What Is Ethereum and How Does It Work?

The Coin Times
7 min readNov 3, 2021

One of the most popular cryptocurrencies is the Ethereum coin. Among crypto traders, HODLers and experts, Ethereum is often called the second most popular and most traded cryptocurrency, after Bitcoin. However, unlike Bitcoin, Ethereum was created to be much more than a simple medium of exchange or store of value. Ethereum was designed and calls itself a decentralized computing network that is built on blockchain technology.

As you already know, Ethereum is a unique digital currency that exists online alone. Ethereum is one of the many cryptocurrencies that have taken over the crypto market since its initiation.

Ether (ETH) is the native governance token of the Ethereum network; and just like Bitcoin, ETH works with the aid of a public blockchain network. However, Bitcoin is used in tracking the ownership of the currency (BTC) itself.


(this signaled that some amount of the cryptocurrency was actually burned to increase value and transaction speed).

Vitalik Buterin, the brain behind the Ethereum network launched the first version of the ERC-20 platform in 2015, alongside several other co-founders and investors. Since its initiation, Ethereum has proven to be one of the best virtual assets designed by man, after Bitcoin.

But other than that, what more do we know about the second largest traded cryptocurrency? Let’s find out…

What is Ethereum?

As mentioned earlier, the Ethereum token doesn’t work like other cryptocurrencies, or on the basis of a blockchain network. Ethereum operates on a decentralized platform or a Distributed ledger called a Blockchain. A blockchain is designed to manage and track the activities performed on a cryptocurrency platform or network. Similarly, a blockchain can be said to store every receipt for every transaction that takes place in the crypto space.


The set of computers that are responsible for the blockchain will ensure the validity and integrity of each transaction’s data, making it a decentralized network. Being a decentralized network, users can exchange money in the form of digital currency without the services of a middleman like a bank or exchanger. Ethereum also allows its users to make transactions without releasing their personal information or identity, irrespective of transaction size.

Cryptocurrency as a whole has adapted and integrated several techniques to attract more users with the aid of Ethereum’s characteristics. In summary, users can view crypto as a token that is spent for a specific purpose which is enabled by the Ethereum platform.

Ethereum also integrates several other functions like sending money, buying, and selling within its network of resources. There are also other great functions like smart contracts and DeFi development on the Ethereum network.

How does Ethereum Work?

For the Ethereum network to function, thousands of computers are connected worldwide with the aid of nodes. Nodes enable the network to be decentralized, immune to external attacks, and capable of withstanding server crashes. Since when one computer goes down, there are still many others holding the network up; ensuring it is still working.

Ethereum can be described as a single, decentralized system that runs a computer called an Ethereum Virtual Machine (EVM). Each node on the EVM has a copy of that machine; so, all interactions are completely verified so that each user can update their copy. When computers interact with the users and vice versa, the process is termed or considered a “transaction.”

On the Ethereum network, miners get to validate the blocks before committing them to the network and include them in transactional history on a digital ledger. Mining to verify digital transactions on the blockchain is known as the proof-of-work consensus method. Every blockchain has a unique 64-digit code that is specific to it alone, and its computing power is the proof of the said work. Miners are rewarded in ETH for their efforts and tools used.

So! The question now is how do miners get paid? Every time a transaction is performed, users are charged a fee. This fee varies depending on the number of tokens traded and the blockchain; these fees are called “gas.” The gas is paid to miners who validate the specified transaction, incentivizing future mining and ensuring a secure network.

Gas fees serve as a limit that restricts the number of actions that a user can make per transaction. Gas fees also serve as a check to prevent network spamming and other irregularities. Since ETH is a powerful utility token, its actual supply is infinite; hence, Ether consistently retains its circulation whenever a miner clears a transaction. However, Ethereum gas fees are really high or expensive, depending on the network activity

Aside from that, network congestion also affects transfer speed on the ERC-20 network. Interacting with Ethereum requires the actual cryptocurrency, stored in a wallet. That wallet connects to DApps, acting as a passport for the Ethereum ecosystem. From there, anyone can purchase items, play games, lend money and do all sorts of activities just as they do on the traditional internet. Only, the traditional web is free to users, as they’re giving away personal information. Centralized entities running websites then sell that data to make money.

What are the Functions of Ethereum?

Ethereum powers a lot of activities on the blockchain and has a lot of functions. Looking at them closely and understanding them is important for individuals hoping to venture into Blockchain technology.

Smart Contracts:

Smart contracts can be considered as a platform that doesn’t require app permissions to automatically execute its action. It performs its expected action under the contract’s direction and when the conditions have been met.


DeFi or decentralized finance is unlocked whenever you use Ethereum. Various individuals try avoiding centralized exchanges or control of their assets and money. Hence, Ethereum provides a better opportunity for them to access their assets without being monitored.


Ethereum powers various digital applications allowing a user to play games, invest, send money, and track their investment portfolio. Through these platforms, users can earn more money in the form of Ethereum, while generating online value.


Having a cryptocurrency wallet allows users to send and receive Ether, pay for goods and services and perform various other technical transactions. Platforms like Coinbase, and Gemini allow users to take custody of their cryptocurrency assets in a personal digital wallet; to avoid hackers and other online and physical threats.


NFT is short for Non-fungible tokens; these tokens can be powered by Ethereum and allow digital artists or normal individuals to sell art, music, or GIFs directly to interested buyers, by using smart contracts.

How to Buy Ethereum

On Binance

When buying crypto on Binance, depending on your region there are two major methods of buying crypto with your Fiat currency. The first is via the P2P option or using your debit/credit card.

  1. Credit/Debit Card Method

First, log in to your Binance account; then navigate to the upper-right corner of your screen. There you’ll find the “Buy Crypto” button; using your mouse to hover over it will give you access to these options (bank deposits, credit-debit cards, P2P trading, cash balance, and third-party payments).

If you click on the “Credit/Debit Card” option, you will see the page below.

Once you’ve chosen the amount of money that you want to spend, press “Continue” — at this point in the purchasing process, you’ll be prompted to verify your account (if you haven’t done so prior to deciding to buy Ethereum on Binance). Press “Verify Now”.

Finally, you’ll be directed to the verification page, if you haven’t verified your Binance account yet.

However, if you have verified your account, you will be redirected to a payment window to complete the payment. After payment, your ETH coin will be deposited in your Ethereum wallet within a few minutes.

  1. Using your P2P Option

Using the P2P option is much easier, compared to using your credit or debit card. First, visit the P2P option under the funding option in your wallet menu. Next, visit and select the P2P section, and choose Ethereum under the Buy option. Choose a suitable vendor and select the amount of Ethereum you want to buy, and choose your payment method.

Next, make the payment and wait till the vendor confirms your payment and releases the crypto to your P2P wallet. Then you’re done!

Benefits of Using Ethereum

Users of Ethereum enjoy several benefits, among these benefits are:

Data coordination:

With its decentralized architecture, Ethereum can better allocate information and trust to allow users to avoid relying on a centralized entity for system management and transaction speed. Ethereum’s decentralized architecture better allocates information and trust so that network participants do not have to rely on a central entity to manage the system and mediate transactions.

Rapid deployment:

Ethereum has an all-in-one SaaS platform such as Hyperledger Beau, which can easily deploy and manage private blockchain networks. Allowing developers to avoid re-coding their Blockchain technology from scratch.

Network Size:

The Ethereum mainnet shows that the network can handle large numbers of nodes and users. Hence, the network processing is much faster compared to a network with less than 10 nodes.