How does Ethereum Work

The Ethereum Foundation has taken the Blockchain Technology and built a platform on it. The platform would serve two types for accounts, Ledger accounts and Contracts. The contract implementation and ledger execution would be done securely on the software that run on the Ethereum Virtual Machine (EVM). Blockchain and Virtual Machine concept implementation makes Ethereum work like a giant cloud computer that is omni-present, secure and safe.

Bitcoin is the most popular blockchain program that is widely accepted. Blockchain stores any set of data that is verified across a network independently. It makes the transactions decentralized and secure.

What is EVM (Ethereum Virtual Machine)?
A virtual machine is a software computer which resembles a physical tangible computer, runs an operating system and hosts other software. The virtual machine run on the physical resources of a host without directly interacting with the OS on the host system.

Ethereum works on the EVM which is hosted on the nodes (miners) that executes the smart contracts and updates Ether account balances. This user data is stored in accounts that are objects that store the functions and the account values at a particular time. These functions are the coded smart contracts that has an underlying condition for transfer of value.

This system breaks the shackles of centralization of data storage and a central execution of data with digital banking signatures. The encryption and the further Blockchain implementation is the most secure way of ensuring data protection and also improving performance efficiency.

Virtual machines allow running of operating systems on top of each other. For example, running windows on Apple OS X. Ethereum network would essentially run using this Virtual Machine concept to run independently on the decentralized nodes. It is protected from malicious programs on the host by running (executing smart contracts and transactions) independently using its own platform.

Ethereum is not only a list of transactions like Bitcoin but also a platform. Instead of working like an independent software it works like a platform which provides for change of state of the object defined in the Network. These state objects in the programs are called accounts.


It is easy for programmers to understand the concept of objects, for the inexperienced it is like a group of racers. Racers have their own identity but they are racers so they all affected by some common forces of nature and the racing environment. These characteristics of a racer can be coded into one program instead of storing each racers’ information.

The accounts are of two types EOA (Externally Owned Accounts) which audits the Ether balance of users and contract accounts which stores the state of the contract according to the terms and conditions programmed on it. The contract states are updated by the nodes (miners) after they provide Proof of Network for performing the verification. A plethora of miners around the world verify the states of the contracts independently.

The EOA accounts are protected by the Private Key like Bitcoins. The Private Key is stored with the owner and not reflected on the network, a hash is created every time a transaction is proposed to encrypt the signature of the Ether holder. This is the Blockchain technology that provides absolute security against malicious attacks. The miners are nodes in the Ethereum network that receive, propagate, verify, and execute transactions.

The miners charge a fees which provides proof of legitimacy of transactions and contracts proposed to the network, or unruly behaviours would takeover the system. The Ethereum miners also have an added advantage over Bitcoin Mining as it is ASIC (Application Specific Integrated Circuits) resistant, ASIC devices have mining advantage over conventional systems. It was the conventional system which was envisioned to be the backbone of the network, specialised new age hardware would result it centralisation again.

Ethereum uses ‘ethash’ a specialised hashing algorithm that is designed to provide resistance to ASIC devices which requires intensive memory along with processing speed. Mining of Ether (ETH) is done using GPU (popularly known as ‘graphics cards’) units, although it appreciated decentralisation it took the price of Nvidia, AMD and other GPU units soaring in the seventh sky.

Ethereum is made possible by the users and the nodes. The transactions are sent and contracts are coded which makes the nodes work for it. This dynamic process is the backbone of the blockchain code. Ethereum aims to use this technology to revolutionise the internet.

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