How does Ethereum Work

Ethereum is a platform powered by blockchain technology that is known for it’s cryptocurrency called ether, or ETH, or ethereum. In January 2022, Ethereum is second in market value only to Bitcoin in cryptocurrency market.

How does Ethereum work

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The Ethereum blockchain is powered by its cryptocurrency Ether(ETH). With Ethereum, developers can create new types of ETH-based tokens that power dApps(decentralized applications) through the use of smart contracts. Unlike bitcoin which is limited in numbers the amount of Ethereum can be unlimited however there is limit to which ether can be mined each year. The number of Ethereum coins in circulation was more than 119.2 million in Jan 2022.

How does Ethereum Works?

Like other cryptocurrencies Ethereum also uses blockchain technology. Ethereum’s foundational technology is cryptography. In Greek, Cryptography means “secret writing”. The word “crypto” literally means hidden or secret.


The technology of cryptography helps to ensure the security of the transactions and the users, and protects from double spending. Cryptography is mainly used for verification of the transfer of digital assets and tokens.  

Cryptography methods use advanced mathematical codes to store and transmit data values in a secure format that ensures only those for whom the data or transaction is intended can receive, read, and process the data, and ensure the authenticity of the transaction and participant, like a real-world signature.

Ethereum Blockchain

In blockchain technology, chain of blocks are created linked together which is called blockchain network. Every time new ether coin are mined or new transactions occur new block is added in Ethereum’s blockchain network. In blockchain network every block knows each information of every block. With every member of the network having the same knowledge of the blockchain a distributed consensus(an agreement) can be created and maintained about the status of the blockchain.

New blocks are always added in linear and chronological way. A new block is always added in end of the blockchain. After a block has been added to the end of the blockchain, it is extremely difficult to go back and alter the contents of the block because each block contains its own hash. Hash codes are created by a mathematical function that turns digital information into a string of numbers and letters. If that information is edited in any way, then the hash code changes as well.

Ethereum uses blockchain development to replace the storage of consumer data, including financial records, by third-party Internet companies. Today blockchain is mainly used as foundation by every Cryptocurrency.

What is Ether?

Ether is a cryptocurrency a digital currency like bitcoin. Ether or ETH works on Ethereum blockchain or Ethereum network. Today Ether is the world’s second-largest cryptocurrency by market capitalization in January 2022. It is second only to Bitcoin (BTC), according to market value. Ether is basically used for payments. It’s a marketplace of financial services, games and apps that can’t steal your data or censor you.

Every programs and services which are linked with the Ethereum network and Ethereum’s blockchain require computing power which is not free. So Ether is used as a form of payment for users to execute their requested operations on the network.


Ethereum is used to power digital apps that allow users to play games, invest, send money, track an investment portfolio, follow social media and many more.

One can build and run digital, decentralized applications called dapps for business and personal use with Ethereum’s network and blockchain system. The computational resources required to execute these operations are tracked and paid with ether tokens.

Decentralized finance (DeFi)

DeFi is an open and global financial system built on Ethereum network. As you know mainly every finance system are controlled by organization and governments of the respective countries but DeFi’s financial services  is open to it’s users and largely owned and maintained by it’s users. In DeFi, the markets are always open and there are no centralized authorities who can block payments or deny you access to anything and no organization can control over the movement of money or other assets connected with Ethereum network.

While taking control away from third parties, DeFi does not provide anonymity. Your transactions may not have your name, but they are traceable by the entities that have access. These entities might be governments, law enforcement, or other entities that exist to protect people’s financial interests.

With Internet connection from anywhere you can lend, trade, and borrow using Ethereum software that records and verifies financial actions in distributed financial databases. It eliminates the fees that banks and other financial companies charge for using their services. With DeFi you can hold your money on your own wallet.

What is Ethereum smart contract?

In 2013 Ethereum was specially build to create smart contracts. Today Ethereum is most popular platform to use smart contracts. A smart contract is simply a program or service that runs on the Ethereum blockchain or Ethereum network. Without any organizations or entity’s help smart contracts are tools that can automatically execute transactions if only user provides a digital signature proving that they own cryptocurrency.

Smart contracts are type of Ethereum account in which you can have balance and send transactions over the Ethereum network. Smart contracts are not controlled by users instead it is set to deployed to the network and run as programmed. Today Ethereum is the most popular platform to use smart contracts.

How does Ethereum work

How does Ethereum work

How does Ethereum work



Pratham is founder of Infostation experienced in digital marketing and content writing. He wants to motivate his readers to insipre to make change in this world with his words.

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