Ethereum Blockchain Explained: A Quick Comprehensive Guide


Ethereum logo displayed prominently on a computer monitor, symbolizing digital currency and blockchain technology.

Big names like Samsung, Amazon, and Microsoft are leveraging Ethereum, but why was Ethereum created, and what makes it so appealing to investors, entrepreneurs, artists, and corporations? As the second largest cryptocurrency after Bitcoin, Ethereum is often referred to as “the mother of decentralized applications.” This article will explain Ethereum blockchain, delve into what makes Ethereum different from Bitcoin, explore smart contracts and their use cases, and guide you on how to get started with this innovative technology. Is Ethereum a blockchain worth exploring? Absolutely, and here’s why.

What is Ethereum?

Ethereum is a decentralized blockchain technology that operates without ownership or regulation by any third party, such as a government or central bank. So, is Ethereum a blockchain? Yes, it’s a pioneering platform in the blockchain space.

Ethereum is designed for building decentralized applications (dApps), facilitating the holding and transaction of cryptocurrencies and other digital assets, and enabling the creation of new cryptocurrencies. This versatility is a key reason why Ethereum was created, to serve as a robust foundation for these innovations.

The platform’s native cryptocurrency, called ether (ETH), fuels Ethereum’s operations. Think of ETH as the fuel and Ethereum as the engine driving this dynamic ecosystem.

How does Ethereum work?

The Ethereum network operates like a vast, decentralized computer. Through its blockchain, Ethereum can execute nearly any task if it has enough time, processing power, and instructions. This versatility is part of why Ethereum was created—to enable a wide array of decentralized applications (dApps) and blockchain-based projects to run on its platform. To understand Ethereum blockchain explained simply, think of it as the underlying structure that supports these projects. So, is Ethereum a blockchain? Yes, it’s the foundational technology driving many innovations in the decentralized world.

Who created Ethereum?

Who created Ethereum? The idea for Ethereum was originally proposed by Russian-Canadian programmer Vitalik Buterin. In 2013, he published a whitepaper outlining a blockchain network that could support developers in creating their own decentralized applications (dApps). This was a significant part of why Ethereum was created—to offer functionalities beyond what the Bitcoin network could provide.

As a co-founder of Bitcoin Magazine, Buterin was already well-known in the crypto community before Ethereum’s development. Following the whitepaper, other visionaries like Gavin Wood and Charles Hoskinson joined him in bringing Ethereum to life.

Today, Ethereum is maintained by hundreds of thousands of developers worldwide and is continuously evolving. The Ethereum blockchain explained its most recent milestone, the “Ethereum Merge,” which shifted from a proof-of-work to a proof-of-stake consensus mechanism. This change is expected to reduce Ethereum’s energy consumption by approximately 99.95%, as proof of stake doesn’t require extensive computing power like proof of work. So, is Ethereum a blockchain that evolves with its community? Absolutely, and its transition to proof of stake is just one example of its ongoing innovation.

What can you do with Ethereum?

What can you do with Ethereum? Beyond using ETH as money or a store of value, much of Ethereum’s potential lies in the development of decentralized applications (dApps). These dApps run on a decentralized peer-to-peer network rather than on centralized servers, like those used by traditional apps such as Uber or Twitter.

  • One prominent use case is Decentralized Finance (DeFi), which includes financial services like lending, borrowing, and earning interest, all accessible on public blockchains without the need for traditional banks. Ethereum blockchain explained this revolution in finance by enabling these services through smart contracts.
  • Another major innovation is Non-Fungible Tokens (NFTs), which are unique digital assets stored on a blockchain, making them impossible to replicate. While other blockchains have developed their own versions of NFTs, the first-ever NFT was built on Ethereum. NFTs can represent various items, from digital art and in-game assets to real-world properties like land or houses.
  • Decentralized Autonomous Organizations (DAOs) are another innovative application on Ethereum. Unlike traditional organizations with a CEO, DAOs are collectively owned and operated by members. The rules governing the organization and the allocation of funds are embedded in the Ethereum blockchain through smart contracts, illustrating why Ethereum was created as a platform for decentralized governance. So, is Ethereum a blockchain that supports such structures? Indeed, it is.
  • Other Cryptocurrencies can also be created on the Ethereum blockchain, purchasable with ETH. These custom tokens must adhere to specific standards to ensure compatibility with exchanges, such as the Blockchain.com Exchange. The ERC-20 standard is the most widely used for token creation. Some of the most notable cryptocurrencies built on Ethereum include Tether and USDC, the two largest stablecoins in the crypto market.

This permissionless environment allows developers to innovate without the constraints of central authority. This is a significant part of why Ethereum was created, to foster such open experimentation. So, is Ethereum a blockchain that supports diverse applications? Absolutely.

Transacting on the Ethereum network

Transacting on the Ethereum network involves a few key steps. When someone sends Ether, the transaction, along with the sender’s public key, is recorded on the Ethereum blockchain. Each transaction incurs a ‘gas fee,’ which compensates the network for processing the transaction. This mechanism highlights how Ethereum blockchain explained its transaction validation process.

The primary method for confirming and validating Ethereum transactions is proof of stake. In this system, individuals must stake at least 32 ETH and run specialized validator software to participate. Validators are then randomly chosen to add new blocks to the blockchain, earning gas fees as payment. The full list of transactions is distributed across every computer on the Ethereum network, reinforcing why Ethereum was created with decentralization at its core.

What are Gas Fees?

Gas fees on Ethereum represent the cost of conducting a transaction or executing a smart contract. These fees are measured in small fractions of ETH and fluctuate based on the network’s supply and demand at the time of the transaction. So, is Ethereum a blockchain that uses gas fees to manage its operations? Yes, and this fee structure is essential for maintaining the network’s efficiency and security.

What is a Smart Contract?

A smart contract is a self-executing contract where the terms of an agreement are encoded directly into the blockchain. Unlike traditional contracts, which can be slow and rely on trust or physical records, smart contracts are distributed across the Ethereum network, making them tamper-proof and transparent. These digital “if-then” statements automatically enforce the agreement when specified conditions are met, demonstrating one of the many powerful features of building on Ethereum.

What is Proof of Stake?

The Ethereum Merge marks the transition of Ethereum’s consensus mechanism from proof of work to proof of stake, ensuring the validity of every transaction and new block added to the network. This shift is a core reason why Ethereum was created with an emphasis on scalability and energy efficiency. So, is Ethereum a blockchain that now uses proof of stake? Yes, this new system is central to its current operations.

How do Ethereum and Bitcoin compare?

How do Ethereum and Bitcoin compare? Both Bitcoin and Ethereum share some fundamental similarities: neither is owned or regulated by a third party like a central bank, they both use blockchain technology to record and store transaction details, and they each have digital currencies (BTC for Bitcoin and ETH for Ethereum) that can be stored in cryptocurrency wallets.

However, the differences are notable. In exploring why Ethereum was created, it’s clear that Ethereum was designed to facilitate smart contracts and decentralized applications (dApps), while Bitcoin was created as a digital currency alternative. When it comes to supply, Ethereum blockchain explained simply has no fixed limit on its total supply and relies on supply and demand dynamics, whereas Bitcoin has a capped total supply of 21 million coins. Additionally, is Ethereum a blockchain that uses proof-of-stake? Yes, Ethereum now operates on a proof-of-stake consensus algorithm, allowing users to earn rewards by staking ETH. In contrast, Bitcoin uses a proof-of-work system, which involves miners dedicating computing power to validate transactions.

How can you build on Ethereum?

Every node on the Ethereum network holds a copy of the Ethereum Virtual Machine (EVM), a decentralized “computer” that can execute a multitude of projects through smart contracts. This is part of Ethereum blockchain explained as a platform for developers to innovate freely.

What industries use Ethereum smart contracts?

Insurance:

  • Companies like AXA insurance have leveraged Ethereum smart contracts to automate the payout process for flight delay insurance claims. By linking a smart contract to air traffic databases, delays are detected, and the contract automatically compensates affected customers. This practical application exemplifies why Ethereum was created—to streamline processes across various sectors.

Supply Chain:

  • Retail giants such as Walmart use Ethereum blockchain explained through smart contracts to monitor the entire journey of products. This technology enhances transparency by tracking product sources and quickly identifying any missing items, ensuring efficient supply chain management.

Real Estate:

  • Seattle-based SMARTRealty utilizes smart contracts to record and automate real estate transactions, including details like monthly payment amounts, contract duration, and auto-renewal terms. This use case highlights how Ethereum smart contracts can revolutionize industries by embedding trust and efficiency into transactional processes.

What’s the future of Ethereum?

In 1989, British scientist Tim Berners-Lee created the open-source and free-to-use World Wide Web (WWW), which catalyzed the rapid evolution of the internet. Vitalik Buterin embraced this open spirit when he wrote the Ethereum whitepaper, laying the groundwork for a decentralized future.

In 2021, Berners-Lee symbolically passed the baton by selling the original source code for the WWW as an NFT on the Ethereum blockchain. This event exemplifies why Ethereum was created, to offer new revenue streams for creators and establish a technical foundation for startup developers. So, is Ethereum a blockchain that empowers user ownership in the digital age? Absolutely, it’s pivotal in crafting a user-centric version of the internet.

Following the successful Ethereum Merge, which demonstrated the network’s resilience, Ethereum is now entering a new chapter, reinforcing its role in the ongoing evolution of blockchain technology.