What is Ethereum, and how does it work?

What is Ethereum?

Ethereum is a decentralized, open-source blockchain platform that is powered by the Ether token (ETH), the world’s second-largest cryptocurrency by market capitalization as of 2023. It enables transactions, staking, the storing of nonfungible tokens (NFTs), cryptocurrency trading, games, and so much more.

It was proposed by programmer Vitalik Buterin in late 2013 with a vision to create a more versatile blockchain platform where developers can build decentralized applications (dApps) and smart contracts. Buterin intended Ethereum to unify all blockchain platforms like Bitcoin — making them interoperable — by blending the way dApps run and interact.

Together with co-founders Gavin Wood, Jeffrey Wilcke, Charles Hoskinson, Mihai Alisie, Anthony Di Iorio, and Amir Chetrit, Buterin funded the project through a token presale to raise $18,439,086 in Ether.

In the summer of 2014, the Ethereum Foundation was established by the network’s co-founders. The non-profit organization was created to maintain and develop the network, as well as manage the organization’s treasury.

In July 2015, Ethereum's genesis block was mined, marking its official launch. The platform has since gone through several upgrades and developments.

How does Ethereum work?

At its core, Ethereum operates on a blockchain, which is a distributed ledger that records transactions across a network of computers. What makes Ethereum unique is its ability to execute smart contracts autonomously.

Smart contracts are self-executing agreements with predefined rules, eliminating the need for intermediaries.

The network also serves as a foundation for various decentralized applications. These dApps can be anything from decentralized finance (DeFi) platforms, where you can lend, borrow, and trade assets, to decentralized games, identity verification systems, and more. Ethereum empowers developers to create solutions that are transparent and resistant to censorship.

What is the Ethereum proof of work (PoW)?

Ethereum initially used a proof of work (PoW) consensus mechanism, similar to Bitcoin. PoW relies on miners solving complex mathematical puzzles to validate transactions and secure the network. However, this method consumes a lot of energy.

What is Ethereum 2.0?

The platform transitioned to Ethereum 2.0 to address scalability and energy efficiency concerns. This upgrade replaces PoW with a proof of stake (PoS) consensus mechanism, where users can stake Ether to become network validators. These staking participants have the ability to create new blocks based on the amount of cryptocurrency they hold and are willing to “stake” as collateral. This change aims to make Ethereum faster and more sustainable.

Ethereum developers executed what they dub “The Merge” on September 15, 2022, completing Ethereum’s transition to PoS consensus.

According to Ethereum’s roadmap, the Merge was the joining of the network’s mainnet with its PoS consensus layer called the Beacon Chain.

Before the Merge, the network’s chains were referred to as “Eth1” and “Eth 2.” After the upgrade, the terms have been deprecated as there is no longer a need to distinguish between two Ethereum networks.

However, this upgrade wasn’t the end of the journey for Ethereum. According to the network’s roadmap, the team’s further developments include addressing high transaction fees, providing extra security, and introducing better user experience, among other future-proofing activities.

How to buy Ether (ETH)?

If you're interested in getting some Ether (ETH) to explore the Ethereum ecosystem, you can purchase it on various cryptocurrency exchanges.

Start by creating an account on a reputable exchange, complete the required identity verification, and fund your account using fiat currency or other cryptocurrencies. Once your account is funded, you can place an order to buy Ether, and it will be stored in your wallet.