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How does Ethereum network works?


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Ethereum is on its way to change the world. 

What makes it very promising is its decentralized network that processes transactions in real-time and at a low cost. Ethereum (and all the blockchain technology in cryptocurrencies) use the decentralized networks to verify trust, as such, throwing out of the game the middle man used as a trusted authority—banks. 

For this, Ethereum continues to be very promising for the vast majority of applications. As the network usage goes up, so goes its value, and investing in Ethereum may be your next big move.

But before you do that, learn all about how the Ethereum network works. 

“Ethereum has the power to reinvent the global financial system, become the platform all future decentralized apps are built on, and to fix ownership once and for all.” – Tim Denning

Ethereum vs. Bitcoin

While both Ethereum and Bitcoin run in a blockchain decentralized system, the main difference between the two is:

  • Bitcoin is created as an alternative to traditional currencies, used as a medium of exchange and store value.
  • Ethereum is a platform that operates smart contracts and decentralized applications (dApps) with Ether (its currency) to “fuel” and monetize the operation.

The reason why Ethereum competes with Bitcoin is the high network usage and demand for its currency. 

Ethereum Blockchain Network

Ethereum borrows the blockchain technology first used in Bitcoin. Blockchain technology runs in a peer-to-peer network that allows different users to process transactions, store them in blocks that are “chained” to the previous blocks.

The decentralized and transparent nature of blockchain makes the technology safe to use. 

Blockchain stores all the data transactions in real-time among the network of computers globally. If someone wants to hack one block, the network will cross-reference it and dismiss the change.

What Ethereum does more than Bitcoin

Two things give Ethereum its vast application:

  • Smart Contracts 
  • dApps

Smart Contracts 

Smart Contracts are the rules which allow transactions to take place only after the conditions are fulfilled. Bitcoin uses the same system, but Ethereum expanded Smart Contract operations for transactions of other financial products. This Ethereum feature gave birth to decentralized finance (DeFi). DeFi cuts down the middle man like banks, brokerages, and exchanges, which results in lower transaction costs.  


dApps are applications that run on a blockchain as oppose to the traditional central servers. With a dApp, the user instead of handing out personal data to the company providing the service, gain control over their data because they don’t need to trust anyone to store their information.

Ethereum encourages its users to build dApps through their platforms.

In the Ethereum white paper first published in 2013, dApps classified as:

  • Financial apps
  • Semi-financial apps 
  • Other apps such as online voting and storage apps.

Ethereum 2.0

Ethereum developers announced Ethereum 2.0, an upgrade that makes Ethereum more scalable, secure, and sustainable. In this upgrade, Ethereum is moving from the proof-of-work consensus to proof-of-stake (POS). To validate transactions in the network, the users need to “stake” their ethers. The new system has several advantages:

  1. The new system uses less energy to mine the blocks.
  2. Less energy means you don’t need elite hardware to create new blocks
  3. POS leads to more nods in the network, making the network stronger
  4. POS supports shard chains—the smaller chains that will split up—making the network process transactions faster.

To concludeWith the new updates and its wide range of applications, Ethereum will continue to be a trending investment. The opportunities it offers in digital applications are endless. Currently, Ethereum is the second-largest cryptocurrency in the market with a market cap of $173 billion, with Ether priced at $1,504.