What is Ethereum?

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What is Ethereum?

To fully understand Ethereum, what it does and how it can potentially impact our society, it is important to learn what its main properties are and how they differ from standard approaches.

First of all, Ethereum is a decentralized system, which means that it is not controlled by any governing entity. The absolute majority of online services, companies, and businesses are based on a centralized system of governance. This approach has been used for hundreds of years, and although history has proven time and again to be flawed, its application is still necessary when parties do not trust each other.

A centralized approach means control of a single entity, but it also means a single point of failure, making online applications and servers using this system extremely vulnerable to hacker attacks and even power outages. Additionally, most social media and other online servers require users to provide at least some degree of personal information, which is then stored on their servers. From there, it can be easily stolen by the company itself, its rogue workers, or hackers.

Ethereum, being a decentralized system, is totally autonomous and not controlled by anyone at all. It does not have a central point of failure, as it is running from the computers of thousands of volunteers around the world, which means that it can never be disconnected. In addition, users’ personal information remains on their own computers, while content, such as applications, videos, etc., remains in full control of its creators without having to obey the rules imposed by hosting services such as the App Store and Youtube.

Second, it is important to understand that, although constantly compared to each other, Ethereum and Bitcoin are two completely different projects with completely different goals. Bitcoin is the first cryptocurrency and money transfer system, built and supported by a distributed public ledger technology called Blockchain.

Ethereum took the technology behind Bitcoin and substantially expanded its capabilities. It is a complete network, with its own Internet browser, coding language, and payment system. Most importantly, it allows users to create decentralized applications on the Ethereum Blockchain.

These applications can be either completely new ideas or decentralized reworkings of existing concepts. This essentially eliminates the middleman and all the expenses associated with engaging a third party. For example, the only benefit that comes from users “liking” and “sharing” the messages of their favorite musicians on Facebook is generated from an ad placed on your page and goes directly to Facebook. In an Ethereum version of such a social network, both artists and the public would receive awards for positive communication and support. Similarly, in a decentralized version of Kickstarter, you will not receive just an artifact for your contribution to the company, but you will receive a share of the future profits of the company. By last,

“In short, Ethereum is a Blockchain-based, open-source, public distributed software platform that enables developers to create and implement decentralized applications.”

As mentioned above, Ethereum is a decentralized system, which means that it uses a peer-to-peer approach. Each of the interactions takes place between the users who participate in it, without the intervention of any control authority.

The entire Ethereum system is supported by a global system of so-called “nodes”. The nodes are volunteers who download the entire Ethereum blockchain to their desktops and fully enforce all the consensus rules of the system, keeping the network honest and receiving rewards in return.

Those consensus rules, as well as many other aspects of the network, are dictated by “smart contracts.” These are designed to automatically perform transactions and other specific actions within the network with parties that you do not necessarily trust. The terms that both parties must adhere to are pre-programmed in the contract. The completion of these terms triggers a transaction or any other specific action. Many people believe that smart contracts are the future and that, over time, they will replace all other contractual agreements, as the implementation of smart contracts provides superior security than traditional contract law, reduces the associated transaction costs upon hiring, and establishes trust between the two parties.

Furthermore, the system also provides its users with the Ethereum Virtual Machine (EVM), which essentially serves as a runtime environment for Ethereum-based smart contracts. It gives users the security of executing untrusted code while ensuring that programs do not interfere with each other. The EVM is completely isolated from the Ethereum main net, making it a perfect tool for testing and improving smart contracts.

The platform also provides a cryptocurrency token called “Ether.”

Who created Ethereum?

In late 2013, Vitalik Buterin described his idea in a white paper, which he sent to some of his friends, who in turn sent it further. As a result, about 30 people contacted Vitalik to discuss the concept. I was expecting criticism and people pointing out critical mistakes in the concept, but it never happened.

The project was publicly announced in January 2014, with the core team consisting of Vitalik Buterin, Mihai Alise, Anthony Di Iorio, Charles Hoskinson, Joe Lubin, and Gavin Wood. Buterin also presented Ethereum on the stage of a Bitcoin conference in Miami, and a few months later the team decided to wholesale Ether, the network’s native token, to fund development.

Is it Cryptocurrency?

By definition, Ethereum is a software platform that aims to act as a decentralized internet, as well as a decentralized app store. A system like this needs a coin to pay for the computational resources required to run an application or program. This is where “Ether” comes in.

Ether is a digital bearer asset and does not require a third party to process the payment. However, it not only works as a digital currency but also acts as “fuel” for decentralized applications within the network. If a user wants to change something in one of the Ethereum applications, they must pay a transaction fee so that the network can process the change.

Transaction fees are automatically calculated based on the amount of “gas” that action requires. The amount of fuel required is calculated based on the required computing power and operating time.

Is Ethereum Like Bitcoin?

Ethereum and Bitcoin may be somewhat similar when it comes to the cryptocurrency aspect, but the reality is that they are two completely different projects with completely different goals. While Bitcoin has established itself as a relatively stable and most successful cryptocurrency to date, Ethereum is a multipurpose platform with its Ether digital currency being only one component of its smart contract applications.

Even when the cryptocurrency aspect is compared, the two projects appear to be very different. For example, Bitcoin has a capacity of 21 million Bitcoins that can be created, while the potential supply of Ether can be practically infinite. Also, the average Bitcoin block mining time is 10 minutes, while Ethereum’s target does not exceed 12 seconds, which means faster confirmations.

Another big difference is that today the success of Bitcoin mining requires huge amounts of computing power and electricity and is only possible if mining is used on an industrial scale. On the other hand, Ethereum’s proof-of-work algorithm encourages decentralized mining by individuals.

Perhaps the most important difference between the two projects is that Ethereum’s internal code is complete Turing, which means that literally everything can be calculated as long as there is enough computing power and time to do it. Bitcoin does not have this ability. While a complete Touring code provides Ethereum users with virtually limitless possibilities, its complexity also means potential security complications.

How does Ethereum Works?

As mentioned above, Ethereum is based on the Bitcoin protocol and its Blockchain design, but it is tuned so that applications beyond money systems can be supported. The only similarity of the two blockchains is that they store complete transaction histories of their respective networks, but the Ethereum Blockchain does much more than that. In addition to transaction history, each node on the Ethereum network also needs to download the most recent status, or current information, of each smart contract within the network, each user’s balance, and all smart contract code and where it is stored.

Essentially, the Ethereum Blockchain can be described as a transaction-based state machine. When it comes to computing, a state machine is defined as something capable of reading a series of inputs and transitioning to a new state based on those inputs. When the transactions are executed, the machine goes to another state.

Each Ethereum state consists of millions of transactions. These transactions are grouped together to form “blocks”, with each and every block chained to its previous blocks. But before the transaction can be added to the ledger, it needs to be validated, which goes through a process called mining.

Mining is a process in which a group of nodes applies their computing power to complete a “proof of work” challenge, which is essentially a mathematical puzzle. The more powerful your computer, the faster you can solve the puzzle. An answer to this puzzle is itself a proof of work and guarantees the validity of a block.

Many miners around the world are competing with each other in an attempt to create and validate a block, as each time a miner tests a block, new Ether tokens are generated and delivered to that miner. Miners are the backbone of the Ethereum network, as they not only confirm and validate transactions and any other operations within the network but also generate new tokens of the network’s currency.

Read more: How the Blockchain works?

What is Ethereum for?

First of all, Ethereum allows developers to create and implement decentralized applications. Also, any centralized service can be decentralized using the Ethereum platform. The potential of the Ethereum platform for building applications is not limited by anything other than the creativity of the creators.

Decentralized applications have the potential to completely change the relationship between companies and their audiences. Today there are many services that charge commissions for simply providing an escrow service and a platform for users to exchange goods and services. On the other hand, the Ethereum Blockchain can allow customers to trace the origin of the product they are buying, while the implementation of smart contracts can ensure safe and fast trade for both parties without any intermediary.

Blockchain technology itself has the potential to revolutionize web-based services, as well as industries with long-established contractual practices. For example, the insurance industry in the US owns more than $ 7 billion in sloped life insurance money, which can be fairly and transparently redistributed using the Blockchain. Furthermore, with the implementation of smart contracts, customers can simply submit their insurance claim online and receive instant automatic payment, assuming that their claim met all the required criteria.

Essentially, the Ethereum blockchain is capable of bringing its fundamental principles – trust, transparency, security, and efficiency – to any service, business, or industry.

Ethereum can also be used to create Decentralized Autonomous Organizations (“DAO”), which operate completely transparently and independently of any intervention, without a single leader. DAOs are managed by programming code and a collection of smart contracts written on the Blockchain. It has been designed to eliminate the need for one person or group of people to have complete and centralized control of an organization.

DAOs are owned by people who bought tokens. However, the number of tokens purchased does not equal shares and ownership. Instead, tokens are contributions that provide people with the right to vote.

Ethereum Advantages

The Ethereum platform benefits from all the properties of the Blockchain technology with which it works. It is completely immune to any third-party intervention, which means that all decentralized applications and DAOs deployed within the network cannot be controlled by anyone.

Any Blockchain network is formed around a consensus principle, which means that all nodes within the system need to agree on every change that is made within it. This eliminates the chances of fraud, corruption and makes the network tamper-proof.

The entire platform is decentralized, which means there is no single possible point of failure. Therefore, all applications will always be online and will never be turned off. Furthermore, the decentralized nature and cryptographic security make the Ethereum network well protected against potential hacker attacks and fraudulent activities.

Disadvantages of Ethereum

Despite the fact that smart contracts are meant to make the network fail-safe, they can only be as good as the people who write the code for them. There is always room for human error, and any errors in the code can be exploited. If that happens, there is no direct way to stop a hacker attack or exploitation of the said bug. The only possible way to do this would be to reach a consensus and rewrite a code behind it. However, this goes completely against the very essence of the Blockchain, as it is supposed to be an immutable and unalterable ledger.

The DAO, which is the name of a particular DAO launched on April 30, 2016, was attacked and more than 3.6 million Ether tokens were stolen from it. The attacker exploited a “recursive call error” in the code, essentially draining the funds from the DAO into a “child DAO”, which had the same structure as the DAO. Losing a large chunk of DAO funding was not the only consequence of the attack, as it basically undermined user trust throughout the Ethereum network, with the value of Ether falling from more than $ 20 to less than $ 13. .

What Applications were Developed on Ethereum?

Ethereum has the potential to open up the world of decentralized applications even for people without any technical training. If this happens, it can become a revolutionary leap for Blockchain technology that will bring it closer to mass adoption. Currently, the network is easily accessible through its native Mist browser, which provides an easy-to-use interface, as well as a digital wallet for storing and trading Ether. Most importantly, users can write, manage, and implement smart contracts. Alternatively, the Ethereum network can be accessed through a MetaMask extension for Google Chrome and Firefox.

The Ethereum platform has the potential to deeply disrupt hundreds of industries that currently rely on centralized control, such as insurance, finance, real estate, etc. Currently, the platform is being used to create decentralized applications for a wide range of services and industries. Below is a list of some of the most notable.

  1. Gnosis – A decentralized prediction marketplace that allows users to vote on anything from weather to election results.
  2. EtherTweet – This app takes its functionality from Twitter, providing users with a completely uncensored communication platform.
  3. Etheria – It feels and looks a lot like Minecraft, but it exists entirely on the ethereum blockchain.
  4. Weifund – An open platform for crowdfunding campaigns that implements smart contracts.
  5. Uport – Provides users with self-sovereign identification that allows them to collect verifications, login without passwords, digitally sign transactions, and interact with Ethereum applications.
  6. Provenance – The aim of the project is to create an open and accessible information framework so that consumers can make informed decisions about their purchases. This is done by tracing the origins and history of the products.
  7. Augur – An open-source prediction and forecasting marketplace that rewards correct predictions.
  8. Alice – A platform that aims to bring transparency to social funding and charity through Blockchain technology.
  9. Bitnation – The world’s first virtual nation, a Blockchain jurisdiction. It contains many of the same functions as a traditional nation, such as insurance, education, identity cards, diplomacy programs, including those for ambassadors and refugees, and many more.
  10. Ethlance – A freelance platform to exchange work for Ether rather than any other currencies.

A complete list of decentralized applications, which at the time of writing this report contained 867, is available on the website of the State of Dapps.

How to get Ether?

There are two main ways to get Ether: buying it and mining it.

The most common and perhaps the most convenient way to buy Ether is by buying it on exchanges. All you have to do is find an exchange that trades with Ether and operates within your jurisdiction, open an account and use either your bank account, transfer bank, or, in some cases, even your bank card to buy Ether tokens. These will need to be kept in a wallet, which can be provided by the exchange itself, Ethereum’s native Mist browser, or by other specialized services.

Alternatively, you can get Ether through peer-to-peer trading, paying for it with any agreed-upon currency, including Bitcoin and other cryptocurrencies. This can be done both online and in person. Peer-to-peer trading is quite popular with Bitcoin users. However, due to the virtually unlimited supply of Ether tokens and the Ethereum platform not putting complete user anonymity at the forefront of the system, Ether is generally obtained through exchanges.

Another way to get Ether tokens is by mining them. Mining Ethereum uses proof of work, which means that miners bring their computing power to solve a complex mathematical problem in order to “seal” and confirm a block of shares within the network. Miners who successfully complete this task receive a reward for each mined block.

Read more: How to mine Ether?

Where to buy and sell Ether






Backed by trusted investors and used by millions of customers around the world.

Security, Reasonable Fees, Beginner Friendly, Stored Currency is covered by Coinbase insurance.

32 countries served


A fully regulated US license for the exchange of Bitcoin and Ether.

Security and compliance, user-friendly design, great analytics, high liquidity.

42 states in the US, Canada, Hong Kong, Japan, Singapore, South Korea, and the UK.


It offers a wide range of services for the use of Bitcoin, Ether, and other cryptocurrencies; It allows users to easily exchange cryptocurrencies for fiat money and vice versa.

Good reputation, good mobile product, credit card support, suitable for beginners, good exchange rates, supported all over the world.



An exchange system based in the USA and fully compatible with a wide compatibility of digital currencies.

Security and compliance, user-friendly design, support for 190+ cryptocurrencies, great analytics.



A veteran broker platform where Ether and Bitcoin can be purchased with a credit card or cash through MoneyGram and Western Union.

Good reputation, beginner-friendly, great interface, great variety of payment options, fast transaction time.



The largest exchange in euro volume and liquidity and is a partner in the first cryptocurrency bank.

Good reputation, good exchange rates, low transaction fees, minimal deposit fee, great user support, secure.



A Coinbase subsidiary that offers a safe and easy way for traders to buy and sell digital assets online through nine trading pairs.

Security, Reasonable Fees, Beginner Friendly, Nine Trading Pairs.

United States, Europe, United Kingdom, Canada, Australia, and Singapore.


A leading exchange that supports a variety of cryptocurrencies.

Good reputation, beginner-friendly, dozens of cryptocurrencies available for exchange, fast, good prices.



One of the world leaders in cryptocurrency exchange offering a variety of currency pairings and advanced tools and data analysis.

Quick account creation, a wide range of features, high trading volume, easy to use, low trading fees, open API.



One of the first generation exchanges that have built a loyal customer base.

Good reputation, high-level security, low transaction costs, good for large transactions.


Read more: How to buy Ethereum?

Future of Ethereum

Even though Ethereum, like Bitcoin, has been around for several years, it has only just begun to garner the attention of the media and the general public. Many experts agree that it is a disruptive technology that will not only completely change the way the Internet works but will also revolutionize services and industries that have existed for hundreds of years.

Vitalik Buterin, the creator of Ethereum, is being very careful and modest with his predictions. In a recent interview, he stated that he intends to maintain Ethereum as the leading blockchain-related platform, focusing on technical issues and improving security in the near future.

Balaji Srinivasan, CEO of 21. co has recently expressed his firm belief that Ethereum will continue to exist five to ten years from now. Blockchain founder Peter Smith described Ethereum’s infrastructure applications as “fascinating” and mentioned that the platform has a great opportunity to review title insurance, which involves policies related to real estate, as just one example.

Overall, opinions on the future of Ethereum among cryptocurrency experts are generally positive. However, there are many old-school financial experts who, despite the extraordinary success and relative stability of both Bitcoin and Ether, as well as the undeniable importance of the technologies behind the projects, still predict their imminent downfall.

See also:

  1. Ethereum price index
  2. Ethereum price analysis

More Information about Ethereum

Books to Read

  1. Ethereum: Blockchains, Digital Assets, Smart Contracts, Decentralized Autonomous Organizations by Henning Diedrich.
  2. Ethereum and Solidity Introduction: Cryptocurrency Fundamentals and Blockchain Programming for Beginners by Chris Dannen.
  3. Mastering Ethereum: Building Smart Contracts and Dapps by Andreas M. Antonopoulos, Gavin Wood.
  4. Blockchain: Blockchain, Smart Contracts, Investing in Ethereum, FinTech by Jeff Reed.
  5. Investing in Ethereum: The Definitive Guide to Learning and Profiting from Cryptocurrencies from Oscar Flynt.
  6. Ethereum: A look at the world of Ethereum and how to trade and invest this cryptocurrency! by Ben Abner.

People to Follow

  1. Official Twitter of the Ethereum Project.
  2. Vitalik Buterin – Creator of Ethereum.
  3. Lefteris Karapetsas – University of Tokyo graduate, Berlin-based developer.
  4. Alex van de Sande – Designer, developer, member of the Ethereum Foundation.
  5. Gav Would Would – Founder of Parity Technologies.
  6. Martin Koppelmann – Founder of Gnosis.
  7. Fred Ehrsam – Crypto expert, Coinbase co-founder.
  8. Jeff Ehh – Co-founder of Ethereum.
  9. Anthony Diiorio – CEO and founder of Decentral & Jaxx, co-founder of Ethereum.
  10. Ming Chan – Support for the development and research of the Ethereum platform and the open-source base layer.