Cryptopedia, Ethereum 101

What Is Ethereum?; A Guide for Beginners

Ethereum is a decentralized system. It means that it doesn’t control by any government, institution or even a single entity.

Written by Wallebi Author · 4 min read >
What is Ethereum

In order to understand it easier first we start with the definition of centralized systems and its disadvantages. When we talk about centralized system, it means that there is single entity who controls it. The problem for such those systems is that there is a single point of failure for that system. As a result, it’s vulnerable to hackers attacks or even power outstage. The personal information of the users on a centralized network can be easily stolen by the company itself or even the hackers outside. In this post we are going to explain what is Ethereum; a guide for beginners. We are going to have a comparison between two cryptocurrency called Ethereum and Bitcoin and other information related to Ethereum.


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What is Ethereum?

Ethereum is a decentralized system. It means that it doesn’t control by any government, institution or even a single entity. In fact, most of the online businesses and services are centralized and rely on a single entity or a centralized system of governance. It’s been a long time that the centralized systems are working. In fact, those systems are necessary, especially when the parties don’t trust each other.

On the other hand, Ethereum is decentralized and even fully autonomous. It runs from thousands of volunteers’ computers around the world. As a result, it doesn’t have any single point of failure. In addition, all the personal and sensitive information remain on the users’ computer, which make it a safe network to use for content, videos, apps, etc.


Ethereum; A Guide for Beginners; Who Are Nodes?

The Ethereum ecosystem supports by a global system called “nodes”. In fact, nodes are volunteers who download the entire Ethereum blockchain to their system (computer) and fully apply all the consensus rules. They keep the network honest and receive rewards in return.


What is Smart contract?

All the consensus rules along with other aspects of the network dictated by “smart contracts”.  In fact, smart contracts designed in a way to automatically execute transactions and any other action on the network. So, you do not need to trust the party who you are willing to perform transaction with. In fact, the all rules, which need to fulfill by parties pre-programmed to the smart contracts. Once the terms completed, then the transaction will perform on the network.

Many experts believe that smart contracts are the future of any other agreement between humans. It will easily replace the traditional contracts, reduce transaction costs which related with the contract. In addition, it will build trust between two parties involved in the contract.


Who is the creator of Ethereum?

It was in 2013, that Vitalik Buterin published the Ethereum whitepaper. At first, he sent the first version of the whitepaper to his close friends. Finally, around 30 people received the whitepaper and discussed it with Vitalik. Although those people pointed out some critical mistakes, it never happened.

Finally, the project announced publicly on January 2014. The team behind the project consist of Anthony Di Iorio, Mihai Alisie, Joe Lobin, Charles Haskinson and Gavin Wood. After a while, the team decided to have a crowdsale of Ether. Ether is the native token of the Ethereum network.


Is Ethereum a cryptocurrency?

In fact, Ethereum is a software platform. It acts as both a decentralized Internet and app store. In order to run the applications, it requires to pay costs. The cost could be pay by its native currency called “Ether”.

Generally, Ether is a digital bearer asset. Ether plays two roles. First, it can consider as a cryptocurrency. Second it uses as fuel for the transactions which perform on the Ethereum network. It means, whenever a user wants to make any changes in one of the apps or run a smart contract, they need to pay a transaction fee. This fee called ”fuel” and users can pay by Ether.

The mount of the ‘fuel’ or ‘gas’ will calculate automatically based on how much processing power the transaction requires.


Ethereum; A Guide for Beginners; Is Ethereum same as Bitcoin?

In fact, the Ethereum took the technology behind the Bitcoin and developed its capabilities. They may be similar in some aspects, but they are totally different projects with completely different goals. In fact, Ethereum is a multipurpose platform compare to Bitcoin.

Here are the major differences between Bitcoin and Ethereum. Bitcoin total hard cap is limited to 21 million, but the Ether supply doesn’t have any limitation. Furthermore, it takes around 10 minutes for a Bitcoin transaction to get confirmation, while it takes only 12 seconds for Ether.

Another major difference is that Bitcoin mining requires specific hardware and is very power consuming. On the other hand, Ethereum works based on proof-of-work algorithm, which use less power and individuals can easily mine it.


Ethereum; A Guide for Beginners; How does Ethereum work?

Generally, we can describe the Ethereum blockchain as transaction-based machine. Every state of Ethereum includes millions of transactions. The transactions grouped in some form called ‘block’. Every block is connected with its next and previous block. Whenever, a transaction wants to add to the blockchain it requires confirmation. This confirmation process called mining.

Mining refers to the process when the group of nodes contributes to the process by sharing their computational power. In fact, they complete a ‘proof of work’ challenge. The more power a node shares on the network, the faster it solves the challenge. As a result, they get reward of the mining.

Once a miner proves a block and add it to the blockchain, new Ether tokens will generate. The generated token will pay to the miner as reward. As a result, the miners are the backbone of the Ethereum network, because not only they validate the transactions but also they create new tokens.


Ethereum; A Guide for Beginners; What can I use Ethereum for?

Ethereum allows developers to easily build and establish decentralized applications. In addition, any other centralized services can switch to Ethereum platform and create decentralized apps.

In fact, Ethereum’s blockchain allows the customers to trace the origins of product they are buying. Additionally, smart contracts help to implement a safe and quick trading for the both parties involved.

Ethereum blockchain brings the transparency, trust, efficiency and security all together. Any service or business can benefit this feature of Ethereum’s blockchain.

Furthermore, Ethereum uses in order to create Decentralized Autonomous Organizations (DAO). DAOs run by a programming code and a collection of smart contracts. They provide transparency and also work independently from any entity or a single leader.

By using Ethereum network there is no need for a person or group of people in order to control the organization. In fact, DAOs owned by people, who purchased tokens. These tokens provide the people the voting right.



Advantages and disadvantages of Ethereum


Etheruem platform runs on blockchain. It means that it benefits from all the features that blockchain technology has. The platform is immune to any third party involvement. All the DAOs and decentralized apps on the Ethereum network don’t control by any entity or authority.

If any changes require in the network, all the nodes need to agree. This feature, eliminates any possibility of corruption or fraud.

As we mentioned previously, the Ethereum platform is decentralized. As a result, there is no single point of failure. So, the network never switches off and apps always keep working. In addition, the cryptographic security and decentralized nature make the network immune against hacking attacks and fraudulent activities.



Although the smart contracts make the network in a way to be fault-proof, they can only perform well if they coded correctly. If any mistake occurs in coding, it will result to a bigger problem. In such those situations there is no chance to stop a hacker attack or any other problem. In order to fix the problem, it requires to return to the codes and do correction. But, as we know, it’s against the nature of the blockchain. Because, blockchain doesn’t allow to make any changes.

Written by Wallebi Author
Author and analyst in the field of cryptocurrency Profile

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