How Does Ethereum Work? The Ultimate Quick Beginners Guide

If you’ve stepped a single foot inside the new strange world of cryptocurrencies, odds are you’ve heard of Ethereum. As surprising as it may sound, Ethereum is more than just a cryptocurrency. Ethereum is an open source world computing platform based off blockchain technology that allows developers to build and deploy decentralized applications.

Is Ethereum Worth It?

Ethereum Definition

Before we dive into explaining what Ethereum really is, it helps to rehash our understanding of the internet. Everything on the web from our personal information and passwords to financial data are stored on other computers, such as in clouds and servers run by companies small and large. Doing this is convenient as it removes the need to cover hosting costs and allows their team of specialists to handle any errors that may pop up. But this convenience also comes with a huge downside – vulnerability.

Today we know that hackers and even governments can infiltrate and access your personal files without your knowledge or consent. This is typically done by influencing or outright attacking third-party services holding your personal data, which means information can be stolen, leaked, or even changed at will.

This centralized system of doing things represents everything the Internet was meant not to be, and as a result, tools like blockchain technology have cropped up to help push the internet back to a decentralized system. Ethereum is the newest tool to help catapult this movement. While some look at Bitcoin as a disruption to PayPal and banks, Ethereum’s purpose is to use blockchain technology to eventually replace the type of third-party services mentioned above.

Everything from services that store data and transfer mortgages to those that track large complicated financial instruments are vulnerable to the rise of Ethereum as a global cryptocurrency. Now that you know what Ethereum is all about, let’s move into the finer details outlining how Ethereum works.

Ethereum Definition – The ‘World Computer’

As a tool, Ethereum’s primary goal is to be used as a type of ‘World Computer’ for those who want a decentralized, democratized client to server relationship. In the Ethereum model, clouds and servers are replaced by tens of thousands of hardware nodes run by fellow users from around the world. This network of nodes forms what is referred to as Ethereum’s ‘world computer’.

Ethereum’s vision is to eventually allow any person from any part of the world to offer their own services atop this innovative infrastructure, free from the vice grip of for-profit companies. For example, scrolling through the app store on your iPhone you see a laundry list of colorful icons covering all topics.

Each of these mobile apps need a separate company or (usually) third- party service to store and handle the credit card information, purchase history, and user data on their clouds and servers. An additional layer of data vulnerability is added when you take into account the app store’s owners, Apple and Google, who curate and (sometimes) censor what you’re able to see and download. Furthermore, take Google Docs and Dropbox into account.

If Ethereum works as planned, the control of someone’s personal data would be returned to the individual. No one company would be able to control your documents, ban the app, or ghost your account. This puts power back into the hands of the user, not a corporate entity. In short, Ethereum will be able to effectively combine the complete control of information we once had with the easily accessible information we’re accustomed to in the digital age. With each save, edit, or deletion of a document within the Ethereum network, every node within the network is changed.

How Ethereum Works

Now that you know what Ethereum is, let’s dive into the nuts and bolts of how the platform actually functions. To avoid the need to store an application’s data onto a single entity, Ethereum borrows elements of Bitcoin’s protocol and its blockchain design, but modifies it to support additional uses outside of money.

Ethereum makes changes to the Bitcoin design to allow developers to create applications that have additional security steps, new rules of ownership, different transaction formats, or alternative ways to transfer data. Because Ethereum uses a ‘Turing complete’ programming language, developers are allowed to deploy programs wherein blockchain transactions can govern and automate certain outcomes. Ethereum’s highly flexible blockchain is primarily what makes the cryptocurrency such an innovation.

Ethereum’s Blockchain

Like Bitcoin’s blockchain network, Ethereum uses a shared record of blocks containing the entire transaction history of the network. Each Ethereum node within the network stores a copy of the chain’s history. The primary difference Bitcoin and Ethereum’s blockchains lies in the fact that Ethereum’s nodes store the most recent state of every smart contract executed, alongside all other transactions. This sounds simple, but it’s really much more complicated.

For every Ethereum application deployed, the network must record the ‘state’, which means tracking the current information within all the applications, spanning from each user’s account balance and smart contract codes to the stored information’s location. While Bitcoin looks purely at unspent transactions to determine how much Bitcoin each person has, Ethereum uses accounts.

Similar to how money appears in a user’s account at a bank, Ethereum tokens appear in an Ethereum wallet, which can be ‘ported’ to other accounts. Ethereum’s standard wallet is called Mist, which is used by developers as a gateway to using DApps. Ethereum wallets act similar to Bitcoin wallets. Aside from Mist, other online Ethereum wallets include the likes of,, Geth, hardware wallets, and more.

Is Ethereum Worth It?

In the end, while every single blockchain network can process complex code, a majority are severely limited in their capabilities. Ethereum is completely different. Rather than giving users a set of limited operates they’re forced to work around, Ethereum puts the power into the hands of developers, allowing them to create whatever operations they choose. This means that developers can now use Ethereum to build an endless number of applications that can surpass anything we have seen in the digital age.