How Does Ethereum Work?
Ethereum is a decentralized, open-source blockchain platform that enables developers to build and deploy smart contracts and decentralized applications (dApps). It functions as a global computer that runs on a peer-to-peer network, where thousands of nodes work together to maintain the integrity and security of the platform.
1. Blockchain Technology
Ethereum operates on a blockchain similar to Bitcoin but incorporates a more versatile programming language called Solidity. This allows developers to create complex contracts that automatically execute when certain conditions are met.
2. Ether (ETH)
Ether is the native cryptocurrency of Ethereum. It serves two purposes: as a digital currency for transactions and as "fuel" for executing contracts, known as gas. Users need to pay gas fees in ETH to compensate miners for the computational work required.
3. Smart Contracts
Smart contracts are self-executing contracts with the terms of the agreement directly written into code. They automate processes and enhance trust between parties by ensuring that the contract terms are executed without third-party intervention.
4. Decentralized Applications (dApps)
dApps built on Ethereum utilize smart contracts to deliver services in various sectors, including finance (DeFi), gaming, and supply chain management. They benefit from the security and transparency of the Ethereum blockchain.
5. Consensus Mechanism
Ethereum originally used a Proof of Work (PoW) consensus mechanism, but it transitioned to Proof of Stake (PoS) with the Ethereum 2.0 upgrade. This shift enhances scalability and reduces energy consumption while maintaining network security.