How Does Ethereum Actually Work?


Even those who are not familiar with blockchain are likely to have heard about Bitcoin, the cryptocurrency and payment system that uses the technology. In fact, a platform called Ethereum, that also uses blockchain, was predicted by some experts to overtake Bitcoin this year even though Bitcoin remains the most popular cryptocurrency.

Ethereum is the world's second largest cryptocurrency and protocol based on blockchain technology. It has paved the way for crypto and in many ways set the standard for the blockchain technology of the future. Moreover, in the wake of Ethereum, development accelerated and it experienced what can be described as a "tidal wave" with new innovations and projects in crypto. Thus, the purpose of this blog article is to give you a simple overview of the second largest cryptocurrency in the world, Ethereum. 

What Is Ethereum? 

Ethereum is a decentralized blockchain platform that establishes a peer-to-peer network which securely executes and verifies application code, called smart contracts. 

There are two accounts available through Ethereum: externally owned accounts (controlled by private keys influenced by human users) and contract accounts. Like Bitcoin, Ethereum operates outside the mandate of central authorities such as banks and governments. 

Before Ethereum was launched in 2015, it was common for developers to create their own blockchain when building new solutions based on blockchain technology. However, Ethereum removed this necessity. 

One of the key features of Ethereum is that it allows for both permissioned and permissionless transactions: 

  • Permissionless transactions allow for any computer on the Ethereum network to confirm the transaction.
  • Permissioned transactions are reviewed by only a select group of computers so all activity does not need to be exposed to all computers as long as it follows the protocols that have been set forth.

How Was Ethereum (ETH) Created?


The idea behind ethereum was created by Vitalik Buterin. After the release of Bitcoin, blockchain quickly grabbed the imaginations of developers around the globe. In 2013 this led a Canadian developer, Vitalik Buterin, to propose a new platform which would allow for decentralized application to usher in a new era of online transactions. Then he published a white paper to introduce it in 2014. Vitalik, who was quickly declared a genius by many within the crypto community, was able to quickly assemble a team of talented developers and crypto-enthusiasts. Moreover, Buterin launched the first version of the platform in 2015, with the help of several co-founders. Since then it has grown rapidly in popularity and has helped prompt an increase of new rivals to bitcoin.

How Does Ethereum Work? 

Like Bitcoin, Ethereum is a solution based on blockchain technology. A blockchain is, in short, a log of transactions and data secured by an open, global, decentralized network using computing power. Ethereum's blockchain is used to transfer and receive Ether internationally, without a third party being able to observe or enter unexpectedly, similar to how Bitcoin's blockchain is used to send and receive Bitcoins. Furthermore, this blockchain is validated by a network of automated programs that reach a consensus on the validity of transaction information. No changes can be made to the blockchain unless the network reaches a consensus. This makes it very secure.

Where Bitcoin was developed for the purpose of being a digital currency, Ethereum was created as a more flexible blockchain that makes it easy for developers to build decentralized applications, also known as dApps on top of the Ethereum blockchain. This flexibility results from Ethereum's ability to make it simple for programmers to publish software on its blockchain using smart contracts. Software that is theoretically capable of handling tasks that the blockchain of Bitcoin cannot. Ethereum uses the proof-of-stake algorithm, where a network of participants called validators create new blocks and work together to verify the information they contain. Moreover, there are today approximately 120,000,000 Ether in circulation.

Disclaimer: All information provided in the content is for informational purposes only and should not be perceived as investment, financial, or trading advice. Any investment decisions you make should be based on your personal preferences, financial expertise, and market research.‍


Parea Labs is a Web3 Gaming company that is driven by visionary ideas to provide various blockchain solutions and the excitement to build a user-focused, adaptive, and innovative gaming experience for all.

4 Types of Blockchain: Public, Private, Consortium, Hybrid


What Is Blockhain and How It Works?