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what is Ethereum Blockchain

What is Ethereum? Everything you need to know about the second largest blockchain network RIGHT NOW

If you come from a not-so-technically-sound background and still want to know about this ‘next-big-thing’, then this guide is for you. Not assuming that you are having a basic knowledge of blockchain and cryptocurrency, this guide will discuss Ethereum, the second most popular cryptocurrency in the market. Check out our detailed beginner’s guide on Blockchain and Cryptocurrency. These guides are detailed enough to brief you through of what you are going to get into.

As part of this guide, you will be learning the following:

  1. What is Ethereum?

  2. How does it work?

  3. Ethereum vs Bitcoin

  4. Ethereum vs Ethereum Classic

  5. What can Ethereum be used for?

  6. Pros & Cons of Ethereum Blockchain

  7. Final thoughts on Ethereum

That being said, let’s dive in.

What is Ethereum?

Ethereum is an open source blockchain platform which can be used by anyone to build decentralized applications. Ethereum is second largest cryptocurrency is all terms of numbers, be it market cap, the price of each token or volume. Since its inception, it has got a lot of attention from potential investors and cryptocurrency enthusiasts.

If you’ve heard of Ethereum, you surely would know Bitcoin. If not, here’s our detailed guide on Bitcoin to help you have a good head start.

In 2013, the Vitalik Buterin, the inventor of Ethereum, proposed a system that is capable of processing more complex computation and that too at a larger scale. The platform runs on blockchain technology and houses decentralized applications. One of the most important applications of the platform is its cryptocurrency token, Ether(ETH). At the time of writing, Ether is priced at $493.91.

Ethereum is a Blockchain based platform that houses decentralized applications. Unlike Bitcoin, Ethereum allows you to create their own decentralized operations/applications including but not limited to your own cryptocurrency. At the heart of Ethereum, lies the Ethereum Virtual Machine, which is capable of executing complex computations algorithmically.

You can create decentralized applications using existing languages like JavaScript and Python. Furthermore, just like any blockchain network Ethereum has P2P network protocol. The nodes of the blockchain are updated systematically on the whole network. Every node of the network runs & processes the same set of instructions which is why the platform is also otherwise known as “world computer”

All the nodes run EVM to maintain consensus across the network which in a way justifies the whole concept of decentralization & blockchain. Additionally, the decentralized consensus ensures that the platform has zero downtime, is error-free, the data on the blockchain is available to all & is unchangeable by anyone at any cost.

Furthermore, the blockchain platform is powerful enough to support creating almost any decentralized application. At the same time, it is powerless without the developers. The platform is as powerful as the developers on board. All in all, Ethereum is a platform that supports application that automates direct interaction between peers.

Unlike Bitcoin, which only does the job of exchanging monetary values between peers without any middlemen, Ethereum’s impact is much broader and far-reaching. Apart from financial exchanges, Ethereum supports any application that requires trust, security, and permanence.

How does Ethereum work?

Technology-wise, Bitcoin and Ethereum are one and the same. At the core, it’s the blockchain technology that runs through their veins. However, Ethereum is a better version of Bitcoin. It’s everything that Bitcoin couldn’t do.

Ethereum has two types of accounts, Externally Owned Accounts (EOA) and Contract Accounts. EOAs are controlled and managed by private keys i.e. your account which you’ll use to store the ether. Contracts, on the other hand, are programmatically crafted account that has one job of doing certain operations on EOAs. Only way EOAs can control the contracts is by triggering the contract.

To be precise, contracts are predefined functions that check certain factors depending on which the account balances would be controlled and managed. Whenever an exchange has happened, the contracts are triggered. These contracts cannot do anything on their own, it works only when there is a trigger from either of the two EOA. Only if the two node’s consensus is met, happens the exchange or transaction between the two peers.

Just like Bitcoin, you need to pay a small amount of fee to use the network. The fee you’d pay is way lesser than what you’ve been paying so far. As far as transferring funds is concerned, fees and time taken to send funds in cryptocurrency are several times less than the traditional banking system. This fee ensures that there is no malicious attack like DDoS and/or infinite loop. This fee is paid as Ether, the native value token of Ethereum, just like fees for USD transactions are paid in USD.

Just like any other blockchain based cryptocurrency, even Ethereum has the concept of ‘miners’. Miners are the nodes of the network that is responsible for receiving, propagating, verifying and executing transactions. These transactions form blocks which miners run through EVM on their computers to verify those transactions algorithmically.

Next, they add those processed blocks to the public ledger or in other words, the blockchain. Miners receive a monetary reward in form of Ether for putting time and money in helping the network perform what its meant to perform.

Unlike Bitcoin, Ethereum doesn’t use an outdated SHA256 algorithm to solve the complex mathematical problems. Instead, it uses something called ‘proof of work’ which work in a similar fashion as SHA256 but it’s much better in terms of efficiency and throughput.

Ethereum has not only made software more efficient, it has made of efficient and much cheaper hardware to let miners do a better job at higher profit margins. ASIC’s, in case of Bitcoin, are more inclined towards centralization as they super-expensive, very high power consuming and hard to maintain. On the other hand, Ethereum uses memory-hard computational problems. Ethereum brought down the mining process from ASIC’s to general computers, which anyone can afford and have a thicker profit margin. The ‘Proof of Work’ ensures that the platform is ASIC’s resistant and decentralized at greater degrees.

Though Ethereum is better than Bitcoin in every sense, how does it ranks second and not first? Let’s find out

Ethereum vs Bitcoin

If Bitcoin is digital gold, Ethereum is digital silver. The two blockchain platforms have a never-ending rivalry which makes the users sit on the benefit side. With Bitcoin as a base of comparison, all cryptocurrency go through the understand test by the users. Those who have understood Bitcoin, understanding any other cryptocurrency is a piece of cake.

Bitcoin came into existence in 2009 and Ethereum came out to the public in 2015. Bitcoin was made public with one goal “to create decentralized’’ universal currency. A payment system that doesn’t need any middlemen to take days of time and a huge chunk of money as fees to perform much better than the traditional financial system.

Like Bitcoin, Ethereum is also a distributed public blockchain network that not only supports cryptocurrency but also almost any decentralized application that needs security, privacy, and permanence.

Bitcoin tracks the ownership to carry out the fund transfer mechanism and this makes Bitcoin one of the most preferred peer to peer electronic cash system across the globe. On the other hand, Ethereum chose to run the programming code on every node that participates and contributes to the network. Furthermore, both Bitcoin and Ethereum are completely decentralized as they do not have any central authority governing the functioning of the system. It is the miners who rule the whole ecosystem and are the most powerful elements of the system.

Bitcoin is first and foremost a currency; this is one particular application of a blockchain. However, it is far from the only application. To take a past example of a similar situation, e-mail is one particular use of the internet, and for sure helped popularise it, but there are many others.” Dr. Gavin Wood, Ethereum Co-Founder

Ethereum vs Ethereum Classic

On June 17th, 2016, the DAO was exploited and one-third ($50 million worth Ether) of the DAO funds were compromised in this. This was not taken lightly by a group of Ethereum members. Sure Ethereum is powerful enough to contain any attack, it was the loophole in DAO that caused this attack. The stolen amount from the DAO attack was stored in a chile DAO and the smart contract governing this stated that the funds would not be accessible for 28 days.

The attack led creating a hard fork(new blockchain built on the old one with a new set of rules) and splitting the parent into two separate chains: The new chain was named Ethereum (ETH) and the older one named Ethereum Classic (ETC).

Note: Whatever was shown in this post was about Ethereum and not Ethereum classic.

Where can Ethereum be used?

Ethereum is much bigger than just a platform with a second largest cryptocurrency. Ethereum serves as a platform that houses decentralized applications aka DApps that run on blockchain and can do wonders as much as the cryptocurrency has done. One of the most famous Dapps that Ethereum has is the in-house token, Ether.

Ethereum is powerful enough to decentralize any centralized system, it is dependant on developers who are building the application. Aforementioned, Dapps can be anything not restricted to the banking system, voting systems, & regulators.

Ethereum can also be used to build a Decentralized Autonomous Organizations (DAOs) which do not have a single leader/owner. Just like ethereum doesn’t have a single leader/owner, the platform is capable of creating organizations like itself. DAO is run by programming code based on smart contracts written on Ethereum blockchain. Furthermore, the Ethereum blockchain is designed to eliminate the need to have centralized systems. The system is powerful enough to replace the existing system’s rules and structure of those existing organizations.

A DAO is owned by everyone who owns a token of that DAO. Furthermore, the token that the users own makes them gives them the voting right and a responsible contributor.

A DAO consists of one or more contracts and could be funded by a group of like-minded individuals. A DAO operates completely transparently and completely independently of any human intervention, including its original creators. A DAO will stay on the network as long as it covers its survival costs and provide a useful service to its customer base” Says Stephen Tual, Founder, former CCO Ethereum.

Pros & Cons of Ethereum decentralized platform

Sure, Ethereum is an altcoin wrt Bitcoin there are some outstanding benefits. Let’s have a look at it.


Immutability: No third party cannot make any changes to the data stored on the blockchain, not even the founders.

No Adulteration & tampering: Apps that are built on this platform run on principles of consensus and hence there is zero chance of censorship.

Highly secured: The best part of the decentralized architecture is that it doesn’t have a single point of failure and is backed by highly secured cryptography.

Zero downtime: Again, decentralized architectures comes to the rescue. Apps on this decentralized platform never go down due to server crashes. Since the whole network is a distributed across the globe, there’s no chance that any of the application will experience downtime.


Sure, the decentralized Ethereum has a lot of significant benefits that would make using the internet more fruitful. However, the whole system runs on smart contracts which are as efficient as the developer who has written it. So, in a way, the developer’s creativity is the only limitation that the smart contracts are subjected to. Code bugs may result in unintentional consequences and that would be irreversible action.

Furthermore, there is no mechanism to keep this mishap in check. In case of the smart contract is exploited it may need to be rewritten. So in case you are planning to get into this space make sure you hire a reliable developer.

Final thoughts on Ethereum Blockchain

While there are a lot of talks going on about Ethereum being a reliable cryptocurrency to use and invest in. But the platform founders are inclined in building a tangible future for both the users and the platform itself.

“Blockchain solves the problem of manipulation. When I speak about it in the West, people say they trust Google, Facebook, or their banks. But the rest of the world doesn’t trust organizations and corporations that much — I mean Africa, India, Eastern Europe, or Russia. It’s not about the places where people are really rich. Blockchain’s opportunities are the highest in the countries that haven’t reached that level yet.” Vitalik Buterin, Ethereum Founder

The platform is not aiming to just grow the cryptocurrency to greater heights but the whole platform altogether. Ethereum, as a blockchain network get the same number of ideological contributors as Bitcoin or any other cryptocurrency does. But the traction that Ethereum Dapps gets is little more futuristic and innovative.

This is just the beginning and Ethereum has a lot to come up with and make a lot of important changes.

Over to you. What do you think of Ethereum as a blockchain platform and Ether as cryptocurrency? Have you used any of the Ethereum application? Let us know in the comment section below.

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