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What is Ethereum?

Updated: Aug 15, 2019

Everything you need to know about Ethereum explained in the simplest way.

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What is Ethereum
Ethereum explained in the simplest way


In its simplest form, Ethereum is an open source, distributed public blockchain-based platform that enables various operabilities of blockchain technology, from creating new digital currencies in Token formats by following ERC standards, to developing decentralized applications. While the Bitcoin blockchain is purely used to track the ownership of its digital currency Bitcoin, the Ethereum blockchain offers more possibilities.

Vitalik Buterin, the co-founder of Ethereum, stated that blockchain technology could be used for various functions than just a single peer-to-peer currency like Bitcoin. That is when he came up with the idea behind Ethereum and proposed the Ethereum White Paper in November 2013.

The Ethereum blockchain focuses on running the programming language of any decentralized applications. In this blockchain, miners work to earn Ethers.

Ether is the currency of the Ethereum Platform, more specifically, a cryptocurrency that is generated on the Ethereum network. Ether can be transferred between accounts and used to pay for transaction fees and services on the network.

Another concept in the Ethereum Platform is Gas. Gas is an internal transaction pricing mechanism, which is used to mitigate spams and allocate resources on the network. Every smart contract execution requires a certain amount of gas, which is used to pay miners for including transactions in the blockchain.

Gas is an internal transaction pricing mechanism
Gas is an internal transaction pricing mechanism


Before the creation of Ethereum, there was a very limited set of operations that can be done on blockchain applications. For instance, Bitcoin were developed exclusively to operate as a decentralized cryptocurrency.

Ethereum provides a decentralized Turing – a completed virtual machine, and the Ethereum Virtual Machine (EVM), which can execute scripts using an international network of public nodes.

The EVM is designed to serve as a runtime environment for smart contracts based on Ethereum, enabling developers to run their own programs. This makes the process of creating blockchain applications much easier and more efficient. Thousands of different applications can be built, all on the Ethereum platform. Thence, developers don't have to create an entire new blockchain for each new application.


Ethereum can also be used to construct a Decentralized Autonomous Organization (DAO). A DAO is a fully autonomous, decentralized organization with no leader, which is run by programming code on a collection of smart contracts. It operates completely transparent and is owned by anyone who purchases tokens.

The DAO was meant to act like a venture capital fund for the crypto and decentralized environment, reducing costs by eliminating centralized authority and giving more control and access to the investors. In May 2016, a few members of the Ethereum community announced the inception of The DAO and later, made it the biggest crowdfunding event ever with 12.7M Ether (around $150M at the time).

Unfortunately, in June 2016, a hacker found a loophole in the code which did not come from the Ethereum itself, but from an application that was built on Ethereum, allowing him to attack The DAO’s funds. After a few hours, 3.6M ETH were stolen, approximately $70M at that time. However, the Ethereum community and team quickly took control and placed the hacked funds into an account subject so that the hacker couldn’t complete his breakout.

In 2016, $70M were hacked from The DAO's funds
In 2016, $70M were hacked from The DAO's funds

After the DAO attack, Ethereum was forked (split) into two separate blockchains – the new separate version became Ethereum (ETH), and the original continued as Ethereum Classic (ETC).


Ethereum can also be used as a platform to create other cryptocurrencies. Based on the ERC-20 token standard, developers can issue their own tokens and raise funds with an ICO.

The ERC-721 token standard allows users to track unique digital assets under the form of non-fungible tokens (NFTs). Therefore, it's easy to prove ownership and asset scarcity. These non-fungible assets are digital collectibles or game items from any Dapp Games built on the Ethereum blockchain.

Digital game items as ERC-721 tokens
Digital game items as ERC-721 tokens


All of the properties of the Ethereum blockchain benefit decentralized applications built on the platform.

Immutability: No single intermediary can control the data and manipulate the system on purpose

Corruption and tamper proof: Censorship is impossible as everything is transparent. Apps are based on a network revolved around the principle of consensus.

Secure: No central point of failure and transactions are secured by smart contracts.

Zero server downtime: Apps never go down and can never be switched off as the blockchain database is managed autonomously in a decentralized way without a central server.


Ethereum 2.0 is a full upgrade to the current Ethereum Proof of Work blockchain to create a fully decentralized, permissionless platform. It is a new blockchain, which means it will not be upgraded as a hard fork on the existing chain.

According to that, value will be transferred to the Ethereum 2.0 blockchain from the current chain via a one-way deposit smart contract. Users who want to participate in the Proof of Stake consensus, can deposit 3.2 ETH from the Goerli testnet to become validators in the new system and earn returns on their deposit.

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