What is Ethereum? A Complete Beginner’s Guide

What is Ethereum? For those stepping into the cryptocurrency space, this is a logical inquiry, given its omnipresence on exchanges and in the news. Ethereum is a cryptocurrency just like Bitcoin. However, Ethereum isn’t in direct competition with Bitcoin. In fact, it distinguishes itself in various ways.

Unlike Bitcoin, Ethereum goes beyond being just a cryptocurrency. Interestingly, Ethereum itself doesn’t refer to the crypto; that designation belongs to Ether (ETH). Ethereum transcends mere digital currency as it’s a comprehensive platform and a technological marvel in its own right.

While the Ethereum network may initially seem intricate to newcomers in the cryptocurrency world, understanding its basics is important. This article aims to provide a foundational grasp of Ethereum, moving beyond the confines of Ether as it has evolved into one of the world’s leading digital economies. Below, we will take a look at what Ethereum is and why it has taken the world by storm.

What is Ethereum?

Ethereum serves as an open-source software platform, providing developers with the tools to create cryptocurrencies and decentralized applications on the Internet. Think of it as your smartphone’s app store, where a variety of apps can be downloaded to assist with various tasks. Similar to the app store’s underlying system, such as iOS or Android, Ethereum functions as a web-based “app store,” fueled by its distinctive digital currency, Ether.

Investing in Ethereum means acquiring its primary digital currency, known as ether or ETH. To put it simply, Ethereum operates as a dynamic platform facilitating the creation of digital assets and decentralized applications, with ether serving as the driving force behind its functionality.

What is Ether (ETH)?

Ether Token

Ether serves as the transactional token that enables activities on the Ethereum network. To power the programs and services within this network, various resources like computing power, equipment, internet connections, and maintenance are essential. Users utilize Ether as payment to compensate network participants for carrying out their requested operations on the Ethereum network. In essence, Ether plays a crucial role as the currency facilitating transactions and maintaining the functionality of the Ethereum ecosystem.

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Ethereum Blockchain

At its core, the Ethereum platform operates as a blockchain. As mentioned earlier, it does feature its own cryptocurrency, Ether (ETH), but it also serves as the foundation for various other cryptocurrencies built on the Ethereum blockchain. These cryptocurrencies are referred to as layer two solutions, with Ethereum itself functioning as Layer 1. It also boasts its own programming language known as Solidity.

Ethereum provides a means for seamless transactions, opening the door for cryptocurrency to become a part of everyday life in unprecedented ways. Beyond facilitating monetary transactions, it empowers the development of decentralized applications (dApps) across diverse industries like online gaming, healthcare, food safety management, and supply chain logistics.

Ethereum’s History

The concept of Ethereum took shape in 2013 when Vitalik Buterin and Gavin Wood envisioned this blockchain platform. While many programmers played vital roles, Buterin and Wood are credited as the primary figures, with Buterin leading the way. They successfully raised $18.3 million through a public initial coin offering (ICO) in 2014.

Vitalik Buterin at a public speaking event

The Ethereum blockchain officially launched in 2015 under the Ethereum Foundation, and since then, it has undergone various updates and improvements.

In 2016, Ethereum faced a significant event known as a hard fork, leading to the creation of Ethereum Classic. This resulted from a disagreement within the Ethereum community about making updates to the blockchain. Ethereum Classic represents the legacy chain of Ethereum, preserving the original blockchain with a record of every transaction.

During its official ICO, the price of ETH was $0.311. Since then, the value has surged significantly. The highest recorded Ethereum price was $4878 in November 2021,

Ethereum Smart Contracts Explained

Ethereum’s functionality relies on the use of smart contracts. Essentially, a smart contract is computer code that sets out the terms of an agreement and ensures that the involved parties adhere to those terms.

What makes smart contracts unique is their execution on the blockchain, allowing two parties to initiate and fulfill a contract without the need for a traditional intermediary. These contracts are transparent and immutable, preventing any party from altering the contract terms later.

Unlike traditional legal contracts, smart contracts are not limited to judicial matters; they are essentially lines of code designed to execute specific functions.

Consider a smart contract as specialized business software developed by coders to run applications on a decentralized network, commonly known as decentralized applications or dApps.

Despite their name, smart contracts lack artificial intelligence. They operate strictly based on their underlying code, and any errors made by the creator can lead to glitches or, in extreme cases, security vulnerabilities, attracting hackers and fraudsters.

Unlike traditional business software confined to specific companies, smart contracts can involve multiple players globally, thanks to blockchain technology. It’s important to note that while smart contracts interact with a decentralized network, the actual contract code is stored on the server of its creator, not distributed across the entire network of computers.

What are Decentralized Applications (dApps)

What are Decentralized Applications (dApps)

Decentralized applications, or dApps, are software programs designed to operate on a blockchain or a peer-to-peer (P2P) network of computers, as opposed to a single computer. This characteristic places dApps beyond the control of any single authority.

When it comes to  Ethereum, decentralized applications (dApps) rely on two key elements:

  • Smart Contracts: Similar to traditional contracts, these agreements have their terms coded into lines of code, enabling automatic execution.

  • User Interface: This serves as the interface through which the smart contract functions. To visualize, think of a DApp like a vending machine, which is the user interface, with the terms coded in the smart contract dictating its function.

DApps have the potential to cover a wide array of scenarios or purposes, ranging from entertainment and banking to healthcare. Operating on the blockchain, they offer several advantages, such as being open-source, autonomous, developer-friendly, and secure. This decentralized approach improves transparency and security, making dApps a versatile and efficient solution across various domains.

Real-Life Uses for Ethereum

Ethereum has many real-life uses. Below are some of the main ways in which people are using Ethereum today.


Ethereum can also be utilized for lending, offering an alternative to traditional credit-based systems. In the conventional system, major agencies maintain records of individuals’ credit histories. However, these agencies handle vast amounts of data, leading to common errors on credit reports. Correcting these errors can be challenging.

Decentralized lenders on the Ethereum network operate differently. They don’t depend on credit reports from large third parties. Instead, your cryptocurrency acts as collateral for the loan. This approach not only simplifies the loan approval process but also provides more flexibility in repayment terms compared to traditional loans.


Ethereum finds a notable application in crowdfunding, a method for startups to secure initial capital for their ventures. Companies utilize the Ethereum network to create new digital currencies called tokens. These tokens are then offered through an initial coin offering (ICO), where speculators have the opportunity to invest in the new currency. Ethereum itself kickstarted its journey by raising funds through its ether currency via ICO. This approach has proven successful for various tokens on the Ethereum network.


Ethereum’s significant application lies in the creation and use of decentralized applications, commonly known as DApps. These applications are actively developed and utilized on the Ethereum network.

DApps cover a wide range of sectors, from layer two solutions to applications in health and finance. The Ethereum platform is a hub for diverse applications addressing various needs. Notably, games are also being developed on Ethereum, allowing users to engage in gaming experiences and make purchases using Ether, the platform’s native cryptocurrency.

Improved Privacy

Ethereum is contributing to improved privacy solutions, addressing concerns about major corporations, like Facebook, storing personal data. Developers are exploring ways to use the blockchain to secure data, offering a safer alternative.

This approach enables individuals to have more control over their personal information. For instance, you could decide when to disclose specific details about yourself, such as during a school or job application. Once the application process concludes, you regain the ability to shield your data, ensuring a more controlled and secure handling of personal information.

Investment Asset

Ether serves not only as a functional currency but also as an investment asset. As the second-largest cryptocurrency by market capitalization, Ethereum has garnered a strong reputation. Over the years, it has provided substantial returns to investors, making it a preferred choice for many experts.

However, it’s crucial to recognize that cryptocurrencies are highly volatile. Investing in Ethereum, like any other cryptocurrency, carries significant risks. While it has proven to be a fruitful investment for many, potential investors should approach it with caution.

How to Buy Ethereum?

If you’re looking to acquire Ethereum (Ether), you can do so through reputable cryptocurrency exchanges. Almost all major exchanges offer Ethereum, with only a few exceptions. Some well-known exchanges where you can buy Ethereum include Binance, Bybit, Bitflex, and Coinbase. To make a purchase, follow these steps:

Choose a Cryptocurrency Exchange:

Pick a reliable cryptocurrency exchange that supports Ethereum. Popular options include Binance, Bybit, Bitflex, and Coinbase.

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Create Your Account:

Set up an account on the chosen exchange by providing the necessary details. This typically involves creating a username and password and verifying your email.

Complete Identity Verification (if required):

Some exchanges may require identity verification for security purposes. Follow their process, but note that not all exchanges make this mandatory.

Deposit Funds:

Deposit funds into your exchange account. This can be done using a credit/debit card or through direct cryptocurrency deposits. The methods may vary between exchanges.

Purchase Ethereum:

Once your account is funded, you can buy Ethereum. Use the direct buy option or engage in spot trading features, depending on the exchange’s interface. Specify the desired amount of Ethereum you wish to purchase and complete the transaction.

Remember to consider factors such as transaction fees and security measures while choosing an exchange. Your purchased Ethereum will be placed in your exchange wallet, and you can sell it whenever you would like. You can also transfer your Ethereum into an external crypto wallet of your choice.

Ethereum Price Over the Years

Ethereum’s journey in the crypto market has seen fluctuations over the years. The initial price for Ether during its ICO was approximately $0.311. Subsequently, it reached its highest point at $4878 in November. Since then, the price has experienced a decline but is currently moving steadily. Here’s a glimpse of how Ethereum has evolved over the years.

Ethereum all-time chart


In summary, Ethereum is gaining prominence in the digital world, hosting over 3,000 apps across various sectors like finance, art, and health. It evokes the early internet era, brimming with possibilities. Ethereum, with its currency Ether, is increasingly attracting attention for the opportunities it offers. As an asset, Ethereum ranks second only to Bitcoin in market capitalization. When it comes to investing in crypto, Ethereum is an option that cannot be ignored easily.

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