What is Ethereum

Ethernet is the open-source decentralized blockchain, which enables software developers to develop and deploy smart contracts and decentralized applications (dApps).

It is more than a digital currency, it is a world computer platform executing code on a distributed network of computers (called nodes). It implies that no individual, corporation, or government has ownership over Ethereum it is operated and supported by thousands of stakeholders across the globe.

1. Background and History

Founder: Vitalik Buterin -A Russian-Canadian programmer.

Year of coming up with the idea: 2013 (published the Ethereum white paper).

Launch Year: 2015.

Other Co-founders: Gavin Wood, Joseph Lubin, Charles Hoskinson and so on.

Vitalik got inspired by the idea of Bitcoin, yet he knew that Bitcoin was constrained - it could not do any complex operations (sending and receiving money).

He desired something more powerful a blockchain that could execute programmable contracts to enable developers to create their own decentralized application upon it.

That’s how Ethereum was born.

2. The Ethereum Workflow (Ethereum, step by step).

Ethereum may be regarded as a blockchain plus a virtual computer.

🧱 The Blockchain

Similar to Bitcoin, Ethereum also has a blockchain a publicly accessible registry of all transactions.

Each block contains:

Transactions (who ordained what to whom),

Smart contract operations,

And the ensuing network state changes.

Each node (participant) possesses a complete blockchain.

Etherenet Virtual machine (EVM)

EVM is the brain of Ethereum, which is a decentralized computer and performs the code of smart contracts.

All Ethereum nodes execute this virtual machine, and it is because they all come up with the same solution to any operation, which makes it consistent throughout the entire network.

Smart Contracts

A smart contract means a computer program that is executed automatically and it is stored in the blockchain.

It operates automatically based on coded requirements - without any human intervention.

Example:

Suppose that you lease a virtual house.

A smart contract may be coded in the following manner:

assuming renter pays ETH on the 1 st of each month, unlock the digital key automatically.

No landlord or lawyer is involved, everything is automated and distrustful.

Mechanisms Consensus Mechanism Proof of Stake (PoS).

At first, Ethereum was based on Proof of Work (PoW) (similar to Bitcoin), and the miners had to solve complex mathematical problems.

In 2022 The Merge upgrade replaced Ethereum with Proof of Stake (PoS).

In PoS:

The network is secured by validators (non-miners).

To propose and validate blocks, they put ETH as a collateral.

Unethical action results in the loss of invested ETH and therefore the system remains safe.

Such an upgrade made Ethereum environmentally friendly and more scalable, consuming 99.9 less energy.

3. Ether (ETH) is the Native Cryptocurrency.

The official token of Ethereum is Ether (ETH).

It is used for:

Transaction fees (Gas):

Each transaction over Ethereum is a small fee, known as gas, which is paid in ETH.

(Example: deploying a contract, transfer of tokens, minting NFTs, etc.)

Staking:

You may stake ETH and become a validator and get rewards.

Value transfer:

ETH is applied in the same manner as to send value around the world, peer

-to-peer.

4. What Can Be Built on Ethereum?

Ethereum is programmable, and it is capable of thousands of different decentralized applications (dApps).

The following are some of the key categories:

💵 DeFi (Decentralized Finance

Applications that allow people to borrow, lend, trade and make money without financial institutions.

Examples:

Uniswap (decentralized exchange)

Aave (lending and borrowing)

MakerDAO (stablecoin DAI)

NFTs (Non-Fungible Tokens)

Rare digital assets such as art, collectibles, and in-game items are stored on the blockchain.

Examples:

OpenSea

Rarible

NBA Top Shot

DAOs (Decentralized Autonomous Organizations)

Companies are managed by smart algorithms rather than managers or boards.

All the members can cast their votes on decisions by the use of tokens.

Examples: Argon, The DAO, MakerDAO governance.

🎮 Gaming & Metaverse

Ethereum-based blockchain games and virtual worlds.

Decentraland, Axie Infinity, Sandbox.

Stablecoins

Cryptocurrencies tied to real-life currencies such as the US Dollar, based on Ethereum.

USDT (Tether), USDC, DAI.

5. Ethereum 2.0 (The Merge and Beyond)

Ethereum 2.0 is a series of upgrades designed to make the network faster, more efficient, and cheaper.

Key Upgrades:

The Merge (2022):

Switched from Proof of Work → Proof of Stake.

Sharding (upcoming):

The blockchain will be split into smaller pieces (shards) to handle more transactions at once.

Layer 2 Solutions:

Networks like Arbitrum, Optimism, and Polygon help scale Ethereum by processing transactions off-chain and settling them on Ethereum later.

6. Advantages of Ethereum

✅ Decentralized: No central authority.

✅ Programmable: You can build anything — from finance apps to games.

✅ Secure: Protected by cryptography and thousands of nodes.

✅ Transparent: All code and transactions are public.

✅ Interoperable: Works with other blockchains and tokens.

7. Disadvantages of Ethereum

❌ High gas fees: When the network is busy, fees rise sharply.

❌ Scalability: Still limited (until full sharding is implemented).

❌ Complexity: Smart contracts can have bugs, which can be exploited.

❌ Energy consumption (before Merge): Used to be high, now improved.

8. Real-World Impact

Ethereum is changing how people think about the internet.

It’s leading the shift from Web2 (centralized apps) to Web3 (decentralized apps) — where users have control over their data, identity, and assets.

Some real-world uses:

Cross-border payments without banks.

Transparent charity donations.

Digital art ownership (NFTs).

Decentralized crowdfunding.

9. Ethereum vs Bitcoin (Quick Comparison)

Feature Bitcoin Ethereum

Purpose Digital money Decentralized application platform

Launch Year 2009 2015

Founder Satoshi Nakamoto Vitalik Buterin

Consensus Proof of Work Proof of Stake

Native Token BTC ETH

Smart Contracts ❌ No ✅ Yes

Main Focus Store of value Programmable blockchain

Supply Limited (21 million BTC) Unlimited (but deflationary now)

10. The Future of Ethereum

Ethereum aims to become the foundation for Web3 — a decentralized version of the internet where users own their data and identity.

Future goals:

Fully scalable network with sharding and roll ups

Cheaper transactions

More eco-friendly and accessible staking

Integration with AI, IoT, and real-world data (through oracles)