Blockchain Cryptocurrency

How does Ethereum work?

Before reading this article, we recommend you read What is Ethereum.

Ethereum’s process can be seen as layers and here is our attempt to explain it in very simple terms, non-technical in case you are an expert.

So, let’s try do this…

First layer is made up of computers processing, sharing and updating data overtime (blockchain).

Second is a software layer, where they run the smart contracts, through a process named Solidity.

Ps: Solidity is the programming language developers use to build features.

Third layer has all the different service applications to Ethereum users.

The most amazing feature is decentralization of it all. Creating immutable documents, that live in so many computers that becomes impossible for it to be altered, switched or erased.

1. Ethereum’s hardware Network — Blockchain Layer.

You see this article you are seeing? Everything you see on the web is hosted by centralized servers that stores this data somewhere, and every time you “the client” connect to theses servers it browses and downloads whatever it is you are looking for. The internet makes the connection between users and userswhether they are creators or not. It connects people to whatever it is they are looking for, and this connection is called peer-to-peer network.

Ethereum’s hardware is no different in its sharing of data, it’s a peer-to-peer network. And this layer computes, shares, records every transaction database from user to user, on a ledger, an immutable and global decentralized list that records every transaction by every user’s computer. And all information recorded is distributed to every user. Each computer in the network is called “node” and their job is to validate each transaction, put them into blocks, and distribute to everyone in the network: this is blockchainecosystem. Check out every computer in the network processing in real time on EthStats.

Image credit: Michele D’Aliessi.

Transactions carry information in the form of code, and value in ether, the Ethereum coin. Every transaction in the blockchain requires “gas” to move, meaning transactions are like “cars” that are moved by gas and you pay “to get gas” in ether.

Anyone can offer their computer to process transactions all they got to do is download some codes. The people who run the nodes are incentivized with a reward in ether, which carries great value as we have seen above.

2. Solidity and Smart Contracts: Ethereum’s software.

This Ethereum layer has been built to allow a transaction of value in the form of any asset you can think of, a song copyright, a car, currency, whatever.

Smart contracts allow a set of rules that once met they will self-execute. The language used by the developers, when creating simple transactions logic, parameters to develop smart contracts, it’s called Solidity.

For example, a Smart Contract can implement the following logic: if both Mark and Bob send five Ether to Jack, then automatically send two Ether from Jack to Alice.

(example above and image credit below goes to: Michele D’Aliessi. Thanks!)

Here is what Solidity looks like:

Ethereum platform code is open source found at Github. It allows anyone to create their own currency, tokens.

To learn to program Solidity go to Ethereum´s Webiste or you can also search there many sources to teach how to program Solidity.

So, to summarize this layer, Ethereum’s software allows developers to create smart contracts, with parameters and public codes to transfer value, which everyone can see. Yes?

3. Application Layer: Ethereum dApps.

There are about 900 applications build on Ethereum, where as 70% of them are still under development.

To put it simply, dApps are the result of combining the Ethereum’s hardware blockchain and software, you now have transactions of value with security, transparency, higher quality codes that are decentralized and open-source, that naturally leads to any bug-fixing quickly, since anyone can see these codes including hackers. In other words, open-source software on blockchain system are: dApps.



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