Ethereum  —  What is it?

Ethereum  —  What is it?

150 150 Justin Wu
In order to understand Ethereum, it is necessary to get to know some of the jargon that you will probably encounter when researching it. In this post, we will “unpack” some of the most “um…what?” words that the casual reader will encounter when researching Ethereum: Decentralized Networks, Blockchain, and Smart Contract/Dapp.

Ethereum: A Peek Under The Hood. We’ll use Infographics, powered by Etherify!
What is Ethereum?

Ethereum is a decentralized computing network that allows any agreement to be made and enforced between any parties without intermediaries, giving rise to a trust-less and permission-less economy that transcends national barriers. It is a truly global world economy platform that radically empowers users and cuts out traditional middlemen and gatekeepers.

It provides a level-playing field for the next-generation economy.

Decentralized Networks

Ethereum functions as a decentralized network of many computers that distribute data and network functions across the entire web. This gives rise to several advantages, namely: No single point of failure, very reliable, and cost effective. There is no central server in this model, so there is no chance that the people who run the central server could abuse their power.

Amazon and Google use the centralized model, and they control most of the Internet as it currently is. They are the ones that maintain these physical servers in server farms. These places represent physical chokepoints where information must pass in order to get to its destination. If these servers went down, widespread service outages would ensue.

One of the goals of Decentralized Networks like Ethereum is to get rid of the risks associated with the Centralized Internet that we have today: Chokepoints that can fail or be abused to disrupt and censor the Internet.

The Blockchain

Ethereum runs on blockchain technology, a decentralized network, where all computers share the same ledger (record) of transactions according to when they happened in order. Each “block” is like a page in a ledger book.

The important thing about blocks is that they contain time-stamped transaction information.

This detail of being timestamped is important because then we can determine the direction of the transactions, and from that, we can determine the current state of the network. The current state of the network is the record of who owns what at what time. This is a ledger! And in Ethereum, it updates every 14 seconds on average. This updating is called the “blocktime”, or the time it takes for the network to create a new block. Remember, these blocks are just like pages in a physical ledger book, but they are digital and shared among all users on the network.

Each block links the next one, hence, a “blockchain.” The new block includes the hash of the previous in the header; this is how each block refers to the block that came before it.

These blocks go all the way back to the first “Genesis block”.

Miners are special computers who use electricity and computing power to verify transactions on the blockchain. Since this uses real world resources, Ethereum rewards the miners with its native token, called Ether.


Ether: The “crypto-fuel” that keeps the Ethereum network running.

Run Applications

For developers to run programs on Ethereum, they must pay in Ether for each computational step. This is to prevent malicious programs from running to infinity and eating up all system resources.

Reward Mechanism

Ether is the reward given to miners for securing transactions on the blockchain. It is a scarce resource that is required to operate programs on the Ethereum platform. And as long as people are using Ethereum, Ether has real world value.

Smart Contracts and dApps

So, what can you run on Ethereum?

Smart contracts and decentralized applications (dApps). A smart contract is an enforced agreement made directly between parties without the need for middlemen. Add some user interface and deploy them onto the network, and you have a dApp!

Contrast smart contracts with physical contracts. They both encode agreements, but what happens when there is a dispute or a non-performing party? In the physical world, what happens when one party doesn’t fulfill a contract? Lawyers, court, a lot of time and hassle. In Ethereum, there is no possibility of this. The “laws” of the agreement are automatically enforced by the code of the smart contract once its terms are satisfied.

I hope that this post has clarified some of the most common terms one encounters when researching Ethereum.


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