Ethereum is a blockchain-based network that aims to make it easier to build applications that are controlled by code.

When the Ethereum network launched in 2015, it became the first project to expand blockchain's use case by introducing unique technology that allowed people to create their own digital tokens and self-sustaining, autonomous applications. This innovation has paved the way for diverse markets including Decentralized Finance (DeFi), Initial Coin Offerings (ICOs), GameFi and Non-Fungible Tokens (NFTs).

Now the question is, how did Ethereum achieve this?

Ethereum consists ‍at a high level of several key components:

Blockchain

Ethereum shares some uniformity with Bitcoin in that it depends on a blockchain to store and secure transactions.

Remember that a blockchain is a chain of chronologically ordered blocks that contain data about scheduled transactions. Think of it as a ledger, where all activities performed on a network or platform are recorded. Prominently, this ledger is publicly accessible; sense network participants and even outsiders can simply track its content. As well, copies of this ledger are distributed across a global network of computers recognized as “nodes.” These nodes carried out a manner of tasks on the network, including verifying and recording transaction and smart contract data.

This construction allows participants to collectively verify the validity of content added to it and provides ownership of a copy of the blockchain. Some of its benefits are listed here:

1. Censorship resistant
2. No single point of failure
3. Data is completely transparent, reliable and immutable

But, where Ethereum differs from Bitcoin is that nodes not only verify and record transaction data, but also track the "state" of their network. Ethereum stores current information for all applications running on top of it, including each user's balance, all smart contract code, and any changes made.

Here is a summary of what is stored in each node:

1.  Account: Each user has an account and shows how much Ether they have
2.  Smart Contract Status: Displays the status of the smart contract
3. Smart contract code: Ethereum stores smart contracts, which describe the rules that must be met in order to unlock and transfer.

Smart contracts

A smart contract is an easy programmable contract that runs on a blockchain. This technology allows users to digitize conditions governing the rapport and connections between the two parties involved in a transaction. Once these conditions are programmed and launched on the blockchain as smart contracts, they self-execute, which means, they initiate and complete the set of transactions they govern, as long as the predefined conditions are met.

For example, Alex decides to borrow from David 1,000 tether (USDT) only if David deposits ether worth $2,000 as collateral. Alex validates the contract by using a smart contract to define such terms separately, rather than trusting an intermediary to broker the contract. If done correctly, such a smart contract would independently pay David 1,000 USDT while he deposits and locks $2,000 as collateral. Moreover, when Alex repays the loan, the smart contract will discharge the collateral and send it back to David.

As such, the smart contract offers a trustless system where neither Alex nor David has to worry about counterparty risk. It also eliminates the importance of middlemen. Here, Alex and David do not need to pay an extra fee to a mediator or escrow service before they can conduct peer-to-peer transactions.

Interestingly, Ethereum was the first blockchain to invent and implement smart contracts as part of blockchain functionality. Later, this novelty unlocked blockchain use cases and in the end led to an explosion of decentralized applications.

The Ethereum Virtual Machine (EVM)

EVM is Ethereum's native processing system, which allows developers to create smart contracts and allows nodes to seamlessly interact with them. Ethereum developers often write smart contracts with Solidity in programming languages such as JavaScript and C++. Smart contracts written in Solidity can be read by humans but not by computers. Hence, it needs to be converted into low-level machine instructions, called opcodes, that the EVM can easily understand and execute. It is important to know if each Ethereum node has its own EVM.

When someone transacts on a smart contract deployed on Ethereum, each node executes the smart contract and transaction through their own EVM. Each node can see what the end result will be in this artificial environment and whether the result constitutes a valid transaction. If all nodes reach the same valid result, the update is recorded on the Ethereum blockchain and changed.

Consensus method

Ethereum and Bitcoin used the same consensus protocol known as Proof-of-Work (PoW) to verify data and add it to the blockchain. It involves mining nodes competing against each other to win the right to add blocks to the next blockchain using energy-intensive machines.

In 2022 Ethereum moved the network to a Proof-of-Stake blockchain (PoS) in a major change known as The Merge.

The new PoS system requires users to deposit and lock 32 Ether, instead of mining nodes running expensive machinery to discover new blocks. See below the native cryptocurrency of Ethereum  to become network validators.

There are three main benefits of transformation:

1. Ethereum's new Proof of Stake (PoS) blockchain supports shard chain implementation. Those are 64 smaller blockchains that will each handle their own batch of data and allow Ethereum to process significantly more transactions per second.
2. The Ethereum blockchain uses 99.95% less energy than the proof-of-work (PoW) version.
3. Because validators do not need to purchase and operate expensive mining equipment, this will make it easier for people to participate in the network. This will help improve network security and overall decentralization.

Ether

Ether is required to do anything in Ethereum and is called "gas" when used to run smart contacts on the network. The amount of gas required for payment is determined by the type of transaction you plan to perform and the number of transactions Ethereum is waiting to verify.  Gas fee is determined per transaction

Ethereum uses accounts similar to bank accounts to store Ether. Ether has two types of accounts:

1. Externally Owned Accounts (EOAs): Accounts used by ordinary users to hold and send Ether.
2. Contract Accounts: These separate accounts hold smart contracts, which can be triggered by ETH transactions or other events.

How do users interact with Ethereum?

Some users interact with Ethereum through nodes. As clients connects computers to Ethereum by downloading blockchain software onto their systems. You may require downloading a full copy of the Ethereum blockchain, depending on the Ethereum software client you choose.

Alternatively you can create a wallet by generating a private key and start interacting with the blockchain. A wallet generally refers to a digital or physical storage device designed for cryptocurrencies. Each Ethereum wallet comes with a random (alphanumeric) character unique identifier called a wallet address.

These applications and devices act as storage systems for private keys, while most crypto holders store their digital assets in wallets. Blockchain assigns a private key to all Ether holders to access and use their Ether balance as they please. When transferring Ether the blockchain updates your balance to reflect the change in ownership of the transferred coins. These private keys are designed to be stored in wallets. Remember that, a crypto holder cannot access his digital assets without the private key. This is why it is best to keep keys safe and away from lurking eyes. If someone steals your private key, they will succeed in stealing the digital assets associated with a key.

Remember, you only pay fees denominated in Ether when you perform a transaction in Ethereum or trigger a smart contract.