Crypto 101: What is Ethereum?

Crypto 101: What is Ethereum? In this article, we talk about Ethereum, a relatively new cryptocurrency in comparison to Bitcoin. Ethereum is an open-source, blockchain-based, decentralized software platform that has its own cryptocurrency, Ether. Unlike Bitcoin, Ethereum is more like a platform that allows users to create their own softwares and trade accordingly. 

The Etherum Platform

The Ethereum platform allows users to build and deploy decentralized applications (Dapp), a peer-to-peer service network. A Dapp is a server-less peer-to-peer application which uses Smart Contracts to execute commands and retrieve information from the blockchain. Dapps are basically the same as your typical smartphone applications. However, they do not require a middlemen to function or manage the user’s account. This allows you to truly own your data without giving access to third parties. 

Again, unlike Bitcoin, Ethereum allows users and businesses to develop applications on the network itself through smart contracts. The ecosystem developed by Ethereum allows users with minimal experience in programming to easily create tools for themselves. There are also a number of other altcoins that are built on Ethereum’s ERC20 network. 

What Are Smart Contracts?


Within the network, there are Smart Contracts that self-executes commands set by programmers helping them receive information from the blockchain. The Smart Contracts can also receive payments by Ether. Once the contract executes, the Ethereum network will take Ether as a transaction fee for the execution of the contracts. The transaction fee is usually known as “gwei” which acts as a “gas price” in the Ethereum ecosystem. By utilizing the Smart Contract, it allows Ethereum to be faster, cheaper and immutable. Other than the Smart Contract, it is also important to know about the Ethereum Virtual Machine aka the “EVM” that  serves as a handler for all the ledger transactions and Smart Contracts. This machine is crucial to the system since it handles all the account information regarding addresses, balances, current gas prices, and block information.

Unlike traditional contracts, a smart contract is a program designed by developers that automatically executes itself based on the underlying agreement coded in the contract. So, its self-execution nature provides three advantages over traditional contracts:

  1. Immutable – If they deploy a smart contract on the blockchain, they cannot modify the code unless they write it to be upgradable.
  2. Fast – They execute smart contracts almost instantly without human confirmation.
  3. Cheap – The costs for developing and executing smart contracts are relatively low when comparing to traditional contracts which involve third parties (lawyers, brokers, etc).

The Ethereum Virtual Machine (EVM)

The EVM is a system that can read and execute contracts written in the Ethereum programming language. So the EVM from each node completely segregates the network on its own (isolation from the main network).

All full nodes execute smart contracts using the same software and agree on the outcome (which should be the same for all nodes). This allows nodes to verify the computation themselves without the need to rely on other parties, making the network less vulnerable to hacking or data corruption. Moreover, the isolation provides developers with a sandbox environment to test their programs in a real use-case environment without affecting the main blockchain.

How Smart Contract Work?

In this example, we will demonstrate how a smart contract can be used for crowdfunding.

  1. A smart contract is written and placed on the blockchain so that the project owner can receive funds from investors only if certain conditions are met (e.g. total funding reached 100k).
  2. Investors can now send funds (in ETH) to the smart contract. So the smart contract distributes across the network, and there is no single owner to the funds. They record the funds by all the nodes in the Ethereum network.
  3. When the underlying conditions are met, the smart contract automatically releases the funds to the project owners. On the other hand, if the conditions are not fulfilled, the funds will be automatically returned to the investors.
  4. For every transaction, a transaction fee (gas) will pay other nodes for computing and executing the contract. In the Ethereum network, the gas name is Ether (ETH). In other words it incentivises developers to write better applications to reduce waste on ether and rewards nodes for executing contracts.


Other than crowdfunding, smart contracts can also play an important part in Insurance (Fizzy AXA), Finance (Quorum), Gambling (Dice2win), Logistics (dexFreight), Real Estate (Propy) and many other industries.

The Storage System: Public and Private Keys

And of course, to better understand how the Ethereum system works, we must learn about its storage system. In the system, there are two ways of identification: the public key and the private key. Both keys derive from scrambling a string of letters and numbers that link together by cryptography. The public key can be sent to others so that they can know where to send you money. “similar to your bank’s account number”. 

Likewise, if you want to send money to others, you will need their public key to send coins. For you to send ether, you need to confirm it with your private key. This acts the same as your login details to your bank account. If someone gets a hand on your login details, they have access to all your coins and your account.


Features of The Ethereum Network

  • Average block time: 14 to 15 seconds
  • Consensus algorithm: Proof-of-Work – Ethash (Proof-of-Stake in the roadmap)
  • Supply limit: Currently no limit
  • They Mine Ether with GPU


In conclusion to Crypto 101: What is Ethereum? Ethereum has the potential to become one of the sole leaders in the Cryptocurrency space. It will be interesting to see the development of the Ethereum platform as cryptocurrency starts to gain recognition. After understanding what Ethereum is, you shall also read our article about ERC20.  


Thanks for reading our article Crypto 101: What is Ethereum? If you have any questions regarding this article, feel free to send us a message via our email. 

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