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Ethereum is the world’s second-largest cryptocurrency after Bitcoin. However, unlike Bitcoin, Ethereum exists to be more than just a store of value or medium of exchange. Ethereum is a decentralised computing platform built on its own blockchain. Read on to find out more about Ethereum and how it works.

What is Ethereum? 

Ethereum allows the execution of decentralised smart contracts and also works as a platform for numerous other cryptocurrencies. Ethereum was founded by eight co-founders, with perhaps Vitalik Buterin being the best known of the bunch. Its own reported goal is to become a global network for decentralised applications which allows people from all corners of the planet to run fraud-resistant software.

What is blockchain technology?

A blockchain is essentially a public ledger that duplicates and distributes information across multiple computers or nodes. It creates new blocks when the previous one is verified. These nodes work together and use each other to ensure that whatever is running on the blockchain is doing so correctly, rather than having one main entity to refer back to. 

How is Ethereum Different From Bitcoin? 

In several ways, ETH and BTC are similar: they are digital currencies that are exchanged on internet markets and held in different forms of cryptocurrency wallets. Both of these tokens are autonomous, which means they aren’t distributed or supervised by a central bank or other governing body. 

Both make use of blockchain, a modern, digital distributed ledger system. However, there are a number of key differences between the two most common cryptocurrencies: The Ethereum network’s transactions may include executable code, while the data attached to Bitcoin network transactions is mostly only used for note keeping.  Other variations between ETH and BTC include block time (an ether transaction is validated in seconds, while a Bitcoin transaction takes minutes) and the algorithms used (Ethereum uses ethash while Bitcoin uses SHA-256). 

In terms of their general goals, the Bitcoin and Ethereum networks are distinct. While bitcoin was developed as a substitute for national currencies and hence aspires to be a medium of exchange and a store of value, Ethereum was designed as a forum for irreversible, programmatic contracts and applications using its own currency.

How Does Ethereum Work?

Decentralised applications (Dapps) are able to run on the Ethereum network with smart contracts. Smart contracts are created just like any contract by having very detailed instructions for how the Dapp is supposed to work. They have conditions and rules that are automatically enforced via code. A smart contract is different from a conventional contract because it is intended to run on its own instead of having a third party to verify it is running correctly. These contracts are written in the Ethereum programming language called solidity.

Once a developer has created the smart contract for the Dapp, they can then put it on the Ethereum network where it is distributed throughout the nodes. These nodes then use proof-of-work or proof-of-stake to verify the transactions and ensure the contract is following the rules. 

Some examples of the Dapps currently running on the Ethereum network:

Arts and Collectibles

Rarible: an online platform to buy and sell physical and digital artwork or NFTs


Decentraland: a virtual world you can explore and can hold online events. Connect with your peers and collect and trade land.

Decentralised Finance (DeFi)

Uniswap: Easily exchange tokens or provide tokens for interest.

Decentralised Technology

Brave Browser: Earn tokens for browsing and supporting creators with earned tokens.

In order for the Dapp to run on the Ethereum network, there must be gas or fuel to pay for the nodes – this gas is paid with their native token, Ether.  

What is Ether?

Ether token, also known as ETH is the digital currency that nodes on the Ethereum network accept in order to continue running the software on their computer. To incentivize nodes to run the software, they get paid in this digital money called Ether token. It also incentives developers who are creating the Dapps to make them as efficient and simple as possible. ETH is the second-largest cryptocurrency behind Bitcoin, by market cap.

What’s Next for Ethereum?

Unlike Bitcoin, Ethereum has a team of skilled developers who are working behind the technology to constantly make it run more efficiently. With more Dapps on the network, more upgrades need to be made for it to handle the capacity. Ethereum 2.0 was brought to life in December 2020 and will begin its phases to solve some ongoing problems, and set the network up for the future. Some problems it will solve are: 

  1. Scalability: Ethereum will introduce shard chains to spread the network’s load across 64 new chains. This makes it easier to run a node while keeping the hardware requirements low
  2. Security: Moving to the new sharding system and using proof-of-stake will require new security measures to avoid coordinated attacks. Ethereum 2.0 will solve this.
  3. Sustainability: A noted problem by many is how much electricity proof-of-work uses to verify the transactions. Ethereum 2.0 will transfer the system to use proof-of-stake which will significantly reduce energy consumption.

Written by Ted

Written by Ted


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