What is the Ethereum Network?

Learn what the Ethereum network is and how the cryptocurrency, Ether, as well as the technological framework called a smart contract, relate to it.

Ian LeViness

2021-04-15 4 min read

Back in 2013, a software developer named Vitalik Buterin decided that Bitcoin wasn't enough and proposed a new cryptocurrency network that would better support not just cryptocurrencies but decentralized applications as well. The idea was that through launching a blockchain based on its own, Turing-complete programming language, a network could be created that supported not just cryptocurrencies like Bitcoin but also what are called "smart contracts."

Fundamentally, a smart contract is nothing more than a piece of software hosted on a blockchain that runs on its' own once it is launched and bases its' decisions on already encoded, conditional logic. That means that if the software includes the instructions "if 1 unit of currency a is received, output 1 unit of currency b," then it will always be able to execute that operation. What really makes smart contracts unique, however, is that they can be coded with just about any instructions and be expected to follow them reliably. 

So, if you wanted to create a contract which took in 1% of a Bitcoin and output access to a video game, you could do that. Truthfully, the possibilities are endless and stretch far beyond such simple access tokens or currency exchange services. Even so, if you understand the basics, then it's easier to understand how far smart contracts have come today and where they're likely going.

To reliably achieve that understanding, it's important that we take a step back and explain a bit more about what Ethereum is.

So, the Ethereum network is just a blockchain with smart contracts hosted on it?

No, not exactly. It's really more of a "world computer." Through using the blockchain as a base layer and a programming language that makes it easy to code programs that fit the definition of "smart contracts," Ethereum is able to function as a decentralized hosting layer for all sorts of applications and services.

If you're scratching your head at this point, don't worry.

It helps to first imagine what a blockchain is. At face value, a blockchain is like a spreadsheet that's controlled by a horde of users all at once, each of whom has a full copy of it at all times. Add a cryptocurrency into the mix and the blockchain in question becomes both a central bank and a run-of-the-mill commercial bank as well, since it can create, store, and move currency and assets. If you're still confused, consider Bitcoin. Through its' usage of the Proof-of-Work process or "mining," it is able to store and create bitcoins, which are really just extremely shortened versions of computer files that come in the form of hashes, i.e., randomized letters and numbers that look like secret codes. New Bitcoins are created when miners successfully add what is called a "block" of transactions to Bitcoin's database(blockchain). Therefore, it's best to consider them as a reward for keeping the network secure and its' records verifiably legitimate. 

How does the Ethereum network differ from Bitcoin?

Now that you're clear on how Bitcoin works, it's easier to grasp how Ethereum works. Essentially, it's Bitcoin with three major twists. First, because it relies on a Turing-complete programming language, which means that its' code can easily solve just about any problem you can think of to solve with software. Because Ethereum depends on such a programming language, it can easily support smart contracts, which are really just software programs that run autonomously once they're launched and function as "self-enforceable, immutable" contracts which are translated to code. That means they can't easily be changed once they're launched and they don't need any sort of counterparty to make sure their terms are honored. Instead, the contract itself is its' own executor. 

With that in mind, it's easy to imagine why Ethereum's unique. It can host just about any application or service you can dream of, in the same way that a blockchain is hosted, by everyone at once in a manner which no single organization has the rights to shut things down on its' own. In other words, it's effectively the first working example of a decentralized hosting platform akin to Amazon Web Services, but without a company controlling everything. Using this analogy, it's possible to then consider Bitcoin as the pioneer of decentralized money, but Ethereum as the pioneer of decentralized services. 

How does Ether relate to the Ethereum network?

Ether is created via a block reward every time a miner successfully verifies a group of transactions and adds them to the Ethereum blockchain, they're rewarded with 2 Ether, which like Bitcoins are hashes that arguably gain their value from the work that miners do on the network to keep it secure, the average transaction fees paid, and the depth of services as well as users that are currently involved on the Ethereum blockchain as a whole. Because the primary usage of Ether lies in paying the transaction fees required to use Ethereum-based applications and services, it's often considered a commodity, though a case could also be made that it falls into a new asset class that doesn't really exist today. In any case, if you consider Ether as a commodity, you'll find it easier to understand how the Ethereum network functions, since it's like the gas that keeps everything going.

What's next?

Now that you know the absolute basics of how the Ethereum network works and what Ether is, we'll dive further into DeFi and NFTs, which are two of the foremost topics that I'll be covering over time since I believe they have immense technical potential. Until then, remember that you can always reach out to me on Twitter or shoot me an email at the address below. From experience, I can say that learning crypto for the first time is a headache if you don't have the right sources at your fingertips. That's why I'm creating this educational site in my free time, to give back to those who come after me. Thanks for reading and I hope to hear from you!

Further Reading: 

Here are 2 excellent sources with which you can dive deeper on Ethereum right now!:

Mastering Ethereum

The Infinite Machine

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