How does Ethereum work?
Ethereum is a decentralized, open-source blockchain platform that enables developers to build and deploy smart contracts and decentralized applications (DApps). It uses a native cryptocurrency called Ether (ETH) for transactions and rewards participants in its network. Ethereum utilizes a consensus algorithm called Proof of Stake (PoS) and employs a virtual machine known as the Ethereum Virtual Machine (EVM) to execute smart contracts. Transactions and computations on the platform are verified by multiple nodes in the network, ensuring transparency, security, and immutability.
Long answer
Ethereum is a decentralized blockchain platform that was launched in 2015 by Vitalik Buterin. It offers more functionality than traditional cryptocurrencies like Bitcoin. At its core, Ethereum provides developers with the ability to create and deploy smart contracts - self-executing agreements with predefined terms written into code.
In order to understand how Ethereum works, it’s important to grasp some key concepts. Firstly, Ethereum operates on a decentralized network of computers known as nodes. These nodes work together to maintain the blockchain and validate transactions using consensus algorithms.
Ethereum’s consensus algorithm has undergone a transition from Proof of Work (PoW) to Proof of Stake (PoS). PoW involved miners competing to solve complex mathematical puzzles in order to validate transactions and add them to the blockchain. However, PoS eliminates these puzzles and instead requires participants to show ownership of a certain amount of crypto tokens (Ether) and commit them as collateral to validate blocks. This significantly reduces energy consumption while making the system more secure against certain types of attacks.
The heart of Ethereum is its virtual machine known as the EVM. The EVM enables the implementation of smart contracts and serves as an execution environment for these contracts, executing instructions written in different programming languages.
Smart contracts are essentially programs stored on the blockchain that automatically execute specific functions when predetermined conditions or criteria are met. They enable developers to create DApps that can operate autonomously, without the need for intermediaries or centralized control.
To interact with Ethereum, users require Ether (ETH), which is the native cryptocurrency of the platform. ETH can be used to pay for transactions, execute smart contracts, and participate in decentralized applications within the network. Miners or validators are rewarded with newly created ETH when they successfully validate transactions and add blocks to the blockchain.
In conclusion, Ethereum is a decentralized blockchain platform that enables developers to create and deploy smart contracts and decentralized applications. It utilizes a consensus algorithm called Proof of Stake, reducing energy consumption and enhancing security. Transactions on Ethereum are verified by multiple nodes and executed using its virtual machine called the EVM. By fostering innovation through its open-source nature, Ethereum has become a foundational technology in the realm of blockchain-based applications and decentralized finance.