How it works, its characteristics, use and much more

Ethereum is the second largest cryptocurrency from now on after Bitcoin. But it is actually Ether (ETH) what is erroneously called Ethereum. Ether is a second-generation cryptocurrency based on the same fundamental blockchain system and is used to trade, exchange, buy and pay others on the Ethereum network. You can buy or trade Ether on numerous crypto exchanges.

Also, read | MetaMask Wallet: How to create, set up an account and other tips

Explanation of Ethereum Blockchain

Ethereum itself is a decentralized network based on blockchain. It was created by Vitalik Buterin and Gavin Wood, and was launched in 2015. Its purpose was to act as a platform for decentralized finance or Defi and remove intermediaries in certain financial processes such as banks and brokers. But to better understand it, we will briefly look at how it works and its use and characteristics.

How does it work?

Ethereum works on three primary components that together form a network. Let’s find out more about them.


Decentralization is a common word used in cryptocurrencies. What this means is unlike centralized systems, let’s take the example of banks where account information, transaction history is stored by a single entity that can be vulnerable to various attacks, unauthorized action and can be influenced by policy changes of the bank itself.

In a decentralized system, all user information is disseminated between different independent computer systems. This means that, in order to change any information, someone must touch at least 51% of the system worldwide. It also means that clients do not face server problems and that their information and transaction history are very secure.


A blockchain as the name suggests is a chain of blocks. Consider it as a list. Each block contains records of your information and your transactions. The block is added each time a transaction is made and also stores the Hash or unique number of the previous block. In this way, the blockchain manages all past records and keeps them safe.

Smart contracts

Smart contracts are a program that will execute itself when the proposed condition is met. They help to eliminate the intermediary in the process by automatically executing or recording any data or transaction when a certain condition occurs that is determined in accordance with the terms of the contract.

Ethereum Blockchain features

Now that we have learned how the Ethereum network works, it allows us to understand some of its characteristics, uses, how it differs from Bitcoin and what is gas ?.

Unique features and uses

As we have already said, this network will be used for a decentralized financial system, but also for decentralized programs. These programs will be called Dapps. There are already a large number of Dapps that protect the privacy of your data and secure files.

Many different and new cryptocurrencies are basically tokens that run on ERC 20 tokens that are part of the Ethereum network.

NFT (Non-Fungible Tokens) are also a product of the Ethereum network. You must have heard of it. These are usually digital collectibles such as art, music, tokens and other items that are unique in nature and indivisible.

Related article What is NFT?

Bitcoin vs Ethereum

Bitcoin and Ether, both are cryptocurrencies that can be bought on any crypto exchange, but Bitcoin is just a digital currency, Ethereum also has value as a currency and works as a platform for Defi and Dapps.

Ethereum is also very fast when it comes to transaction processing. Ethereum takes 15 seconds and Bitcoin 10 minutes.

Bitcoin has a limit of only 21 million units, while Ethereum currently has no limit. Ethereum also creates a way to more easily create new and improved tokens.

In Bitcoin, you have to pay a mining fee when performing a transaction. Similarly, you have to pay gas fees (transaction fees) at Ethereum.

Also, read | Bitcoin Explained

Ethereum wallets

Ethereum wallets are software wallets that can be used to store your Ether or Ether tokens and NFTs. These wallets are safe and are a good way to keep your Ether in a safe place instead of on cryptocurrencies. These wallets provide the user with a very secure master key which is the only way to access the wallet.

Users can also use the Pen Drive to create a hardware wallet that will store their Ethereum. Some Ethereum wallets allow users to create a hardware wallet such as MetaMask.

What are gas charges?

Gas or gas charges are the amount of money a sender must pay to a person who will use their computer, electricity, and computing power to confirm your blockchain transaction. This person’s name is a miner.

The gas fee is calculated in Gwei, which is the lowest amount of Ethereum. Imagine that 100 paisa makes 1 rupee

This fee also depends on the speed at which you want your transaction to be processed. If you want it to be processed immediately then you have to pay more gas to the miner and if you can wait then you can choose to pay less fees.

This fee also varies depending on network traffic. If the traffic is extremely high and there are a lot of people who want their transactions processed, then the gas fees will be higher. You can always check the current current gas charge here.

Ethereum 2.0

As the Ethereum network grows, it will require more resources and the implementation of new technology. Some enhancements in Ethereum 2.0 will include Proof of Stake and Sharding.

Proof of participation in Ethereum

Right now because Proof of work where a large number of computers compete in the race to validate your transaction, a lot of resources and electricity are lost to fix it, a new Proof of Stake system will be implemented where a computer will be randomly selected to confirm the transaction. Their chances of being elected will increase based on how much Ethera they gamble.

Sharding in Ethereum

Increasing the blockchain will require much more space and in the end only a very powerful system will only be able to validate these blockchains. To fix this, Sharding will be used where the data will be split into less equal proportions for processing. This will make it easier for them to store work.

Wrapping Up

This brings us to the end. Today we talked about several topics about how Ethereum Blockchain works, its characteristics and use and its comparison with Bitcoin, and what it has in the future. This is definitely an intriguing topic and we hope you enjoyed learning more about Ethereum.

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Naveen Kumar

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