In the world of cryptocurrency, there are a lot of coins and Ethereum is one of them. Founded by Vitalik Buterin and Gavin Wood in 2015, Ethereum (ETH) is the second most popular cryptocurrency after Bitcoin and the number one altcoin in the blockchain space. But what is Ethereum? How do Ethereum works?
What is Ethereum?
Ethereum is “a global, decentralized platform for money and new kinds of applications,” with thousands of games and financial apps running on top of the Ethereum blockchain. It is intended to be much more than just a medium of exchange or a store of value. Ethereum is a decentralized computing network built on blockchain technology.
What is a Blockchain?
Blockchain is a shared, immutable ledger that facilitates the process of recording transactions and tracking assets in a business network. An asset can be tangible (a house, car, cash, land) or intangible (intellectual property, patents, copyrights, branding). Virtually anything of value can be tracked and traded on a blockchain network, reducing risk and cutting costs for all involved.
Having understood what Ethereum is and what a Blockchain is how then does Ethereum work?
How does Ethereum work?
Ethereum relies on node operators to process transactions on the Ethereum network. “These operators collect a fee for running the hardware and software necessary to facilitate these transactions.” The fees are called gas fees because they keep the network running. And they’re paid in ether (ETH)
What are gas fees?
A gas fee is a blockchain transaction fee, paid to network validators for their services to the blockchain. Without the fees, there would be no incentive for anyone to stake their ETH and help secure the network.
Back to how Ethereum actually works, Similar to Bitcoin, Ethereum uses it to power peer-to-peer transactions and track who owns the ether cryptocurrency. Additionally, developers can create and run dApps on the network.
The dApps connect to the Ethereum blockchain with “smart contracts,” which are more like computer programs than contracts in the traditional sense of the word.
“Smart contracts are small programs stored on the Ethereum blockchain that can self-execute when certain conditions are met,” says Robert Farrington, founder of The College Investor. ” dapp could be better seen as the front-end of the program, and the smart contract is the backend of the program.”
Also, dApps rely on the decentralized and open-source Ethereum network and can’t be controlled by a single entity. In fact, once a dApp is added to the Ethereum platform, it can’t be taken down — even if the original creator wants to remove it or disbands it entirely.
The decentralized system can lead to more anonymity for users, who may be able to pseudonymously use dApps. And it can also result in less control and censorship from third parties, including corporations and governments.
With everything being said Ethereum uses blockchain technology to create a decentralized platform, it works with node operators. It also uses peer-to-peer transactions.