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What is Ethereum Blockchain, and How it Works?

Updated on: 16 Jan, 2024 05:49 PM

Before Ethereum, the cryptocurrency scene was all about Bitcoin. But Ethereum changed the game. It's not just digital money; it's like a supercomputer for apps and contracts. Unlike others, it can handle complex tasks. Learning how Ethereum works isn't just for tech geeks. It's vital in today's digital world, as it's transforming everything from finance to more. In this guide, we talk about what is ethereum, ethereum blockchain.

What is Ethereum?

Ethereum is a decentralized global software platform uses the blockchain technology. Is is popularly known for its cryptocurrency called Ether (ETH).

Ethereum is a versatile platform for creating secure digital technologies. It features a unique token to pay for the blockchain support but can also be used for real-world transactions if accepted. Ethereum's key attributes include scalability, programmability, security, and decentralization. Developers and businesses prefer it as their go-to blockchain for transforming industries and daily life.

How Does Ethereum Work?

Ethereum works in a manner similar to bitcoin. The ethereum network exists on thousands of computer networks globally. It does not have a centralized server, but has multiple users who participate as nodes. Due to this, the system becomes decentralized and at the same time immune to cyber attacks. If one computer system goes down, there are multiple other computers that hold up the entire network.

On Ethereum, network interactions are like transactions, stored in blocks on the blockchain. Miners validate and add these blocks to the blockchain, creating a digital ledger. This process, called proof-of-work (PoW), involves miners using their computer power to find a unique 64-digit code for each block. This code proves their work, and in return, miners earn ETH as a reward.

What are the Features of Ethereum?

Given below are the salient features of Ethereum -

  • Smart Contracts: You can create and deploy smart contracts in ethereum using a programming language called solidity. Solidity is an easy to learn programming language that is an object oriented programming language.
  • Ethereum Virtual Machine (EVM): EVM is the engine that run, compile and deploy ethereum-based smart contracts.
  • Ether: It is the native cryptocurrency of the ethereum cryptocurrency based network.. It can be used for payment of transaction feed on the etherum of the ethereum network.
  • Decentralized Applications (DApps): DApps runs on the backend code of a peer-to-peer network. It can also have a frontend and user interface to make calls from its backend. They work the same way regardless of the user's environment.
  • Decentralized Autonomous Organizations (DAOs): DAOs are democratic, decentralized organizations relying on smart contracts for decision-making and voting within the organization.

What are the Advantages of Ethereum?

  • Easily Available: Since it is a decentralized system, it doesn’t have any downtime. Even if one computing node goes down, the network is held up by other nodes.
  • Confidentiality: There is no need to enter the personal details of the users while using the network for exchanges. This helps the users remain anonymous and helps safeguard their privacy.
  • Security: Ethereum can be called unhackable. The hackers have to hack multiple networks to take control of the entire ethereum network. This makes it highly secure and safe.
  • Less ambiguity: Smart contracts on Ethereum establish clear, self-executing agreements, eliminating the need for interpretation and ensuring stronger contracts compared to traditional ones.
  • Quick Deployment: Enterprises can efficiently set up and manage private blockchain networks on Ethereum's decentralized platform, avoiding the need to build a blockchain from scratch.
  • Highly Scalable: Ethereum network is a decentralized system and can work with millions of users and hundreds of nodes.
  • Data Coordination: Ethereum's decentralized architecture efficiently manages and allocates data, reducing reliance on a central authority for system management and transaction mediation.

Ethereum holds a significant role in today's financial landscape. Its strong security and ability to handle complex tasks set it apart. To make the most of Ethereum, it's important to understand how it works. Even though it is not illegal to deal in cryptocurrencies in India, the Central government has recently introduced a new sechedule VDA, wherein, it is mandatory to report your virtual digital assets. So, if you have any questions regarding the same, you can get expert advice.

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Frequently Asked Questions

Q- What is Ethereum Blockchain?

Ethereum is a decentralized platform of blockchain that helps establish a peer-to-peer network that verifies and executes the application code called smart contracts. Smart contracts allow the participants to make transactions without the requirement of a central authority.

Q- Is Ethereum a private cryptocurrency?

Unlike some cryptocurrencies that are owned by a private source, ethereum is not a private cryptocurrency. On the contrary, ethereum is a public or open source that is based on the blockchain technology powered operating system and distributed computing platform.

Q- What are ethereum tokens?

Ethereum blockchain tokens which are also known as cryptocurrency tokens and cryptographic tokens are transferable digital assets that are built on the blockchain network.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.