The initial use of Ethereum was described with the goal of building decentralized applications in an effort to provide a network that could lead to attaching real-world assets to the blockchain. The idea of Ethereum came about in 2013 primarily by programmer Vitalik Buterin. In 2014, the development work began and it was officially launched in 2015. The platform currently has over 600,000 users interacting regularly.

What is Ethereum?

Ethereum is a decentralized Blockchain platform that consists of peer-to-peer networks which execute and verify a smart contract using the Ethereum blockchain.

Smart contracts enable the exchange of information without any central authority or third-party interference in transactions.

Transaction information is immutable, verifiable, and easily distributed through networks, ensuring that users can fully access and control transaction information. Transactions can be sent and received via users’ Ethereum accounts. Messages must be signed by the sender and deposited in Ether – Ethers native currency – to pay for processing transactions in the network.

History of Ethereum

Vitalik Buterin, the co-creator of Ethereum had the vision to create a system where smart contracts could be properly utilized in an effort to offset Bitcoin’s shortcomings. Automated immutable if-then statements would enable developers and users across different platforms for decentralized application (DApp) development in order to maintain adoption rates while unifying the way DApps work together on an interoperable network.

Ethereum 1.0 became a congregated space for multiple applications all abiding by the same set of rules. These rules are hardcoded into the network management system and individually enforced within decentralized applications.

In order to fund the promising project, founders Gavin Wood, Jeffrey Wilcke, Charles Hoskinson, Mihai Alisie, Anthony Di Iorio and Amir Chetrit alongside Buterin held a token presale to raise $18,439,086 in Ether for current and future developments.

Later, the Ethereum Foundation was founded to maintain and develop the Ethereum network but soon after Buterin announced it would run as a nonprofit, some of the co-founders abandoned the project.

These arguable changes in Ethereum set in motion the DAO, a democratic group that voted on network changes and proposals. Backed by a smart contract, there was no need for a single decision-maker. Instead, changes were implemented by majority vote.

A setback occurred when a hacker swiped $40 million in funds from tej DAO’s holdings due to a security breach. To offset the theft, the DAO voted to hard fork Ethereum and upgraded to a new protocol which resulted in a major software update.

The new fork kept the name Ethereum while the original network is now known as Ethereum Classic.

How does Ethereum work?

Ethereum is a permissionless network that uses the blockchain, a decentralized network where all transactions are verified and recorded, for transactions.

The Blockchain is an ever-growing list of records, called blocks. Each block contains data about its predecessor in a type of code that can be verified with cryptographic algorithms to ensure no one else has access. Once the code is written, it is uploaded and deployed to the Ethereum Virtual Machine (EVM), the runtime environment for transaction execution in Ethereum.

The Ethereum Virtual Machine is technically the authority used to execute smart contracts. Smart contracts are automated agreements between two or more parties mediated by code instead of traditional legal documents.


Ether (ETH), Ethereum’s cryptocurrency, is the fuel that runs Ethereum’s network. It can be used to pay for any transaction fees for any transaction executed on the Ethereum network, as well as buying gas which is the execution fee paid by a user for running a transaction. Apart from being an integral part in executing smart contracts or executing cryptocurrency trades between peers within its ecosystem -like Bitcoin-, ether also acts like money by allowing users access to paying themselves through two different means: purchasing directly with fiat cash via bank transfer.

Smart Contract

Smart contracts are the future of transactions. They’re fast, secure, and irreversible which means they can be used for trading everything from money to property! Because they are immutable, any future modification won’t alter the original agreement and they cannot be edited.

A smart contract is a simple computer program that facilitates exchange between two parties by acting as an official guaranteeing rights over certain assets or information during its lifespan.

Anyone on the Ethereum network has the capability to create these contracts.

The verification process makes any smart contract execution decentralized because it is carried out by anonymous parties without the need for a central authority.

Ethereum Virtual Machine

EVM, as discussed previously, is designed to operate as a runtime environment for compiling and deploying an Ethereum-based smart contract. EVM is the tool that translates the language of a smart contract, which is written in the Solidity language for Ethereum.

With EVM, you can deploy your stand-alone environment, which can act as a testing and development environment. You will be able to verify the performance of the smart contract prior to deployment. Once satisfied, you can deploy it on the Ethereum main network.

Once you write your smart contract in Solidity, that contract gets converted into bytecode and gets deployed on the EVM. The security from cyberattacks is guaranteed by compilation – compiling any programming language with an Ethereum Virtual Machine (EVM) so they can understand what it means when executed!

Proof of Work

Every node in the Ethereum network has:

  • The entire history of any and all transactions
  • The history of the smart contract, which is the address at which the smart contract is deployed, along with the transactions associated with the smart contract
  • The handle to the current state of the smart contract

Miners on the Ethereum network use their computing power and resources to validate blocks. For each transaction, they will calculate a unique hash value using an algorithm called Ethash that can be determined by varying nonces in hopes of getting close enough so as not to invalidate any possible future transactions based on previous ones without uniqueness criteria capable at present time.

When the block is verified, its reward goes to whoever created that transaction. In other words – they get paid for adding their contribution!

Miners are responsible for confirming transactions and aggregating them into a block. They do this by solving what’s called “proof of work.” Once the proof of work is solved, the ledger is updated by sharing the result with all other nodes. If the block is considered valid by the nodes, the miner receives a reward after the block is added to the main Ethereum blockchain as well as transaction fees associated with verifying each piece of data within these blocks.

Proof of Stake

There is also a process known as proof of stake that has been recently developed as an alternative to proof-work. Its main purpose is to minimize the use of resources spent on mining with proof of work.

In proof of stake, the miner can validate transactions based on the amount of cryptocurrency they hold prior to mining. This helps to ensure higher chances of mining blocks. Proof of stake is not as widely used currently as proof of work.


On the Ethereum blockchain, gas refers to the cost necessary to perform a transaction on the network. Gas price is based on supply and demand for the power of the network needed to process transactions.

To perform any transaction within the Ethereum network, a user must make a payment to complete the transaction, this payment is considered gas fees. The transaction fees equal the amount of gas required to execute a transaction multiplied by the gas price. “Gas limit” refers to the amount of gas used for the computation and the amount of ether a user is required to pay for the gas.

Decentralized Applications (Dapps)

Decentralized applications are applications that run freely through the use of smart contracts. Social media, for example, are centrally hosted applications that use an API to access your data. With decentralized applications, the API is replaced by a smart contract interface that brings data from the blockchain network, which is its back end.

The blockchain network is not a centralized database; it’s a decentralized network in which all transactions using smart contracts are verified by the network participants (miners).

The idea behind a Dapp is to provide users with an open and accessible interface that allows them to interact directly without the need for any centralized system. Therefore, instead of relying on third parties, it runs on a peer-to-peer network providing direct interaction between the end-users and the application providers.

Decentralized Autonomous Organizations (DAOs)

A DAO is a decision-making organization resting solely on the authority of a group of designated individuals. It exists on a blockchain network, where it is governed by the protocols embedded in a smart contract, — a decentralized voting system—within the organization.

Users add funds through the DAO which are required in order to execute and make decisions. Based on that, each member is given a token that represents that person’s percentage of shares in the DAO. Those tokens are used to vote in the DAO, and the proposal status is decided based on the maximum votes. Every decision within the organization must go through this voting process.

Real-World Applications of Ethereum

Voting Systems

Voting systems are adopting Ethereum in which polls are publicly available providing a transparent, democratic process by eliminating voting discrepancies.

Banking Systems

Because of Ethereum’s decentralized system, banking is adopting the use of Dapps. The high level of security makes it almost impossible for unauthorized users. Payments are also allowed on an Ethereum-based network, so banks are utilizing this channel to make remittances and payments.


The use of Ethereum in shipping helps with the tracking of cargo and prevents goods from being misplaced or counterfeited. Ethereum provides the provenance and tracking framework for any asset required in a typical supply chain.


With Ethereum smart contracts, agreements can be maintained and executed without any alteration. So in industries open to disputes, and requiring digital contracts to be present, Ethereum can be used as a technology for developing smart contracts for digitally recording the agreements and the transactions based on them.

How does Ethereum make money?

Ethereum doesn’t make money, it is money; a virtual currency created in the process called mining. Mining simply verifies and adds new transactions to the blockchain. Ethereum currently uses a proof-of-work (POW) system for adding these blocks of data but is moving towards proof-of-stake (POS) that will allow it to scale more effectively and efficiently in future applications.

Essentially, Ethereum is a programmable use of digital money. The network generates transaction fees from the sales of block space. Individuals and organizations build products or services that can be digitally traded resulting in a profit.

Ethereum vs Bitcoin

Bitcoin’s primary use is as a digital currency and to store value. Ether is also a virtual currency however, the Ethereum network allows for the running of applications, smart contracts, and transactions.

Ethereum also processes transactions more quickly and there is no limit on the number of potential Ether tokens while Bitcoin will release no more than 21 million coins.

Advantages of Ethereum

Other than security and decentralization, Ethereum has many benefits. Take into consideration the current censorship of social media. If a platform finds something offensive, they are able to remove it at its discretion. On the Ethereum network, that can only take place if it is voted upon.

It has a wide range of functions such as the flexibility of a smart contract, various financial transactions, and data storage for third-party applications.

Ethereum developers are always looking for innovative ways to improve the network expanding on its technical existence. It also has a largely committed global community and the largest ecosystem in the blockchain network and cryptocurrency.

Disadvantages of Ethereum

Although Ethereum seems like the perfect platform, there are still a few key issues that need to be worked out.

In terms of scalability, the Ethereum network may run into some roadblocks. Due to the proof of work consensus algorithm, however, certain interactions are limited by block validation times and gas fees. Central entities have perfected the transaction process in places where decentralization can be a hindrance.

Ethereum is an expensive development and difficult when it comes to interaction for users who are unfamiliar with the technology. The requirements and specifications of some platforms can seem problematic for many users.

Inflation may be an issue in the future since there is no lifetime limit on the potential number of coins. This could mean that as an investment, Ethereum might function more like dollars and may not appreciate as much as Bitcoin, which has a strict lifetime limit on the number of coins.

Learning about the blockchain network is very different from actually using it. The process needs to be more streamlined and user-friendly in order to draw in more users.

How to Buy Ethereum?

Cryptocurrency isn’t purchased from a bank or brokerage but rather a cryptocurrency exchange platform. There are multiple platforms available and different platforms provide different features so research is always highly recommended.

It’s important to understand you don’t buy Ethereum, that is the network. You buy ETH (Ether) and use it on the network. Below are the steps to purchasing ETH.

Select a cryptocurrency exchange:

Coinbase, Binance, and Kraken are a few of the larger exchanges. If you are just interested in purchasing the most common coins like Ether and Bitcoin, you could also use an online brokerage like Robinhood or SoFi. Be prepared to pay some amount of trading or processing fees almost universally.

Deposit fiat money:

You’ll need to deposit cash, like dollars, in your trading platform or link your bank account or debit card to fund purchases of Ether.

Buy Ether:

Once you’ve funded your account, you can use the money to purchase Ether at the current Ethereum price along with other assets. Once the coins are in your account, you could hold them, sell them or trade them for other cryptocurrencies in the future. Keep in mind you may incur taxes whenever you sell or trade cryptocurrencies.

Use a wallet:

While you could store the Ether in your trading platform’s default digital wallet, this can be a security risk. If someone hacks the exchange, they could easily steal your coins. Another option is to transfer coins you aren’t planning on selling or trading soon into another digital wallet or a cold wallet that’s not connected to the internet for safety.

Storing Ethereum

Ethereum can be stored in various ways; an online wallet, a software wallet, or a hardware wallet.

Online wallets are websites or applications that allow you to store your Ethereum online. This is the most convenient option as they can be accessed from anywhere in the world. However, they are also the least secure option, as your Ethereum is vulnerable to hacking and theft.

Software wallets are applications that you download and install on your computer. They offer more security than online wallets but are less convenient than hardware wallets. Software wallets are free to use.

Hardware wallets are physical devices that store your Ethereum offline. They are the most secure option for storing Ethereum, but they are also the most inconvenient option. Hardware wallets must be connected to a computer in order to be used and typically cost money to purchase.

Future of Ethereum

Ethereum has the potential to become a leading platform for smart contracts and other decentralized applications. While it is still in its early stages, there are many people who believe Ethereum will eventually take over and dominate the blockchain. Its stability when compared with other platforms such as Bitcoin, is unmatched.

Developers are flocking to Ethereum in droves, as the newly created decentralized finance projects and NFTs have triggered a tremendous network effect. These first of their kind applications on public blockchains will only continue to attract more attention from those who want them to join this exciting new world of tech innovation!

While there are many cryptocurrency enthusiasts who believe in the potential of Ethereum, it faces tough competition from other coins and projects. The coin’s current function could be threatened by delays with upgrades that require more time to complete than anticipated – meaning they may never reach their full potential or integration onto larger platforms such as Microsoft Azure cloud services.

Ethereum has been challenged lately due to its complicated setup compared to quicker competitors like IBM’s blockchain technology project “Bluemix” where developers can write code once instead of creating multiple versions for different clients

Ethereum 2.0 (Eth2)

Ethereum is slowly upgrading to its 2.0 version, which is expected to bring a proof-of-stake consensus algorithm merging with the Beacon Chain — Ethereum 2.0’s first new feature.

The Beacon Chain adds the foundational changes necessary for future upgrades, such as shard chains. Shard chains and the process of sharding are a big part of solving any scaling concerns.

Sharding is the act of spreading transactions across multiple, smaller blockchain networks. These smaller networks can be run by users with weaker hardware, as they only need to store information from the said shard, rather than the entire network. Essentially, sharding makes Ethereum validation more accessible and helps to decongest the main network.

Ethereum 2.0 has many cryptocurrency enthusiasts excited about the possibilities. With many in the community taking advantage of NFTs, awareness is growing at a rapid pace. All of this activity is resulting in higher transaction fees and slower validation times. This expounds on the need for Ethereum 2.0.

Part of the solution is in the proof-of-stake consensus, a core feature of Ethereum 2.0. Instead of mining, which is energy-intensive, Ethereum 2.0 marks the move to a PoS consensus algorithm. Proof-of-stake replaces miners with validators: users who store the Ethereum blockchain, validate transactions, and more.

To become a full validator, one must stake a minimum of 32 ETH, at least during the early period of Ethereum 2.0. By leaving a computer connected to the network, validators earn ETH as a reward for their efforts. The idea is that those who stake their ETH have the best network intentions in mind and will do whatever they can to ensure its success. Plus if a validator fails to participate or tries something malicious, they can lose ETH.

The argument for proof-of-stake is that it is a faster more accessible form of blockchain consensus. It doesn’t require special hardware like mining does, meaning anyone with the funds and a device can participate. In theory, that accessibility should grow the network. The more validators, the more blocks get validated. Extra validators also decentralize Ethereum even more, increasing security as the role expands.


Ethereum is a decentralized platform that runs smart contracts. It is secure, fast, and has low fees. Ethereum is also flexible and diverse, with a wide variety of applications. Blockchain technology is a digital ledger of all cryptocurrency transactions that is constantly growing as “completed” blocks are added to it with a new set of recordings.

With its surge in popularity, the Ethereum blockchain has seen in recent months, developers have been able to construct a slew of decentralized finance projects and NFTs. The adoption of new applications to be amongst the first to run on a public blockchain triggers a tremendous network effect attracting more and more developers to Ethereum.

With Ethereum being an extremely flexible platform having a large user base, developers are encouraged to deploy their applications on the network, which further reinforces Ethereum as the primary home for decentralized applications.

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