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What is Ethereum (ETH) and How it works (Explained)

What is Ethereum (ETH) and How it works (Explained)

15 Oct 2020

Reading Time: 1-2 minutes

Launched by a group of crypto enthusiasts, Ethereum is an internationally recognized open-source platform for decentralised applications. Ethereum’s vision, thus, is to produce a world computer that every user can build applications in, through a decentralised method. This means all states and data are distributed and publicly accessible. You can write code to manipulate digital value on Ethereum, running exactly as programmed and available globally.   

How does Ethereum work?

Ethereum has open access to digital currency and data-friendly services for everybody - regardless of  your background or location. It's a network constructed innovation behind the digital currency Ether (ETH) and a huge number of applications. Examples of decentralized applications built on Ethereum include token, decentralized finance apps, lending protocol, decentralized exchanges etc. Ethereum uses smart contract, a programmable contract in which developers can write code to program digital value. A smart contract is a programmable contract that allows two parties to establish transactional conditions without requiring a third party for its implementation. Every time certain conditions are satisfied the smart contract will execute the operation as it was programmed. You will need a wallet to get started with Ethereum, which makes it easy to hold and protect ETH. Wallets include MetaMask, MyCrypto, or MyEtherWallet. 

Ethereum (ETH) and How it works

Ether (ETH):

ETH is a cryptocurrency that is the primary asset of Ethereum. It is scarce digital money that you can use on the internet and is open to everyone, decentralised, and works on a P2P network. When you send ETH, you will pay a small fee in ETH to use the Ethereum network. This fee is motivation for a miner to process and verify. Miners check and prove your transaction is legitimate. They are then given a newly issued ETH. The small fee to be paid on transactions and smart contracts is called Gas. The more unpredictable the execution activity is, the more gas is required to satisfy that activity. Gas charges are paid in ETH.  The price of Gas fluctuates depending on network demand. ID networks are used a lot, for instance there may be a lot of transactions occurring, gas price will increase.  Similarly, when the network has less activity, the market price of gas decreases.

Defining Features:

  1. Private Internet: Ensures security and privacy

  2. P2P Network: Don’t need a middleman for transactions

  3. Decentralised: No one ruling authority and censorship resistant

  4. Commerce guarantees: Creates a level playing field with a built-in guarantee that funds will only change hands if you provide what was agreed.

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