List with Us Sign In

What is Ethereum & How it Works

What is Ethereum

Ethereum is a decentralized platform that enables developers to build and deploy smart contracts and decentralized applications (DApps). It was proposed by Vitalik Buterin in late 2013 and development was crowdfunded in 2014, with the network going live on July 30, 2015.

Ethereum's key feature is its ability to execute smart contracts, which are self-executing contracts with the terms of the agreement directly written into code. These contracts can automate complex processes without the need for intermediaries. Ethereum's native cryptocurrency is called Ether (ETH), which is used to compensate participants who perform computations and validate transactions on the network.

Ethereum is known for its innovation in blockchain technology, particularly with its use of smart contracts and the Ethereum Virtual Machine (EVM), which allows for the execution of these contracts. It has become a popular platform for building decentralized applications, ranging from decentralized finance (DeFi) to decentralized exchanges (DEXs) and more.

How it Works

Ethereum works through a decentralized network of computers (nodes) that are interconnected and maintain a shared database called the Ethereum blockchain. This blockchain is a public ledger that records all transactions and smart contracts executed on the network. Here's a basic overview of how Ethereum works:

  1. Nodes: The Ethereum network consists of thousands of nodes, which are computers that participate in maintaining the Ethereum blockchain. These nodes store a copy of the entire blockchain and communicate with each other to stay in sync.

  2. Transactions: Users can send transactions to the Ethereum network. These transactions can be simple transfers of Ether (ETH), the native cryptocurrency of Ethereum, or they can be transactions that interact with smart contracts.

  3. Smart Contracts: Smart contracts are self-executing contracts with the terms of the agreement directly written into code. They are deployed on the Ethereum blockchain and can be triggered by transactions. Smart contracts can hold and transfer funds, as well as execute complex logic and rules.

  4. Mining: Ethereum uses a consensus mechanism called Proof of Work (PoW) to validate and add new transactions to the blockchain. Miners use their computational power to solve complex mathematical puzzles, and the first miner to solve the puzzle gets to add a new block of transactions to the blockchain. This process requires a significant amount of computational power and electricity.

  5. Ether (ETH): Ether is the native cryptocurrency of the Ethereum network. It is used to compensate miners for validating transactions and executing smart contracts. Ether can also be used as a medium of exchange and store of value.

  6. Decentralization: One of the key principles of Ethereum is decentralization, meaning that no single entity controls the network. This makes Ethereum resistant to censorship and ensures that the network remains secure and reliable.

Overall, Ethereum provides a platform for developers to build decentralized applications (DApps) and smart contracts that can be used for a wide range of purposes, from finance to gaming to supply chain management, without relying on a central authority.

Ethereum TPS

The transaction processing capacity of Ethereum is often measured in terms of its transactions per second (TPS). Ethereum's TPS has varied over time due to network upgrades and changes in transaction volume.

Initially, Ethereum's TPS was relatively low, around 15 transactions per second. However, with the introduction of upgrades like Ethereum 2.0 and the implementation of technologies like sharding and rollups, Ethereum's TPS has the potential to increase significantly. Ethereum 2.0 aims to improve scalability and performance by transitioning from a Proof of Work (PoW) to a Proof of Stake (PoS) consensus mechanism, which is expected to increase the network's capacity to process transactions.

With these upgrades, Ethereum's TPS is expected to increase to several thousand transactions per second, making it more suitable for handling large-scale applications and increasing network throughput. However, the exact TPS achieved in practice depends on various factors such as network congestion, transaction complexity, and the efficiency of the network upgrades.

Pros & Cons

Here are some pros and cons of Ethereum:


  1. Smart Contract Capabilities: Ethereum introduced the concept of smart contracts, which allows for programmable and self-executing contracts, enabling a wide range of decentralized applications (DApps) to be built on its platform.
  2. Decentralization: Ethereum is decentralized, meaning it is not controlled by any single entity. This enhances security, reduces the risk of censorship, and promotes inclusivity.
  3. Ecosystem and Community: Ethereum has a vibrant ecosystem and a strong developer community. This has led to a multitude of innovative projects, decentralized finance (DeFi) applications, and non-fungible tokens (NFTs) being developed on the platform.
  4. Upgrades and Innovation: Ethereum has a history of continuous upgrades and improvements, such as the upcoming transition to Ethereum 2.0, which aims to improve scalability, security, and sustainability.
  5. First-Mover Advantage: Ethereum was one of the first blockchain platforms to introduce smart contracts and has established itself as a key player in the blockchain and cryptocurrency space.


  1. Scalability Challenges: Ethereum currently faces scalability challenges, particularly in handling a high volume of transactions. This has led to network congestion and high gas fees during peak usage times.
  2. Energy Intensive: Ethereum currently uses a Proof of Work (PoW) consensus mechanism, which requires significant computational power and energy consumption. This has raised concerns about its environmental impact.
  3. Competition: Ethereum faces competition from other blockchain platforms that offer similar or improved features, such as scalability solutions, lower fees, and faster transaction speeds.
  4. Security Risks: While smart contracts offer many benefits, they also introduce potential security risks. Bugs or vulnerabilities in smart contracts can lead to financial losses for users.
  5. Regulatory Uncertainty: The regulatory environment surrounding cryptocurrencies and blockchain technology is evolving and can vary widely across different jurisdictions. This uncertainty can impact the development and adoption of Ethereum and its applications.

Overall, Ethereum has been a pioneering force in the blockchain space, but it faces challenges related to scalability, energy consumption, competition, and regulatory uncertainty that will need to be addressed as it continues to evolve.


Ethereum, like many other cryptocurrencies and blockchain platforms, has been associated with several controversies and challenges. Some of the notable controversies include:

  1. The DAO Hack: One of the most significant controversies in Ethereum's history was the DAO (Decentralized Autonomous Organization) hack in 2016. The DAO was a smart contract-based investment fund built on Ethereum, and it was exploited through a vulnerability in its code, leading to the theft of millions of dollars worth of Ether. This incident resulted in a hard fork of the Ethereum blockchain to reverse the hack, leading to the creation of Ethereum (ETH) and Ethereum Classic (ETC), which continue as separate blockchains.

  2. Scalability and Gas Fees: Ethereum has faced challenges with scalability, particularly during periods of high demand. This has led to network congestion and significantly increased transaction fees, known as gas fees. These high fees have been a point of contention among users and developers, especially for small transactions or interactions with smart contracts.

  3. Energy Consumption: Ethereum, like many other cryptocurrencies that use Proof of Work (PoW) consensus mechanisms, has been criticized for its high energy consumption. The process of mining Ethereum requires significant computational power, leading to concerns about its environmental impact, particularly in the context of climate change and sustainability.

  4. Regulatory Challenges: The regulatory environment surrounding cryptocurrencies and blockchain technology is complex and evolving. Ethereum, as a decentralized platform, has faced regulatory scrutiny in various jurisdictions. Regulatory challenges can impact the development, adoption, and use of Ethereum and its applications.

  5. Competitive Landscape: Ethereum faces competition from other blockchain platforms that offer similar or improved features, such as scalability solutions, lower fees, and faster transaction speeds. This competitive landscape has led to debates and discussions about Ethereum's long-term viability and its ability to maintain its position as a leading blockchain platform.

Despite these controversies and challenges, Ethereum continues to be a dominant force in the blockchain and cryptocurrency space, with a vibrant ecosystem and ongoing development efforts to address scalability, energy consumption, and other issues.

Security or Asset

Ethereum is often considered both a secure platform and a digital asset. Here's a breakdown of each aspect:

  1. Security: Ethereum is designed to be a secure platform for executing smart contracts and decentralized applications (DApps). It uses cryptographic techniques to secure transactions and data on its blockchain. However, like any complex software system, Ethereum is not immune to security vulnerabilities. There have been incidents of smart contract bugs and vulnerabilities that have led to security breaches and losses for users. The Ethereum community and developers actively work to identify and mitigate these risks through audits, improvements in coding practices, and upgrades to the Ethereum protocol.

  2. Asset: Ethereum's native cryptocurrency, Ether (ETH), is a digital asset that can be used as a store of value, a medium of exchange, and a unit of account within the Ethereum ecosystem. Ether has a market value and can be traded on cryptocurrency exchanges like other cryptocurrencies. It is also used to pay for transaction fees and computational services on the Ethereum network. As an asset, Ether's value can fluctuate based on market demand, speculation, and the overall performance of the Ethereum platform.

Overall, Ethereum can be seen as both a secure platform for decentralized applications and a digital asset with its own market value and use cases within the broader cryptocurrency ecosystem.

ERC20 Token

An ERC-20 token is a type of cryptocurrency token standard on the Ethereum blockchain. ERC-20 tokens are fungible, meaning that each token is interchangeable with any other token of the same type. This standard was proposed in 2015 by Fabian Vogelsteller and Vitalik Buterin to provide a common set of rules for Ethereum tokens to follow, ensuring compatibility with the broader Ethereum ecosystem, including wallets, exchanges, and smart contracts.

ERC-20 tokens have a specific set of functions and events that contracts must implement in order to be considered ERC-20 compliant. These include functions to transfer tokens, check balances, and approve spending limits. The standard also defines events that occur during token transfers, such as the Transfer event, which is triggered whenever tokens are transferred between addresses.

ERC-20 tokens have become the dominant standard for issuing tokens on the Ethereum blockchain, and many of the tokens traded on Ethereum-based decentralized exchanges (DEXs) and used in decentralized finance (DeFi) applications are ERC-20 tokens. The standardization of ERC-20 tokens has contributed to the growth of the Ethereum ecosystem by enabling interoperability between different tokens and applications.

Popular ERC20 Tokens

There are many popular ERC-20 tokens on the Ethereum blockchain, each with its own unique use case, features, and community. Some of the most well-known and widely used ERC-20 tokens include:

  1. Tether (USDT): Tether is a stablecoin that is pegged to the value of the US dollar. It is one of the most widely used stablecoins in the cryptocurrency market and is used for trading and as a stable store of value.

  2. Chainlink (LINK): Chainlink is a decentralized oracle network that enables smart contracts to securely interact with real-world data, such as price feeds, weather data, and other external information.

  3. USD Coin (USDC): USD Coin is another popular stablecoin that is pegged to the US dollar. It is widely used in decentralized finance (DeFi) applications and for trading on cryptocurrency exchanges.

  4. Uniswap (UNI): Uniswap is a decentralized exchange (DEX) protocol that allows users to swap various ERC-20 tokens without the need for a centralized intermediary. The UNI token is used for governance and to incentivize liquidity providers on the platform.

  5. Aave (AAVE): Aave is a decentralized lending platform that allows users to lend and borrow cryptocurrencies using smart contracts. The AAVE token is used for governance and to earn interest on deposits.

  6. Compound (COMP): Compound is another decentralized lending platform that allows users to earn interest on their cryptocurrencies by lending them out. The COMP token is used for governance and to earn rewards on the platform.

  7. Maker (MKR): Maker is a decentralized autonomous organization (DAO) that governs the Maker Protocol, which enables the creation of the stablecoin Dai. The MKR token is used for governance and to stabilize the price of Dai.

These are just a few examples of popular ERC-20 tokens, and there are many others with various use cases and levels of adoption within the Ethereum ecosystem.

Ethereum Mining

Ethereum mining is the process of validating transactions and adding them to the Ethereum blockchain. Miners use computational power to solve complex mathematical puzzles, known as Proof of Work (PoW) algorithms, in order to create new blocks and secure the network. In return for their efforts, miners are rewarded with newly created Ether (ETH) and transaction fees.

Here's a basic overview of how Ethereum mining works:

  1. Mining Hardware: Ethereum mining initially required high-end graphics processing units (GPUs) due to the memory-intensive nature of the mining algorithm, known as Ethash. However, with the growing complexity of the algorithm, specialized mining hardware called Application-Specific Integrated Circuits (ASICs) has become more common for Ethereum mining, as they offer higher efficiency and hash rates.

  2. Mining Software: Miners use mining software to connect their hardware to the Ethereum network and participate in the mining process. The software helps manage mining operations, including hashing algorithms, network connectivity, and Ethereum wallet integration for receiving mining rewards.

  3. Mining Pools: Due to the increasing difficulty of mining Ethereum and the high computational power required, many miners join mining pools. Mining pools are groups of miners who combine their resources to increase their chances of successfully mining a block and earning rewards. The rewards are then distributed among pool members based on their contribution to the pool's mining power.

  4. Mining Rewards: Miners are rewarded with Ether for successfully mining a new block. The current reward for mining a block on the Ethereum network is 2 ETH, although this amount is subject to change based on network upgrades and adjustments to the mining difficulty.

  5. Mining Difficulty: The Ethereum network adjusts the mining difficulty dynamically to maintain an average block time of around 13-15 seconds. As more miners join the network or as mining hardware becomes more efficient, the difficulty increases to ensure a consistent block production rate.

  6. Energy Consumption: Ethereum mining, like other PoW-based cryptocurrencies, requires significant energy consumption due to the computational power needed to solve the cryptographic puzzles. This has led to concerns about the environmental impact of Ethereum mining and discussions about transitioning to a more energy-efficient consensus mechanism, such as Proof of Stake (PoS), which Ethereum is currently in the process of implementing through Ethereum 2.0.

Overall, Ethereum mining plays a crucial role in securing the network and processing transactions, but it requires specialized hardware, consumes significant energy, and is subject to increasing competition and complexity.

Ethereum ETF

An Ethereum ETF (Exchange-Traded Fund) is a financial product that tracks the price of Ethereum (ETH) and allows investors to gain exposure to the cryptocurrency without needing to directly hold or store it. ETFs are traded on stock exchanges, making them accessible to a wide range of investors who can buy and sell shares of the ETF like stocks.

As of my last update, there are no Ethereum ETFs available in the United States. The Securities and Exchange Commission (SEC) has not yet approved any Ethereum ETFs, citing concerns about market manipulation, liquidity, and custody of the underlying asset. However, there are Ethereum ETFs available in other countries, such as Canada, where regulators have approved them.

Ethereum ETFs provide investors with a way to invest in Ethereum through a regulated and familiar investment vehicle. They can offer benefits such as diversification, liquidity, and ease of trading compared to directly holding cryptocurrencies. However, investors should carefully consider the risks and fees associated with ETFs, as well as the regulatory environment in their jurisdiction, before investing in Ethereum ETFs.