What is Ethereum and how does it work?

what is ethereum

Ethereum may just be the most important cryptocurrency protocol in the world, going by “network utility.“ As things stand, ETH is the second largest cryptocurrency in the world by market cap and the OG smart contract platform. In this blog, let’s familiarize ourselves with the decentralized “world computer” and see what all the hype is about.

What is Ethereum?

Vitalik Buterin – a Canadian programmer and co-founder of Bitcoin Magazine – started to explore the true potential of blockchain technology. Around that time, the blockchain was used as a ledger of transactions for the likes of Bitcoin, Litecoin, etc. So, Buterin wondered – what if instead of decentralizing transactions, we decentralize applications instead? That was the root of the idea that gave birth to Ethereum. The Ethereum Foundation published the whitepaper in November 2013

How does Ethereum work?

Smart contracts are the lifeblood of Ethereum. They are responsible for pretty much everything that happens in the network. Smart contracts are automated protocols that digitally verify and enforce a set of rules without a third-party overseer. The term “smart contract” was coined by cryptographer Nick Szabo back in the ’90s in his article “Smart Contracts: Building Blocks for Digital Markets.” 

The core principles behind smart contracts are as follows:

  • All the parties bound in the smart contract can directly interact without going through an intermediary.
  • Every step in a smart contract can only be fulfilled after executing the preceding step. This ensures strict sequential performance.

So, developers code their decentralized applications (dApps) using these smart contracts. The network then rents out computational power (aka “gas”) to execute these contracts. Every time you use an Ethereum contract (let’s say buying an NFT on OpenSea), you are paying gas fees to rent computational power to execute the contracts.

Ethereum vs Ether

The native coin of the Ethereum blockchain is “ETH,” aka ether. So, you interact with the Ethereum ecosystem, and you do that by spending ETH. Think of it like Canada (Ethereum) and CAD (ETH).

What does Ethereum do?

The highly programmable blockchain ensures that Ethereum has an extremely versatile network. Here are just some of the things that you can do:

  • Medium of value exchange: One can easily use the ETH token for transactions. Not only do many freelancers accept it as payment, but you can also use ETH to buy NFTs on various marketplaces.
  • Decentralized applications: With Ethereum, you can launch your own dApps, create your tokens, and build your community.
  • Decentralized finance (DeFi): The most popular form of dApps are DeFi apps. These are incredibly versatile. DeFi apps can be decentralized exchanges (Uniswap), lending protocol (MakerDAO), staking (Lido Finance), etc.
  • NFT: The most well-known use-case of Ethereum are non-fungible tokens (NFTs). Think of all the celebrities who have changed their display pic to a Bored Ape – NFTs have truly become a mainstream phenomenon. As use-cases become more sophisticated, expect NFTs to stay relevant.
  • ENS: You must have seen Twitter profiles with “.ETH” usernames and wondered, “what is .eth”? This is one of the fastest-growing non-fintech applications of Ethereum called ENS or Ethereum Name Service. ENS is basically your name identity on the Ethereum blockchain. 

ETH 2.0 merge date

If you google “Ethereum” right now, you will probably be bombarded by articles and reports on the Merge – and for a good reason. CNBC has called the Merge “one of the most important events in crypto.” 

We have talked about the Merge before, so we won’t get into the details. Long story short, the Merge will transition Ethereum’s mechanism from the wasteful proof-of-work (PoW) to the environmentally cleaner proof-of-stake (PoS). As of writing, the ETH 2.0 merge date has been tentatively tabled for September 15-16th. 

Can ethereum be converted to cash? 

You can easily convert your ETH to cash via the following:

  • Use a crypto exchange that supports your local currency.
  • Use peer-to-peer transactions to interact with people willing to pay you cash for your ETH.


As we transition from web2 to web3, Ethereum may become one of the core protocols behind this change. But, of course, it has some shortcomings – the protocol is too slow, the gas fees are too high, etc. However, the Ethereum community believes rollups and sharding will fix these issues. If you have any more questions, the following FAQ should be helpful.

Ethereum FAQ

What is ETH?

ETH or ether is the native coin of the Ethereum ecosystem. Users pay network gas fees using ETH and also use it as a medium of exchange.

When was Ethereum created?

The Ethereum Foundation published the whitepaper in November 2013. Development began in 2014, and the Ethereum platform went live on 30 July 2015.

Ethereum PoS date?

During Merge, Ethereum will transition from proof-of-work (PoW) to proof-of-stake (PoS). This will likely happen between September 15 and September 16, 2022. If there are any changes, we will update this section accordingly. Recently, Ethereum’s Goerli testnet successfully deployed the Merge on August 11, 2022.

What does Ethereum do?

If you are a user, Ethereum allows you to create and interact with decentralized applications (dApps). DApps could be DeFi apps, NFT marketplaces, etc. If you are a developer, Ethereum allows you to code dApps and deploy them by renting computational power.

How big is the Ethereum blockchain?

As of August 11, 2022, the total size of the Ethereum blockchain is 850.33 GB.