What is Ethereum (ETH) and how does it work?

Ethereum Bitnovo
8 min read

You’ve probably heard of Ethereum, one of the most important blockchains in the crypto world. Ethereum presents one of the most innovative technologies aiming to improve the world. In this article we will tell you all about what Ethereum is.

When we talk about Ethereum we refer to a large decentralized digital platform based on blockchain technology. The Ethereum blockchain pursues the goal of becoming the largest platform capable of running DApps (Decentralized Applications).

To achieve its goal, the Ethereum project relies on a cryptocurrency called ETH and a blockchain, both of which have unique qualities.  Among its qualities are the development of DApps, smart contracts and new tokens. Thanks to these qualities, it is considered the most complete blockchain in the world.

Ethereum History

Vitalik Buterin was the creator of the platform. Buterin worked on Bitcoin at the young age of 17 in 2011. Vitalik compiled all of Bitcoin’s flaws to create a blockchain network with superior technology that did not have the same shortcomings.

This platform began its launch in 2013 along with its white paper. In the white paper of the project Vitalik described the foundations of Ethereum. A year later the creator and other developers launched an ICO (Initial Cryptocurrency Offering) in order to finance the development of the platform.In the ICO they managed to raise a total of 18 million US dollars with which the project was financed. Finally, in 2015 Vitalik Buterin officially launched the Ethereum platform under the name Frontier. 

The platform became a success until 2016 when a hacker managed to steal a total of $50 million in Ethereum. Following the theft the platform began to question the security of Ethereum and became divided. After various disagreements the platform split into two blockchains. This split was the beginning of a new cryptocurrency, Ethereum Classic (ETC).


How does Ethereum work?

As mentioned above, Ethereum is a platform oriented to a wide variety of applications and functions including DApps and the development of Smart Contracts. For this purpose, Ethereum works through numerous nodes and programming languages.

Smart Contracts

In short, Ethereum functions as a decentralized global computer. Among its services, smart contracts stand out. A smart contract is a virtual contract between two or more parties. This contract can be signed by individuals, companies and even computers.

Smart contracts have made their way into the world of cryptocurrencies and the real world. Their operation is based on the obligation of the related parties to comply with the terms of the contract. This agreement is guaranteed by digital signatures. The terms of the contract will only be executed if both parties comply with the terms of the smart contract.

Smart contracts can be programmed in almost any blockchain, however, Ethereum is ahead of other cryptocurrencies, thanks to its programmers. This Ethereum service is written using a specific programming language called Solidity.


  • Ethereum smart contracts are one of the most advantageous features of Ethereum. The simple fact of being digital contracts implies a significant saving in paper and intermediaries. Exactly, smart contracts work without intermediaries which brings greater security in addition to saving us expenses in paying intermediaries.
  • LThe security offered by this type of contract is also superior to that of a traditional contract. This is thanks to the fact that the information contained in it is encrypted and backed by the blockchain. By being backed by the blockchain a smart contract cannot be manipulated, changed or forged.

Gas, the fuel of Ethereum Ethereum

In the Ethereum blockchain every movement is measured in units of Gas. Every action taken on the Ethereum network has a specific cost, whether it is a smart contract or application development. Even the smallest action has a cost measured in Gas units.

Gas is the fuel of the network and is used to measure the work performed on it. It is responsible for assigning a specific cost to the execution of specific tasks. Gas also improves safety in the system and serves as a reward for miners. 

However, if you want to learn more about this very interesting feature of Ethereum, we have a detailed post on this topic on our blog.

Ethereum Virtual Machine

We cannot talk about Ethereum without mentioning EVM. It is a software oriented to be an abstraction layer for code execution hosted on the blockchain. The importance of this virtual machine starts from preventing a malicious programmer from creating a smart contract or a DApp that can attack and harm the nodes of the network.

This machine simplifies the development process of DApps and smart contracts. It also ensures the security of the system and extends the functions of the platform. In our blog we have a more detailed post about how the EVM works and all its features.

What is Ether?

Ethereum has its own currency called Ether (ETH). This cryptocurrency functions as a payment method and ranks second in terms of market capitalization. It is a decentralized currency that is not controlled by the government or financial entities.

Ethers, in addition to being a payment method, have the ability to use and develop smart contracts because it works as the gas that drives these actions in the network. 

This cryptocurrency works thanks to the Proof of Work (PoW) consensus mechanism using the Ethash algorithm. This algorithm works through GPU mining. This algorithm ensures the use of highly secure cryptographic elements.


ETH has an annual issuance limited to 18 million coins. This means that each year only 18 million ETH can be created, however, the total issuance is unlimited. A curious fact in ETH mining is that if a miner finds the solution to a block he receives his reward, but if another miner finds the same solution at the same time both miners will receive their rewards.

Regarding the initial issuance of Ethers, this was 60 million of which 12 million was used for a development fund known as the Ethereum Fundation.

Where to buy Ethereum?

It is normal that at this point you are wondering where to buy this digital currency, and let me tell you that you have it very easy. In Bitnovo you can buy Ethereum online in a very simple and fast way. Our website is designed so that even the most beginners can do it.

You simply click on the link in the previous paragraph and there you will see a panel that will automatically calculate how much Ethereum you will receive depending on the amount of Euros you want to exchange.

Once you have chosen the amount, we will ask you about your payment method. You will see that it is a very intuitive process that will allow you to have your ETH available in a matter of minutes.