Ethereum Blockchain: What is it and How Does It Work?

Posted 2023-11-24 07:31:25

Isn't it a more digitalized world where the currency has also become digital? Ethereum is a type of cryptocurrency or a digital currency exclusively available online. It is amongst the most widely used cryptocurrencies and ranks second after Bitcoin, in terms of size (as of April 2022).

Cryptocurrency has sparked a lot of controversies, with some hailing it as the world's next payment system and others seeing it as nothing more than a market bubble. Here in the blog is a brief synopsis of What Ethereum is and how does it operate?

Brief History of Ethereum

Vitalik Buterin developed Ethereum in 2013 to solve the constraints of Bitcoin by providing smart contracts, which enabled the development of decentralised applications (DApps). Ethereum 1.0 was founded as a community-driven network and was funded through a token presale. The Ethereum Foundation was established in Switzerland to ensure the development of the network; however, Buterin later transformed the foundation into a nonprofit, which caused some co-founders to leave.

In 2016, developers formed the Decentralized Autonomous Organization (DAO). It is a democratic body that decides on network proposals using a majority vote supported by smart contracts. However, an unknown hacker used a security flaw to steal $40 million from The DAO, which prompted Ethereum to “hard fork” and adopt a new protocol. It performed a significant software upgrade. (the original network still survives as Ethereum Classic).

Ethereum definition

Ethereum is a decentralized, open-source, blockchain-based platform that enables the creation of smart contracts and decentralized applications (DApps). It has its own cryptocurrency, Ether (ETH) which is used for transactions and computational services on the network. Ethereum was founded in 2014 by Vitalik Buterin and has grown to be one of the world's largest and most widely used blockchain networks.

How does Ethereum work?

Ethereum operates with a copy of the Ethereum blockchain stored on each computer in a decentralized network. Building and deploying decentralized apps, or DApps, on the Ethereum blockchain is possible. These DApps are powered by smart contracts, which are self-executing contracts between a buyer and a seller that are directly encoded lines of code.

The platform accepts payment for the execution of these smart contracts and transaction fees using its own money, Ethereum. When a DApp or smart contract is executed, it requires computation power from the Ethereum network. This computation power is provided by the nodes in the network, which are incentivized by being paid in ETH.

Ethereum also enables the creation and deployment of decentralized autonomous organizations (DAO). It is an organization that runs through rules encoded as computer programs on a blockchain network.