What Is Ethereum and How Does It Work?

What Is Ethereum?

At its core, Ethereum is a decentralized global software platform powered by blockchain technology. It is most commonly known for its native cryptocurrency, ether (ETH).
Ethereum can be used by anyone to create any secured digital technology. It has a token designed to pay for work done supporting the blockchain, but participants can also use it to pay for tangible goods and services if accepted.
Ethereum is designed to be scalable, programmable, secure, and decentralized. It is the blockchain of choice for developers and enterprises creating technology based upon it to change how many industries operate and how we go about our daily lives.
It natively supports smart contracts, an essential tool behind decentralized applications.1 Many decentralized finance (DeFi) and other applications use smart contracts in conjunction with blockchain technology.
Learn more about Ethereum, its token ETH, and how they are an integral part of non-fungible tokens, decentralized finance, decentralized autonomous organizations, and the metaverse.

KEY TAKEAWAYS

• Ethereum is a blockchain-based platform best known for its cryptocurrency, ether (ETH).
• The blockchain technology that powers Ethereum enables secure digital ledgers to be publicly created and maintained.
• Bitcoin and Ethereum have many similarities but different long-term visions and limitations.
• Ethereum changed from proof of work to proof of stake in Septemeber 2022.2
• Ethereum is the foundation for many emerging technological advances based on blockchain.

How Does Ethereum Work?

Vitalik Buterin, credited with conceiving Ethereum, published a white paper to introduce it in 2014.3 The Ethereum platform was launched in 2015 by Buterin and Joe Lubin, founder of the blockchain software company ConsenSys.45
Coindesk. "Who Created the Ethereum Ecosystem?"

The founders of Ethereum were among the first to consider the full potential of blockchain technology beyond just enabling the secure virtual payment method.
Since the launch of Ethereum, ether as a cryptocurrency has risen to become the second-largest cryptocurrency by market value. It is outranked only by Bitcoin.6

Blockchain Technology

Ethereum and other Ethereum-based products, like other cryptocurrencies, involve blockchain technology. Imagine a very long chain of blocks. All of the information contained in each block is added to every newly created block with new data. Throughout the network, an identical copy of the blockchain is distributed.
This blockchain is validated by a network of automated programs that reach a consensus on the validity of transaction information. No changes can be made to the blockchain unless the network reaches a consensus. This makes it very secure.
Consensus is reached using an algorithm commonly called a consensus mechanism. Ethereum uses the proof-of-stake algorithm, where a network of participants called validators creates new blocks and works together to verify the information they contain. The blocks contain information about the state of the blockchain, a list of attestations (a validator's signature and vote on the validity of the block), transactions, and much more.