What Is Ethereum And How Does It Work?

What Is Ethereum And How Does It Work?

What Is Ethereum And How Does It Work?

49 What Is Ethereum And How Does It Work_


Ethereum comes only second to Bitcoin in the cryptocurrency world. Making up a substantial portion of the global crypto market, Ethereum is an open-ended decentralised software platform powered by its native crypto token, Ether (ETH). 

With vast applications going past the financial market, Ethereum can leave many puzzled as to what it actually is and how it works. Want to find out more about Ethereum? Read on below to find out!

What Exactly Is Ethereum?

If you don’t already know, Ethereum isn’t actually a cryptocurrency — many may mistake it for being one due to its immense popularity. Ethereum actually refers to the decentralised platform that is running on blockchain technology. This blockchain technology is the core of the Ethereum platform and is the basis of countless cryptocurrencies as well.

What Is Blockchain Technology?

Blockchains are a complex technology, but to put it simply, they are a database of digital ledgers that are distributed across an entire network. However, what makes blockchains such a desirable technology is that these distributed ledgers are able to store all sorts of data and more importantly they are identical.

In fact, this is what is meant by blockchains being decentralised databases. The database isn’t run by a single administrator, but rather by an entire network, making it hard to hack.

What Can Ethereum Do?

By harnessing the capabilities of blockchain technology, Ethereum acts as a medium or network for financial transactions, mainly involving Ether. This is what many know it for. However, Ethereum is one of the largest players in the crypto world due to what it allows users to do with its blockchain technology. The applications of Ethereum go past just simple financial transactions involving cryptocurrencies.

The Difference Between Ethereum And Ether

Ether and Ethereum are often confused with one another, but they are two entirely opposite things. As explained above, Ethereum is a decentralised software platform run on blockchain technology.

Ethereum has a wide range of applications, ranging from moving or storing funds in the form of cryptocurrency, to more complex uses such as running decentralised applications. In fact, it can also be used as a medium for smart contracts, NFTs and DeFi applications.

At the heart of its various applications is Ether (ETH), its native crypto token. Ether is a cryptocurrency, a digital currency holding a market value. This is the resource that the Ethereum network is run on.

In order to facilitate activity across a publicly distributed network such as the running of decentralised applications and smart contracts, there also has to be an exchange of assets, and in this case, the asset used is known as Ether.

Take for example a contract between two negotiating parties. Upon fulfilment of a contract, there will be a transfer of an asset from party to party and in the case of contracts hosted on Ethereum’s blockchain, Ether will be used.

Since it also carries a market value, Ether can also be used in other financial transactions such as purchasing goods and services and be stored as well.

What Is The Difference Between Bitcoin And Ethereum?

Often being compared to Bitcoin, there are many differences between the two. Bitcoin is a digital currency, whereas Ethereum is a network run on blockchain technology.

Whilst they may both operate based on blockchain technology, Bitcoin comes limited in its applications as it is just a digital currency, just like Ether. This means that Bitcoin can only be used for financial transactions. Ethereum, on the other hand, makes use of blockchain technology to allow users to not only execute financial transactions but also run applications and host smart contracts as well.

The Pros Of Ethereum

Large Platform

The Ethereum network is one of the largest blockchain networks to exist in the crypto world. This makes it a reliable option as it has been used for all sorts of operations over the years and is seen as a reliable network.

Wide Range Of Applications

Apart from being a medium for financial transactions utilising cryptocurrencies such as Ether, Ethereum also allows you to make use of the capabilities of blockchain technology to its fullest potential. From complex transactions to hosting third-party applications, the possibilities with Ethereum are near endless.

A Medium For Innovation

With its large community, wide range of applications, and endless possibilities of blockchain technology, Ethereum has become a hub of innovation. Improvements to the Ethereum network and the development of new applications are constantly being undergone by the many talented developers making use of the Ethereum blockchain technology.

Decentralised Platform

Blockchain technology’s greatest advantage as a database technology is its decentralised nature. This means that activity on the Ethereum network is run without third-party interference such as banks, creating a seamless and lightning-fast transfer of data between users.

You must therefore utilize a password manager for this reason. However, even your own safety measures might not be adequate.

The Cons Of Ethereum

Rising Costs

Ethereum is run on a resource known as Ether, which makes the value of Ether very important. Running transactions, hosting third-party applications, and even storing data on the Ethereum network requires users to pay transaction costs using Ether. However, with rising demand comes rising costs of transactions, and using the network can be quite costly.

A Potential For Inflation

Ether, the crypto token that Ethereum is run on, has no cap when it comes to the potential number of coins that can exist at any one time. This means that there is a cause for concern when it comes to the potential inflation of Ethereum in the market.

Steep Learning Curve

Using Ethereum for basic financial transactions such as purchasing goods and services or even just storing Ether on the Ethereum Network. However, there is a steep learning curve when it comes to using it for more complex purposes such as hosting third-party decentralised applications.


With Ethereum having many applications and the future possibilities that blockchain technology holds, investing your time in learning how to make use of Ethereum may benefit you in many ways. Investing your money into Ether, its native crypto token is also a potential investment in the long run due to the rising demand for cryptocurrencies and the various applications of digital currencies.

Read More