What is Ethereum?

Ethereum is a decentralized global platform used as a currency, on its own network.

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Ethereum  is an open-source blockchain platform used to create and run decentralized applications (dApps) which in turn allow users to conduct transactions or establish agreements, such as buying or selling goods or services without involving a third party. Examples of ways to use Ethereum include bypassing a financial institution when transferring money or avoid a lawyer in instances requiring drawing of a contract among other use cases.


Ethereum is a blockchain-based platform for building decentralized applications, otherwise known as dApps. To many in the cryptocurrency space, dApps are the future of finance. This belief is due to Ethereum’s underlying technology: smart contracts.

Smart contracts enable transactions and agreements without the need for an intermediary. For example, a user can pay for a service with smart contracts. Say a writer is creating blog posts for a company. That company would create a smart contract with the agreed upon payment, setting those funds to automatically release when the criteria is met. In this case, that criteria would be a blog post.

What is Bitcoin?

The first and premier digital currency

What it is DeFi?

Complete decentralized finance ecosystem

What is Ethereum?

A smart contract digital currency platform

Cryptocurrency Glossary

Alt coins and tokens

What is Blockchain?

Immutable data recording open ledger system

By supporting contracts without the need for a lawyer or other intermediary, parties are saving time and money. Applying these smart contracts to traditional finance, users can borrow money, make transactions, pay off debt, and more, all while avoiding the hassle of corporations and banks.

History of Ethereum

Ethereum has a rich history which can be traced back to the premier cryptocurrency Bitcoin. In the year 2012, Vitalik Buterin at the time only 17 years old heard of Bitcoin through his father. Buterin picked interest in Bitcoin and its underlying technology drawing him to write for Bitcoin Magazine in its early days. His interaction and understanding of Bitcoin technology led him to suggest new improvements on the Bitcoin network however, the community refused Buterin's proposal. It is after the rejection of his suggestion that Vitalik Buterin began his journey of developing his own cryptocurrency what would later be known as Ether (the cryptocurrency) and Ethereum (the blockchain network/platform).  

Similar to Bitcoin and other cryptocurrencies thereafter, Buterin published the Ethereum whitepaper in November 2013, followed by kickstarting of development work in January 2014. The premier development team involved with Ethereum included Vitalik Buterin, Charles Hoskinson, Mihai Alisie, and Anthony Di Lorio. In August 2014, Ethereum ran its ICO managing to raise $18.4 million with the Ethereum test net “Olympic” released in May 2015. March 14, 2016, the team released the first stable Ethereum on block 1,150,000 well known as the "Homestead.

Further notable developments include the birth of Ethereum Classic, which is a fork from the original Ethereum protocol, on October 25th, 2016 a hardfork update implemented "the Metropolis Byzantium". This was followed by the Metropolis Constantinople hardfork update that occurred on February 28, 2019.

Ethereum was the first cryptocurrency to gain a significant following after Bitcoin. The project was developed by Vitalik Buterin, a journalist at Bitcoin Magazine who fantasized about improving the Bitcoin blockchain in 2012. Buterin pitched these improvements to the Bitcoin community, though they rejected his ideas. He decided to build his own project, instead.

In November 2013, Buterin published the Ethereum whitepaper with Charles Hoskinson, Mihai Alisie, and Anthony Di Lorio as additional developers. The platform ran an ICO in August 2014, raising $18.4 million to develop its “Olympic” testnet. Olympic released in May 2015, with Buterin and team launching the first stable Ethereum block, Homestead, in March 2016.

The project then forked due to a significant hack, now leaving us with the current Ethereum and the old one - Ethereum Classic. Ethereum’s most significant update since then was the Constantiople fork from February 2019.

How Ethereum Works

Ethereum is also taunted as blockchain 2.0 has similar technology to Bitcoin, however, it is more advanced in terms of use cases and functions. Ethereum works as a global network of supercomputers known as nodes that assemble and run smart contracts. A smart contract is an application that is independent of any third party, cannot be censored and tamper-proof owing to its integration with blockchain technology. Ethereum network has thousands of nodes responsible for storing the entire blockchain, hence, the more nodes participate in the network the more data becomes safe and so is the entire network. Data stored within the Ethereum blockchain undergo verification by these nodes through a "consensus" mechanism already set-up. Therefore, at least half of all the nodes within the network should agree in advance to adding new data that is correct.

Ethereum is a more advanced version of the technology behind Bitcoin. Its biggest innovation is the smart contract, or an agreement between two parties that’s written into the blockchain’s code. This agreement is made independently of any third parties, meaning there’s no need for a lawyer or other group to get involved. It’s also tamper-proof - no one can change a smart contract once it has been executed.

The platform’s data is stored with the various users connected to it, otherwise known as nodes. Each node downloads the entire Ethereum blockchain for history’s sake. This way, whenever a new transaction is presented to the network, nodes can check it against Ethereum’s ledger and prove it’s not a duplicate. If at least half of all nodes agree on a transaction, it is committed to the network.

Distinctively Ethereum has unique use cases when compared to Bitcoin and this is well understood in the following two ways:

Ethereum has a few distinct use cases that make it stand out from Bitcoin.

Smart Contracts

By design Ethereum developers wanted the platform to orchestrate transaction upon fulfillment of certain set conditions. In order to execute these transactions, they built smart contracts which in essence is a line of code within Ethereum that sets rules to meet conditions of transacting parties. Eventually, transactions become trust-less because once the contracts have been written as a line of code it becomes immutable.

Decentralized Applications (dApps)

Decentralized applications are blockchain-based versions of traditional apps. On the surface, dApps are almost indistinguishable from normal applications. Where they differ is in their use of smart contracts.

Take a freelance dApp, for example. On a traditional app, freelancers and clients must manually establish contracts that are vetted by a third-party platform, like Freelancer.com. Freelancer charges the client for using its platform, and takes a cut of the profits from a worker. This isn’t ideal for the client or the freelancer.
That, and Freelancer is open to hacks at any moment, meaning user information is consistently at threat. It’s even possible for the platform to go down, leaving clients and freelancers out of work until it’s back up.

Thanks to smart contracts, dApps are entirely autonomous. Clients and freelancers can negotiate terms on their own, without a platform taking a cut of the profits. The decentralized nature of nodes means there’s no central point for hackers to attack either, meaning information is safe and the platform can’t go down.

Ethereum Virtual Machine (EVM)

Satoshi Nakamoto designed Bitcoin to exclusively function as a peer to peer (p2p) digital currency. Meaning it is very limited especially for innovative developers who wanted to explore further functions on the open-source blockchain. This functionality limitation of Bitcoin blockchain meant developers willing to try out new ideas had to entirely develop a new blockchain including building an entire platform to suit their interests.

Vitalik Buterin identified the problem and offered a solution through the development of the Ethereum Virtual Machine. It is a Turing complete software applicable and running on the Ethereum blockchain. This special software allows anyone to run any program irrespective of their programming knowledge and expertise. Therefore, the Ethereum Virtual Machine led to the inception of decentralized applications meaning developers do not need to build an entirely new platform they can build their applications on top of Ethereum blockchain.

Ethereum Virtual Machine (EVM)

Satoshi Nakamoto designed Bitcoin exclusively as a peer-to-peer digital currency. This limits the network to developers who want to improve on the technology, like Buterin himself. To innovate, developers had to fork the Bitcoin blockchain into their own, which takes a lot of work for an idea that might not even be viable.

Buterin’s solution to this was the Ethereum Virtual Machine. This is a sandbox environment where developers can build and test their decentralized applications without affecting the main Ethereum blockchain. In fact, the sandbox utilizes Ethereum’s power, meaning devs can build and test dApps to their fullest before releasing them to the public.

Ethereum Mining

Mining in the cryptocurrency world means verifying transactions. It is a process of creating a new digital currency and is given to miners (nodes) after successful verification of a transaction. In the case of Ethereum, the miners earn their rewards in form of Ether (ETH). Additionally, similar to Bitcoin, Ethereum uses a Proof of Work (PoW) consensus algorithm which means the participating nodes in the process of verification must show the work done to others in the network to earn Ether. However, there are plans to move Ethereum from Proof of Work consensus to Proof of Stake (PoS) which consumes less energy compared to PoW. Upon moving to this new consensus algorithm (PoS) miners or nodes are selected randomly depending on the amount of Ether held and nodes with the highest amount get to verify the transaction and earn income in terms of fees rather than the issue of a new coin.

Similar to Bitcoin, Ethereum runs on a proof-of-work consensus algorithm. The platform harnesses computer power to solve complex algorithms that prove each transaction is a unique one.

This process is done via miners - users who opt-in to their computers being used. Ethereum rewards them in ETH, the platform’s currency, for doing so. However, mining is power-hungry. It uses a ton of electricity and isn’t scalable. As a result, Ethereum is currently shifting to a proof-of-stake method with its 2.0 upgrade.

Proof-of-stake relies on validators instead of miners. To become a validator, users must stake, or lock-in, a certain amount of ETH in their wallets. In return, they’re provided the opportunity to validate a transaction and earn a reward. This opens up validation to anyone with the funds, rather than just those who have powerful computers. It also decentralizes the validation process even more, increasing network scalability as well.

Ethereum Use Cases

Decentralized Applications
This is an application that serves a particular purpose to its users. Essentially, any service today that is centralized and can be digitized can be built as a decentralized application using Ethereum blockchain. For example, services such as title registries, lending, voting system, etc.

Decentralized applications are blockchain-based versions of traditional apps. The idea is to have voting, lending, ownership, and more all automated and decentralized on Ethereum, utilizing dApps. As of now, Ethereum is the most popular blockchain in which to build a dApp.

Decentralized Autonomous Organizations (DAO)
While Ethereum is a decentralized network, it must abide by a certain set of rules to work. This is where a DAO comes in.

A DAO is an organization created by top Ethereum developers that enforces the platform’s rules. It is entirely automated, built into the code of Ethereum, and allows the platform to run without human intervention.

Basically a DAO is the backbone of any blockchain platform.

Initial Coin Offering
Ethereum tokens are enforced by the ERC-20 technical standard. Any token classified as ERC-20 is one that transfers value. 

Thanks to dApps and the EVM, Ethereum developers can create their own ERC-20 tokens on the platform, and then crowdfund them through a process called an Initial Coin Offering (ICO).

An ICO asks the community to buy stake in a project, earning tokens for funding it. They then get a say in its future development.

ERC-721 Tokens
ERC-721 tokens are non-fungible, meaning each one represents a unique, one-of-a-kind asset. Ethereum supports ERC-721 tokens for dApps involving asset ownership.

One example of this is the collectible trading game CryptoKitties. Each CryptoKitty is one-of-a-kind and has its own value. Users can trade, buy, or sell their kitties in exchange for ETH, thanks to the ERC-721 protocol.

Decentralized Autonomous Organizations (DAO)
While Ethereum is a decentralized network, it must abide by a certain set of rules to work. This is where a DAO comes in.

A DAO is an organization created by top Ethereum developers that enforces the platform’s rules. It is entirely automated, built into the code of Ethereum, and allows the platform to run without human intervention.

Basically a DAO is the backbone of any blockchain platform.

Initial Coin Offering
Ethereum tokens are enforced by the ERC-20 technical standard. Any token classified as ERC-20 is one that transfers value. 

Thanks to dApps and the EVM, Ethereum developers can create their own ERC-20 tokens on the platform, and then crowdfund them through a process called an Initial Coin Offering (ICO).

An ICO asks the community to buy stake in a project, earning tokens for funding it. They then get a say in its future development.

ERC-721 Tokens
ERC-721 tokens are non-fungible, meaning each one represents a unique, one-of-a-kind asset. Ethereum supports ERC-721 tokens for dApps involving asset ownership.

One example of this is the collectible trading game CryptoKitties. Each CryptoKitty is one-of-a-kind and has its own value. Users can trade, buy, or sell their kitties in exchange for ETH, thanks to the ERC-721 protocol.

Decentralized Autonomous Organizations (DAO)

This is a decentralization organization operating without a leader. In its design, it is a programming code with smart contracts all of this built on Ethereum blockchain. The code eliminates the structure and rules of a conventional organization hence bypassing the need for use of people and centralized control. People who buy tokens of a DAO are the new owners with each token be equal to equity shares and ownership rights. In addition, the tokens give each holder voting rights.

Initial Coin Offering (ICO)

Ethereum has become popular in the blockchain industry because entrepreneurs can use the platform to launch alternative cryptocurrencies. Using the ERC20 standards developers can issue new tokens using this blockchain and crowdfund a project through a model known as Initial Coin Offering (ICO).

ERC721 Tokens

Using the ERC721 standards, individuals can leverage on Ethereum platform and use it to track unique digital assets. The design and infrastructure of the ERC721 standard allow users to prove ownership of digital goods that are scarce known as digital collectibles. Examples of successful use cases include the overnight success crypto game named CryptoKitties which is a game to collect and breed digital cats.

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