience, private organizations are collecting and storing user information on servers to deliver the desired service or monetize the experience that they offer. Unfortunately, this model is highly susceptible to hackers who are able to pinpoint the locations of servers and structure actions to maliciously harm the private organization and its customers.

Ethereum offers users a way to harness the power of the internet without giving up too much information to other online websites and services, such as Google, Facebook or even your online banking app. 

How Does Ethereum Work?

Ethereum works by decentralizing servers using blockchain technology. This removes the need to share personal information with private organizations to securely store and ethically use it.  

At the heart of its advanced technology, the common focus is establishing a technological foundation that enable developers to openly create secure and scalable applications that can transform many areas of our daily lives, business, and government.  

The two main components that deliver this scalability, openness, and security are:

Smart Contracts

Ethereum blockchain has been designed such that a transaction cannot occur if certain conditions aren’t met. These conditions are known as smart contracts. Once a contract is written, it cannot be edited, making the platform trustless. You don’t have to worry about trusting anyone on the Ethereum platform; no transaction will happen if preset conditions are not met.


Do not think of smart contracts in the legal sense, though they can include judicial matters. Think of them as lines of code to execute an action.

A smart contract differs from traditional business software in that it can involve many players located anywhere in the world. However, the actual smart contract is housed on the server of its creator and is not distributed throughout the network.

Decentralized Apps (dApps)

Decentralized apps, commonly referred to as “dApps,” which is short for decentralized applications, are apps that don’t run on a traditional centralized server. They instead run on a decentralized server like Ethereum. dApps form part of the core design and beliefs of Ethereum. Solidity is Ethereum’s coding language which is used to build dApps. Solidity is a bit like JavaScript, and it encourages learners and users to build new and exciting apps on the Ethereum platform using the token system.

A token is a new digital asset created using a smart contact on the Ethereum blockchain and can be used as a digital currency. Ethereum hosts multiple digital currencies such as Tether, Chainlink, BNB, and Ether (its native currency).

What is Ether?

Not only does Ethereum offer a foundation for next-generation applications and serves, but it is also host to the second most valuable cryptocurrency by market cap, Ether (ETH).

Before we go further, it’s important to know the difference between Ethereum and Ether (ETH). Simply put, Ethereum is a system while Ether is the currency. To get anything done on the system, you will need Ether. Ether ‘fuels’ the system, and every transaction needs a certain amount of Ether. The bigger the transaction, the more Ether is needed.

The role that currency plays in the Ethereum ecosystem is similar to how credit cards work. Once you swipe your credit card, banks use codes to determine where the money will need to be transferred. In this same manner,  Ethereum creates a string of letters and numbers, which encompass a private and public key for security through a process known as cryptography.  

Private Key and Public Key
Source: Forex Academy

In order to spend the Ether coins, you have to enter your identification number, whereas, if you want people to send you Ether coins, you need to give them your wallet address. In a nutshell, this sounds just like any credit card out there or even the PayPal transaction system. However, what makes Ethereum transactions different is its blockchain foundation. Given that all transactions take place on the blockchain, they are much safer and cannot be tampered with, unlike traditional financial systems. 

In Summary

The transactions that we do each day through traditional banks and credit cards put our personal information, identify, and money at serious risk. Ethereum solves these challenges through the use of decentralization, where hackers are unable to focus efforts on a single target, and smart contracts.

The easy way to sum it up: Ethereum puts you back in control of your data and money.

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