Ethereum is a programmable blockchain
Ethereum is a programmable blockchain that extends the decentralized ledger concept of Bitcoin by allowing users to run code on-chain. While Bitcoin functions as a decentralized ledger for maintaining money, Ethereum adds programmable functionality through smart contracts that execute automatically when specific conditions are met, allowing for decentralized applications to run on the blockchain without needing human intervention. These smart contracts act like a vending machine where you insert money and the machine dispenses a snack without needing human intervention. Such code enables decentralized applications, or dApps, to function without traditional intermediaries. Ethereum uses EOAs, contract accounts, an account-based model, and the EVM to make smart-contract execution consistent across the network. EOAs are user-controlled accounts secured by a private key. These accounts can send and receive ETH, interact with smart contracts, and initiate transactions. Contract accounts are controlled by smart-contract code rather than private keys. They cannot initiate transactions on their own. Instead, they act in response to transactions sent by EOAs or other contracts, executing predefined code when triggered. This account-based approach makes it easier for smart contracts to check balances and interact with users or other contracts. The Ethereum Virtual Machine (EVM) provides a framework for smart contracts to run the same way on every node in the network.
Economic models and consensus
Ethereum’s infrastructure supports decentralized finance, or DeFi, which aims to rework financial functions like lending, borrowing, trading, and earning interest with blockchain-based protocols. DeFi uses smart contracts to automate services such as trading, lending, borrowing, and collateral management. Users interact with smart contracts to manage collateral or enforce rules instead of relying on a bank or broker. ETH is the fuel for the network, and every interaction requires ETH to pay gas fees. These fees compensate validators for keeping the network running and prevent spam by making every action carry a cost. Because Ethereum has limited blockspace, costs rise when more users want to use the network at the same time. Under EIP-1559, a transaction fee includes a network-determined base fee and may include a priority fee for the validator, and gas prices are quoted in gwei.
| Asset | Price | Change |
|---|---|---|
| Bitcoin | $65,623.20 | -4.41% |
| Ethereum | $1,837.04 | -4.77% |
| Tether | $0.999312 | +0.00% |
| BNB | $597.54 | -5.50% |
| USDC | $0.999616 | +0.01% |
The network transitioned from Proof of Work to Proof of Stake during the upgrade known as The Merge. This move replaced miners with validators who create new blocks based on their staked ETH. Staking acts as a financial commitment to follow the rules. I find slashing a blunt way to enforce compliance, as dishonest behavior puts a validator’s staked funds at risk.
Layer 1 competition and scaling
Ethereum is a Layer 1 blockchain, which is a base, independent network that does not rely on another chain for operation. This category includes other chains like Bitcoin that may optimize for different needs like speed, cost, developer experience, or decentralization. The blockchain trilemma forces a trade-off among decentralization, scalability, and security, where improving two cornerstones often comes at the cost of the third. I find the common traffic jams and rising tolls a significant drawback for users seeking consistent access. As more people use the network, the scalability problem becomes more evident. Ethereum uses Ethereum Improvement Proposals (EIPs) to coordinate upgrades through a structured process where an idea is written down, reviewed, and debated before possible implementation. Web3 infrastructure, including wallets as user access points, middleware such as RPC nodes and oracles, and security or audit services, supports these base layers.
