Beginners Guide to Ethereum – Second Largest Crypto-Coin Explained

Ethereum is one of the popular systems in the crypto space after Bitcoin. It is a platform where you can do many things related to a cryptocurrency transaction. So, if you have heard about it or even mentioned it without fully understanding what it is and how it works, this guide is yours. We will explore the network in a clear and simple-to-follow way to know what Ethereum is and what it does. We will also explore the uses, benefits, challenges, and the future of the network. That way, you’ll learn every important aspect of Ethereum.

So, let’s get right to it!

What is Ethereum

Ethereum is one of the most popular decentralized, open-source platform where developers can build Distributed Applications and Smart contracts. It is a blockchain-based platform where people can access and use ether, which is Ethereum’s own native cryptocurrency. Being a decentralized platform, no single entity can control what happens in the system.

Ethereum allows developers to write codes and build different applications that anyone can access worldwide. One of the notable things about the network is that it is always online and completely autonomous. The reason for this efficiency is that many volunteer computers all over the world are running it. So, it doesn’t have a central point where failure can come from.

People usually compare Bitcoin and Ethereum in terms of similarities but let’s clear you up on that. The two projects are different because their goals are not the same. Bitcoin was built on blockchain as a cryptocurrency and also a system to transfer money. It was the first cryptocurrency, and we can say clearly that it is still leading as the number one crypto in the space. 

Ethereum, on the other hand, is also built on blockchain, but it went a step farther to expand the capabilities of the technology. Now, Ethereum is a complete network that has a payment system, a coding language, and a unique internet browser. Apart from all that, Ethereum allows its users to create diverse, decentralized apps on its blockchain. Developers all over the world can build & deploy any kind of decentralized application on the platform. Being decentralized, users usually have total control over what happens in their interaction.

The Ethereum system functions through the global system of volunteers called “Nodes.”  These volunteers download their blockchain to their own desktops and enforce every consensus rule that keeps the system going, thereby ensuring that the Ethereum network remains honest. In return, the nodes receive good rewards for their work.

Components of Ethereum Blockchain

  • Smart Contracts

One of the concepts that dictate the consensus rules and other Ethereum network functionalities are smart contracts. These contracts enable the user to complete different transactions with anonymous parties. Some of the people who enter into a smart contract relationship don’t even know themselves.

But the impressive nature of smart contracts makes it that they can self-execute once the parties meet the terms already stated in the contract. Many people in the crypto community are very positive that smart contracts will one day replace every other method of contractual agreements.

Their reason is that smart contract is more secure than the traditional law backing up contracts. It also eliminates the high costs of contracting and establishing trust between the parties to a contract.

  • Ethereum Virtual Machine (EVM)

On the ethereum network, users make use of the Ethereum Virtual Machine, which facilitates smart contracts on the network. The EVM provides a secure environment where users can execute untrusted codes and also ensure that the contracts don’t clash against each other. Moreover, developers use the EVM to test and improve smart contracts because it is not based on the core Ethereum network. The machine can help the developers to identify bugs and errors that might cause the nullification of smart contracts. So, in that environment, devs can learn more, improve on their knowledge, and build a robust smart contract before introducing it on the main Ethereum network. 

  • The digital currency –Ether

Apart from smart contracts and EVM, the Ethereum network gives users access to its native coin called “Ether.” This coin is the fuel that fires up the actions of the dApps on the blockchain. To perform any transaction or enter into any smart contract on the network, there must be a certain quantity of time and computational power to do it. This requirement is known as “gas,” and the miners who fulfill the workload will receive Ether as a form of payment. If the actions require massive computational power & time, the parties will pay higher gas fees, and Ether is the tool for the payment. 

How Does Ethereum Work?

Ethereum works as what we know in Computer science as a “State Machine.”  A state machine is something that can read lots of inputs and transition into a different state based on the inputs it reads. When it comes to Ethereum, we can liken it to a “transaction-based” state machine. Whenever a transaction is executed, it changes into a new state.

Every Ethereum state contains millions of different transactions. The transactions usually appear in groups known as “blocks.” These blocks are chained together with the previous blocks and so on. However, before developers can add the transactions to the blockchain, they have to validate the transaction through what we know as “Mining.”

The process of mining involves the application of massive computing power by a group of nodes to complete a POW (proof of work) challenge. This challenge is usually a complex mathematical puzzle that needs the use of powerful computers to solve. Once the miners get the answer to the puzzle, they have the proof of work that validates a block.

Many miners all over the world are always in a competitive race, trying to create & validate blocks. The reason for such a frenzy is that once a miner gets the proof of work for any block, there will be a reward of new ether tokens for his/her efforts. The activities of the miners are critical to the continued success of the network. They are responsible for confirming and validating all transactions plus other operations that go on in the Ethereum network. The actions of the miners generate new ether tokens, which is the native currency of Ethereum.

Benefits of Ethereum Network.

There are many benefits to using the ethereum networks. Some of them include:

  • Immutability

Every single transaction on the blockchain is not changeable. Once the data has been written, nothing can change it, and as such, no one can hack it after its upload on the blockchain.

  • The platform is decentralized.

Users on the Ethereum network has complete control of what happens on the platform. There’s no central authority validating the transactions, and there’s no need for intermediaries too. Every transaction is facilitated via smart contracts, which self-execute once the parties meet the terms of the agreement.

  • Top-level security

Every transaction is secured using complex cryptographic protocols that no one can easily hack. The best part is that Ethereum uses 3x more nodes to verify its transaction than what Bitcoin uses. Some of the hacks on the network have been due to vulnerability in smart contract codes, which hackers exploit to steal. It has nothing to do with the network but with the activities of the users.

  • Impressive transaction speed

Transacting on the Ethereum networks eliminates the hassles of manual clearance and verifications. All the transactions are automatic, and because of that, people can complete their businesses in a faster way. 

  • Affordable Transactions

One of the benefits of using Ethereum is the deployment of smart contracts for diverse transactions. These digital contracts usually work on their own without the need for third-party invention or support. As such, users can say goodbye to the fees which they would have given to the intermediaries.

  • The network is reliable.

The Ethereum blockchain has been strong and active for more than 3 years now. This is a poof that the network is reliable. Also, all the applications based on the Ethereum network have continued to run without third-party interferences, downtime, fraud, or censorship. 

  • Adaptability

Ethereum can adapt to many kinds of operations. It is versatile in nature, and that’s why developers are building many apps on the network. For instance, the recent entrant in the sector known as decentralized finance is based on the Ethereum network because of its capacity to adapt to changes. 

Challenges of Ethereum Network

Even though the benefits of Ethereum are numerous, there’re still some challenges which users face from time to time. One of such issues includes errors in smart contract codes. This is one of the challenges of Ethereum. Sometimes, people who write smart contract codes make mistakes that leave it vulnerable to attacks. Once hackers discover the mistakes in the codes, they’ll exploit it to steal people’s money in millions. 

In such an instance, the only remedy to correct the mistake is usually through a consensus and entire rewriting of the underlying code. But this is not acceptable because the blockchain is a ledger that no one can change or manipulate.

There was an attack on a DAO launched four years ago in 2016. A hacker could carry out this exploitation due to a bug in its code. They drained funds from the main DAO into a smaller DAO with the exact structure. They stole above 3.6 million Ether tokens and also lowered the trust which users had in the network. This singular attack caused the token price to fall terribly low.

How to Get the Ethereum Native Currency- Ether?

If you’re interested in getting ether, you have two options for that.

  1. Buying ether
  2. Peer-to-peer trading
  3. Mining ether

Buying Ether

The best way to buy ether is from a crypto exchange. To do that, research online for an exchange that trades it. Then set up your account on the platform and pay for the token using a wire transfer, bank account, or credit card. Once you pay for it, the exchange will provide the wallet where you can store your tokens.

Some of the exchanges where you can buy ether or even sell when you want include:

  • Poloniex
  • ShapeShift
  • Coinbase
  • Gemini
  • Bitstamp
  • GDAX
  • Coinmama
  • Bittrex
  • Kraken

Peer-to-peer trading

This is a method of acquiring Ether by trading for it but paying with other cryptocurrencies. This practice is more prevalent with Bitcoin users, not Ethereum, because the supply of the Ether token is usually unlimited. So, you can buy it from any exchange.


You can get Ether through mining because Ethereum uses POW (proof of work); we already explained what it means earlier. So, if you can solve the mathematical puzzle and confirm a block, you’ll get Ether as a reward.

What Doe the Future Hold for Ethereum

Ethereum has existed since 2014, but it is gradually gaining worldwide recognition and adoption. This means that the network is still evolving, and many crypto experts believe that it will change the internet and revolutionize many industries and services. 

According to what the Ethereum creator, Vitalik Buterin, said, the Ethereum blockchain will one day become the leader amidst other platforms based on Blockchain. He also mentioned that he would ensure that there won’t be technical issues in the future, and also, there will be lots of security improvements on the network.

Many crypto experts are also positive that the Ethereum platform will outgrow expectations in the future. Some even predict that it will be around in five to ten years’ time, while others describe the Ethereum applications as being fascinating.

Final Words

Ethereum is a decentralized platform where anyone can perform different kinds of transactions. It offers a safe haven for developers to create & deploy applications and also allows users to interact and transact through a smart contract. The network has faced its own series of challenges, such as the exploit of 2016 that led to a loss of users’ funds to the tune of $50 million worth of its native Token-Ether.

However, the future is bright for the network as the creator aims at improving it more in terms of security and other technicalities. One thing is clear, Ethereum is continually evolving, and experts predict that it will last for many years to come.