Everything you’ve ever wanted to know about Ethereum, patiently explained

Although ‘Bitcoin’ and ‘Ethereum’ are terms that are often paired together, the reality is that they are vastly different. The only thing Ethereum shares with Bitcoin is that it’s a cryptoasset running on top of blockchain.

Instead of being just a cryptocurrency, like Bitcoin, Ethereum also has features which effectively makes it a huge decentralized computer.

To understand Ethereum, one must understand how blockchain works. If you already understand it, or have already read my ultimate guide to understand blockchain, feel free to go directly to the next section.

What is a blockchain?

A blockchain, simply put, is a database. It’s an ever growing database of certain kind of data and has quite remarkable properties:

  1. Once data is stored in the database, it can never be modified or deleted. Every record on a blockchain is permanent for eternity.
  2. No single individual or organization maintains the database; several thousand individuals do, and everyone has a copy of the database with themselves.

To understand how several people are able to keep their copies of the database in sync with everyone else, imagine there are ten individuals in a network. Everyone is sitting with an empty file folder and an empty page in front of them. Whenever anyone does something important in the network, like transferring money, they announce it to everyone in the network.

Credit: Mohit Mamoria

Everyone makes a note of the announcement on their pages until the page is filled. When it does, everyone has to seal the contents of the page by solving a mathematical puzzle. Solving the mathematical puzzle ensures that everyone’s page had same contents and that they can never be modified. Whoever does it first, gets rewarded with some amount of cryptocurrency.

Note: Want to know how exactly the process is carried out? Read the ultimate guide to understand blockchain.

Once the page is sealed, the page is added to the file folder, a new page is brought out and the process continues forever.

Credit: Mohit Mamoria

As time passes, these pages (blocks) that contain important records (transactions) are added to the folder (chain), thus forming the database (blockchain).

What does a blockchain store?

A blockchain can be used to store any kind of data, and the kind of data a blockchain stores, gives it its value. Bitcoin’s blockchain stores the records of financial transactions, therefore, making it analogous to a currency like dollars or pounds….

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