What Is Ethereum And How Does It Work?

If you’re interested in the world of cryptocurrency, you may want to know what Ethereum is and how it works. 

What Is Ethereum And How Does It Work?

But it can be challenging to know what it is and how it works. You search and search, but no matter what you do, you just can’t find the answers that you need.

Well, no more! This article will discuss what Ethereum is and its background, and how it is used in the modern world to advance technology in many different areas, from finance sectors to education and healthcare management. 

What Is Ethereum?

Ethereum was created by Vitalik Buterin, a programmer who wanted to create a better way to run applications on the internet. 

He designed Ethereum to be able to run programs called “smart contracts” without needing middlemen or banks.

Smart contracts are self-executing agreements between two parties that automatically execute when certain conditions are met.

Smart contracts allow developers to build apps that operate outside of the traditional banking system. They also provide a secure way to transfer funds from one account to another. 

On December 17th, 2015, Ethereum went live with its first-ever cryptocurrency: Ether (ETH). It has since risen in value and become one of the most popular cryptocurrencies available today!

Because it is based on coding rules, not human laws, Ethereum blockchain technology offers a unique solution to the double-spending problem – transactions can only be spent once. 

This means that users must trust no third party when sending money using Ethereum.

The vast majority of commercial transactions move through regulated financial institutions like credit cards or Paypal and investors need to worry about theft only if they choose to store their coins offline.

How Does Blockchain Work?

A blockchain is an open, distributed ledger that records transactions across many computers so that everyone involved can view them simultaneously. 

If you send Bitcoin to someone, for example, the entire blockchain becomes immediately updated all at once. 

And this gets interesting when we start talking about smart contracts. Because there’s real power in creating automated self-executing agreements.

The potential impact here is huge. Imagine giving somebody access to your rent payment stream right away. Or being able to make sure that you get paid before any supplier or employee. 

There are countless possibilities for game-changing innovation that could occur once people see how easy it is to use decentralized technologies.

Ethereum is fast becoming known as the ‘world computer’ – but what exactly does that mean? In short, anyone can write an app for the Ethereum platform.

The more sophisticated these applications, the easier they will be to use, the more likely they are to reach a wide user base… and, ultimately, change the world. 

These applications can perform just about anything you would expect as a result of having such powerful, flexible, and global infrastructure.

Ethereum Major Uses

What Is Ethereum And How Does It Work?

Here’s a list of the major use cases already emerging for Ethereum.

1) Identity Management

We’ve seen identity management used with great effect in games like Second Life. Now, thanks to the advent of blockchains, we’re finally seeing the same type of idea applied to the real world.

2) Property Ownership And Transaction Documents

One particularly exciting application comes directly out of ETHGasPrices – a website that allows you to look up market prices of ETH and other leading crypto tokens, powered by data gathered from the Ethereum blockchain. 

You may have thought property ownership was reserved for governments and banks – but the future of land registration looks very different. 

Imagine registering land titles without needing years worth of paperwork and exorbitant fees. At the end of the day though, these properties belong to us and we should at least own the rights to our homes.

3) Music Industry

Thanks to the invention of Smart Contracts, we may soon see a whole new method of music file sharing. 

Most of the current solutions involve centralized platforms where uploading content isn’t entirely legal, nor is it necessarily safe. 

However, putting files onto the blockchain would remove both issues and put ownership back into the hands of the artists. Allowing better control over the monetization of their work.

4) Crowdfunding

Finally, we come to crowdfunding, one of the biggest uses of the Ethereum protocol outside of finance. 

Some startups are using Ethereum crowdsales with tremendous success and now the movement is beginning to catch on throughout the financial sector even.

It’s not hard to imagine an “ICO” (Initial Coin Offering), the process of raising funds through cryptocurrencies, becoming the next big thing.

5) Finance

I know some major financial institutions are staying clear of Ethereum for now because of the currency’s volatility issue. 

But one thing they don’t seem too worried about is the transparency of Smart Contracts enabled by blockchain technology.

So, who knows? By the time you read this article, there might already be dozens of alternative currencies running on the blockchain!

6) Software Release/Versioning

This is more or less built-in, given that every transaction runs alongside a piece of software code. 

That means that every time you send ether, you’re also getting free updates to whatever applications you’ve downloaded via Ethereum. Think iTunes store meets Bitcoin.

7) Online Voting

For years there have been many issues surrounding online polls and elections, especially when it comes to counting votes on websites. 

With Ethereum’s reputation of being bulletproof, it could become possible to create networks of nodes where votes can be added as blocks to the blockchain.

In that way, trustless blockchain-based voting will gain significant traction.

8) Gaming

The ability to play your favorite game or keep score in any number of video games with the click of a button has always seemed like something just out of reach for most people. 

Blockchains allow everyone to take part in gaming communities, regardless of location or skill level.

If anything proves how far the industry has come since Satoshi Nakamoto first posted his white paper, it’s the fact that millions of dollars have already changed hands in virtual gambling tournaments.

9) Supply Chain Management

A lot of companies have been trying unsuccessfully to automate supply chains. 

Once again, Ethereum makes all the difference, allowing smart contracts to completely bypass the need for intermediaries and facilitate direct transactions between multiple parties. 

Companies such as Maersk and IBM are looking into ways to use the blockchain to track goods all around the world.

10) Education

Education has always been the domain of central authorities, but the blockchain opens up interesting possibilities here. 

More than ever, education seems tailor-made for the digital age: students record and log information about themselves as they move across campus, teachers, and professors manage grades and curriculum, and parents monitor homework and attendance. 

Imagine being able to connect all of those systems into a single public ledger, so that no student would ever lose their academic records, and students can see exactly what their peers did during class hours — while ensuring privacy. 

Students and parents alike could be incentivized to learn more efficiently thanks to rewards-based cryptocurrency models.

11) Healthcare Management 

Healthcare is ripe for automation, and it’s not hard imagining new applications for electronic health records run on the blockchain. 

Patients could receive an instant diagnosis from doctors anywhere in the world thanks to smartphone apps. 


Hopefully, this article has helped you begin to understand the current major uses and future potential uses of Ethereum and its relationship to Blockchain technology.

It should help you better understand why we are excited about the future of this technology. 

Financial Disclaimer

This post contains sponsored advertising content. This content is for informational purposes only and not intended to be investing advice.

The investing information provided on this page is for educational purposes only. compundingstacks.com does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks or securities.

The owner(s) of this blog is compensated to provide opinion on products, services, websites, and other topics. The owner(s) may be compensated if you click on a provided link and purchase or sign up for a service. Any product claim or advice about a product or service should be verified with the manufacturer, provider, or party in question. Copyright Compounding Stacks © 2022

Fred Combes
Latest posts by Fred Combes (see all)