All about Ethereum Blockchain

All about Ethereum Blockchain

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Updated on Mar 28, 2024 12:08 IST

Have you ever wondered about Ethereum's role in the blockchain ecosystem? Ethereum is a decentralized platform that enables the creation and execution of smart contracts and decentralized applications (DApps) without downtime, fraud, control, or interference from a third party. Let us understand more!

Ethereum is always considered an initiation to the Web 3.0 world. Unlike Bitcoin, Ethereum has numerous use cases and projects going on. It gave the world a new perspective to see blockchain as a potential application technology than just a cryptocurrency. This paradigm shift in the utilization of blockchain opened multiple gates for inventors and developers worldwide. It was founded by Vitalik Buterin & Gavin Wood in 2015. Ethereum is deemed the world’s second most popular cryptocurrency of all time, Bitcoin being the first. But unlike Bitcoin, Ethereum is much more than a digital currency. It is a blockchain-based platform that allows the developer community to create and deploy decentralized applications.

With the help of this blog, we will be delivering a thorough understanding of Ethereum, its applications, its functioning, and its vision.

Table of Content

What is Ethereum Blockchain?

Ethereum was proposed by Vitalik Buterin (Co-Founder of Ethereum) in 2013 with the motivation to build a development platform for decentralized applications. 

Decentralization in Blockchain
Decentralization in Blockchain
The Model of Decentralization in Blockchain is the distribution of dependency and control of decision-making from a centralized point of contact to the respective network nodes. Decentralization aims to more

Ether, as a cryptocurrency allows users to make transactions, earn interest for holding, use it for trading, buy and sell NFTs, play online games, and many more. The transaction of Ethereum costs Gas. As the name suggests, Gas is the oil to functions the Ethereum network. The transaction fee will later be used to reward miners for adding the blocks of transactions.

Ethereum provides a programmable platform that gives a whole level of decentralized experience. It allows users to build applications for themselves on a decentralized development platform. It uses Solidity as the programming language to build smart contracts and decentralized applications.

Ethereum is the second most renowned cryptocurrency after Bitcoin. It currently uses Proof of Work (PoW) for consensus (agreement) among network members. Its soon planning to move to the Proof of Stake (PoS) consensus mechanism.

Ethereum Blockchain

Ethereum is a general-purpose blockchain, which is a decentralized and distributed public ledger where all the transactions are recorded and verified. But it doesn’t just record transactions. With its state-of-art cryptography and a globally distributed database, it can record any structured information.

Unlike other blockchains, like Bitcoin, that is designed just for one application like digital money, Ethereum is an open platform that allows developers to build their own application on top of it. Currently, we have multiple crypto coins, and financial and gaming applications built over this particular blockchain.

It securely and effectively establishes a peer-to-peer network that executes and verifies application codes known as smart contracts. Eradicating the need for a trusted central authority, smart contracts let participants transact easily with each other. Transactions are sent and received with the help of participants’ Ethereum accounts.

All the transaction records are verifiable, immutable, and securely distributed across the blockchain-based computing platform that provides the users complete visibility and ownership of the transaction data. For every transaction, the sender needs to spend Ether, Ethereum’s native cryptocurrency as a fee to process the same on the network. 

Since it has no centralized authority, the network is managed by all of the distributed ledger holders. Everyone on this network has identical copies of the ledger, allowing them to view all the transactions. This particular advantage of Ethereum is actually destroying the monopoly of giants like Google and Amazon.

Don’t know how?

Well, we know that Ethereum is used to run decentralized applications and store data. Therefore, it presents developers with an opportunity to not host their software on servers operated and owned by giants like Amazon or Google. This would make central authorities immediately lose control over the data.

While it holds the ability to transform or disrupt, depending on how it approaches the issue, its impact surely is fascinating!

How Does Ethereum Work?

You must be wondering how this particular blockchain works! Well, there are certain key components, so to understand the functioning of Ethereum thoroughly, we need to dive deeper.

1. Ethereum Smart Contracts

This technology is a programmable agreement and it runs on blockchain. It lets two parties involved in a transaction digitize all the conditions controlling the interaction and the relationship. After these conditions are programmed, they’re launched on the blockchain as self-executable smart contracts.

Smart contracts offer users a trustless system where they can independently define the conditions that would validate the deal, rather than involving a centralized authority.

Did you know that Ethereum was the first blockchain to identify and implement smart contracts? When Ethereum unlocked smart contracts as a part of blockchain functionalities, it led to the expansion of use cases and decentralized apps.

2. Ethereum blockchain

In a blockchain, ‘blocks’ contain data of confirmed transactions, and ‘chain’ contains chronologically ordered blocks. It is a publicly available ledger where all activities performed in a network/platform are recorded and tracked. The global network of computers, also known as nodes, is provided with copies of the ledger. Nodes are responsible for several activities, like recording and verifying smart contract data and transactions.   

With a copy of the ledger, participants can easily validate the content, boosting transparency and reliability. Hence, there is no single point of failure.

State in Ethereum is the current information of all the apps running on top of it, consisting of data like-

  • User’s balance
  • Smart contract code
  • Smart contract state
  • Location of stored information
  • Changes made 

3. Consensus mechanism

Ethereum uses a consensus protocol in order to validate data and add it to the blockchain, it is also known as proof-of-work. The energy-intensive machines mine nodes competing with one another to add the next block to the blockchain.

But the expected upgrade “Ethereum 2.0” will experience a switch from a proof-of-work model to a proof-of-stake consensus mechanism. It simply means that the blockchain would use a proof-of-stake consensus mechanism in order to verify transactions.

The use of high-powered computers for the mining process devours a tremendous amount of electricity. But fortunately, the switch from proof-of-work to a proof-of-stake consensus mechanism is expected to reduce Ethereum’s carbon footprint by 99.95%.

4. Ethereum Virtual Machine (EVM)

It is Ethereum’s native processing system that allows developers to build smart contracts & lets nodes easily interact with them. EVM is used to develop a level of abstraction between executing machines and executing code. It is used to boost the application's portability and ensure that apps are separated from the host and each other.

Solidity is a programming language, just like C++ or JavaScript, used by Ethereum developers to write smart contracts. Since humans can read the code, it needs to be converted into low-level machine instructions, also known as opcodes. EVM can easily understand and execute opcodes & it is important that every single Ethereum node has its own EVM.   

When the user sends a transaction to a smart contract deployed on Ethereum, the node runs the transaction and the smart contract through their own EVM. This creates a simulated environment where every node can view whether the outcome will deliver a valid transaction. When all the nodes arrive at valid results, the changes are then updated and recorded on the blockchain.

  1. Ether

Ether is Ethereum’s token, which one needs to execute anything on the blockchain. It is popularly known as ‘gas’ when used to execute smart contracts. The type of executable transactions and the number of transactions waiting to be verified determine the amount of gas required. The fee increases with an increase in the complications.

Just like the way we store money in bank accounts, Ethereum stores Ether in these two types of accounts-

  • Externally owned accounts (EOAs): With no associated code, EOA is controlled by a private key that can send transactions.

Contract accounts: It has an associated code that executes when it receives transactions from externally owned accounts.

Ethereum Mining using Proof of Work (PoW)

Users buy ETH and collect it in a digital wallet like Metamask. Now users make transactions using Ether (ETH). All the transactions record go to the ‘transaction pool or mempool.’ Miners collect the transactions from the pool and create a Block to mine. Mining means adding a newly created block to the blockchain network.


Why does the Block of transactions need to be Mined? As cryptocurrencies are digital assets, it has no tangibility. Therefore, to protect the transactions against double-spending and copying, they must be mined in the blockchain network. It helps to trace the authenticity and expenditure of digital money.

In order to add a new block or mine a block to the network, miners compete with each other. The Ethereum blockchain uses a Proof of Work (PoW) consensus mechanism that relies on computing power to solve a puzzle. The first miner who solves the puzzle gets the reward. 


According to PoW, a miner needs to find the perfect block hash (below difficulty) by continuously rehashing the block of transactions with changes in the nonce. The process of finding the right nonce and then the correct hash requires tedious hashing and high computation energy.

Pros and Cons of Ethereum Network

Following are the advantages and disadvantages of Ethereum Blockchain:

– Multiple applications – Smart Contracts, NFTs, dApps, Tokens, etc. 
– Ethereum transactions are faster.
– It has massive developer community support.
– Allow global transactions.
– Great support and efficiency
– Proof of Work high energy consumption issue
– High Transaction Fees (Gas).
– ETH pricing Volatility.
– Leads to Scalability issues

How Can Ethereum Change The World?

One of the industries that are up for serious disruption is the financial services industry. This industry majorly does the following-

  • Moves money
  • Stores money
  • Lends money
  • Trades money
  • Attests to money
  • Accounts for money

With the expansion of Ethereum, every single one of them can be challenged. Currently, decentralized technology holds the ability to shift power from a handful of giants to the community. It holds the power to build a more prosperous world where users get to reap the perks. 

Let’s consider the music industry for example. Here the big labels and technology companies take away most of the value from the musicians & songwriters leaving just crumbs at the end.

But what if we could decentralize the music industry with a distributed application on the blockchain? It would allow artists to post their music on a blockchain-based platform with a smart contract that describes the way it has to be used.  

Just like in the music industry, Ethereum holds the potential to foster a paradigm where true artists can be compensated for the value they deliver. 

Use cases of Ethereum Blockchain

Following are the uses cases of Ethereum Blockchain –

  • Cryptocurrency: A means of exchange among users. It allows them to buy NFTs, Virtual Games, Real-estate properties in Metaverse, etc. 
  • Smart Contracts: These are automatically executing programs under some conditions. When the conditions are met, it gets implemented. Smart Contracts run on Ethereum Virtual Machine (EVM) and use Solidity programming language.
  • Non-Fungible Tokens (NFTs): Tokens are built on the existing blockchain using smart contracts. They can be used as Security Token, Utility Token, and Equity Token. Ex – ERC-20, ERC-721, ERC-223, etc.
  • dApps (Decentralized Applications): These are the on-chain Ethereum application that is supported by smart contracts.
  • Decentralized Finance (DeFi): Use of Ethereum Platform to develop Decentralized Finance applications which promote security, transparency, and traceability.

Ethereum 2.0

The motivation behind Ethereum 2.0 is the concern for high-energy wastage. Ethereum 2.0 uses the Proof of Stake (PoS) Consensus Mechanism to avoid wastage. 

They plan to merge Beacon Chain (Ethereum 2.0) with the current Ethereum Blockchain. It will also utilize the concept of Sharding, where the transaction divides into multiple smaller blocks to reduce the validation time to validate the block.


The article explained the Ethereum blockchain network and Ethereum cryptocurrency. In addition, it digs into the working and mining of Ethereum. Furthermore, it’ll cover the benefits and limitations of Ethereum, along with a brief introduction to Ethereum 2.0.

Humankind has made progress in multiple fields, but the advantages of the digital age have been asymmetrical. We have created the greatest asset of data, and yet it is being controlled only by the most powerful giants of this world.

While they monetize and monitor our data, technology is evolving itself to deliver us a second generation of the Internet enabling the peer-to-peer exchange of resources in the form of a general-purpose blockchain like Ethereum. 

So now the biggest question is…

How soon would we be able to redefine the economic power grid with Ethereum?


What is a Hash?

Hash is a fixed-length sequence of hexadecimal output of a message or transaction here. Hash functions like SHA-256 use to create hashes.

What is Consensus Mechanism?

A consensus mechanism helps to keep the network synchronized. Itu2019s a state of agreement where all the network participants decide together.

What is proof of work (PoW)?

Proof of Work (PoW) in the blockchain is a consensus mechanism that lets miners add a new block to the network based on the computation done to find the perfect hash.

What is proof of stake (PoS)?

Proof of stake is a consensus mechanism used to decide the next global change in the network. It uses a staking mechanism where participants lock up some of their coins to get selected.

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