How Ethereum Works
You understand how Ethereum works on the surface. Now it’s time to look under the hood of the decentralized vehicle. Think of an app — any app. It could be your Google Calendar app or your iCloud storage. Your data will be stored in one of Google or Apple’s many data centers around the world. That is a centralized system.
Ethereum compresses, copies, and spreads out your calendar appointments or photos to many different data centers. Every time you add a new calendar appointment or picture, the network gets updated. The system comprises computers, of course, and computers cost money to run. You pay for using those computers with Ether/GAS tokens.
Turing-complete programming language
The above analogy is perhaps as simple as one can explain how Ethereum works. The team behind the platform has borrowed heavily from the Bitcoin protocol. Remember that Vitalik Buterin started as a Bitcoin enthusiast (Read: “Who Created Ethereum?”). There, however, is where the similarities end.
Ethereum aims to be much more versatile than Bitcoin. Although the project is based on the template created by the Bitcoin team, the Ethereum team wants to phase it out eventually. The overall purpose of Ethereum is to allow for the creation of a decentralized application (dapps) or all kinds.
It takes a lot of work to make that happen. The format of the data transactions themselves has to be rethought and restructured. To accomplish this, Ethereum makes use of a Turing-complete programming language. This programming langue allows the developers the flexibility required to expand the network’s capabilities.
The Ethereum blockchain
Ethereum’s blockchain is a record of all the Ether transactions made using the network — just like with Bitcoin. Each node on the system will store a copy of all these financial transactions. Where Ethereum goes a step further is that each node also saves the most recent state of smart contracts.
The state of a smart contract is the last change that happened to it. The state could be that it was just set up. It could be that it has not executed its function yet, or that it has indeed been carried out. Let’s use the previous analogy of the Google Calendar app. The moment you create a calendar appointment, the state of the state of the app changes. The smart contract makes up the basis of the app, which means that you’re amending the smart contract itself.
The Ethereum Virtual Machine
Thousands of computers process every change you make in a dapp on the Ethereum network. The changes themselves are made written in ‘bytecode’ which is analyzed and carried out by the Ethereum Virtual Machine. Although it sounds sophisticated, the virtual machine is actually not much more advanced than a cell phone from the 90’s. However, it becomes very powerful once you combine all the computational power of the network nodes.