What is Ethereum?
3 min read
Ethereum is a decentralized and open-sourced blockchain network that allows anyone in the world to participate and interact with it. In this guide, you will learn what Ethereum is, how it works, and how to use it. Let's get started!
What is Ethereum?
Ethereum is an open-sourced blockchain network that powers thousands of decentralized software applications and the cryptocurrency Ether (ETH). Ethereum has helped build a digital economy where users can store digital assets, conduct payments, and interact with decentralized applications (dApps). To better understand Ethereum, let's first cover the definition of a blockchain.
What is Blockchain?
Before we dive into Ethereum, let's discuss blockchains as a whole. Blockchains can be thought of as ledgers (a.k.a databases) that are shared across a network of computers that run the same software and are connected to one another. Blockchains are secured by cryptography and other mathematical primitives.
Blockchains create "blocks", which are numbered and contain a batch of transactions that were processed in the same block. Blocks are linked together as each block contains a cryptographic hash of the previous block. These blocks are created by validators who provide a resource (e.g., staked ETH, which we'll cover later in the guide) and collectively come to a consensus on the correctness of blocks to keep Ethereum secure. In return, validators are rewarded cryptocurrency (e.g., ETH) for the blocks they help validate.
Now that you know more about blockchain systems, let's learn what Ethereum can be useful for.
What is Ethereum used for?
A popular feature of Ethereum is wallets. Ethereum wallets allow you to store cryptocurrency, send cryptocurrency and interact with decentralized applications (dApps). Ethereum wallets generally contain more than one account and are secured by a mnemonic seed phrase generated with randomness and cryptographic hash functions. The account tied to your wallet has a public and private key which is used when sending and receiving transactions. To learn more about accounts on Ethereum, check out the Accounts section in our What are Ethereum Transactions? guide.
Another popular feature of Ethereum includes the ability to create and interact with software known as smart contracts. Smart contracts are programs installed and deployed on the blockchain that automate decision-making based on the contract rules. Smart contracts enable a secure method of conducting transactions for users as they are immutable (generally speaking) and rely on the security of Ethereum (i.e., the Proof-of-Stake consensus mechanism). One example of a smart contract is a loan contract, where the lendee borrows funds, and in the case of a default, the collateral is automatically paid to the lender.
To learn more about smart contracts, check out our An overview of how smart contracts work on Ethereum guide. If you are interested in creating a smart contract, look at our How to write an Ethereum smart contract using Solidity guide as well!
Since Ethereum enables users to create and interact with decentralized applications, there are no limitations to the type of software you want to build. The most popular use cases for Ethereum today include:
- Financial services: Decentralized Finance (DeFi) (e.g., payments, trading exchanges, lending protocols, derivatives; check out our What is DeFi? guide to learn more!)
- Collectibles: NFTs (e.g., collectibles such as digital and physical assets)
- Logistics (e.g., supply chain management)
What is Ether (ETH)?
Ether (ETH) is the native cryptocurrency of Ethereum. Ether helps fuel the blockchain by providing it to validators who help create blocks. Ether is also used to pay fees when submitting transactions. Some of the other benefits of Ether include:
- Ownership: Ether has no restrictions as to who can own it. Anyone with a crypto wallet and internet connection can interact with it.
- Decentralized: Ether is not controlled by a single entity but instead decentralized, so any fundamental changes to the cryptocurrency will need to be voted on.
- Secure: Ether is secured by cryptography and the Ethereum blockchain making it difficult to manipulate.
- Flexibility: Ether is denominated with 18 decimal places making it easy to send minimal or exact amounts.
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