how does ethereum work 
ethereum uses a blockchain which is a distributed ledger like a database information is stored in blocks each containing encoded data from the block before it and the new information this creates an encoded chain of information that cannot be changed throughout the blockchain network an identical copy of the blockchain is distributed each cell or block is created with new ether tokens awarded to the validator for the work required to validate the information in one block and propose a new one the ether is assigned to the validator s address once a new block is proposed it is validated by a network of automated programs that reach a consensus on the validity of transaction information on the ethereum blockchain consensus is reached after the data and hash are passed between the consensus layer and the execution layer enough validators must demonstrate that they all had the same comparative results and the block becomes finalized proof of stake differs from proof of work in that it doesn t require the energy intensive computing referred to as mining to validate blocks it uses a finalization protocol called casper ffg and the algorithm lmd ghost combined into a consensus mechanism called gasper gasper monitors consensus and defines how validators receive rewards for work or are punished for dishonesty or lack of activity 8solo validators must stake 32 eth to activate their validation ability individuals can stake smaller amounts of eth but they are required to join a validation pool and share any rewards a validator creates a new block and attests that the information is valid in a process called attestation the block is broadcast to other validators called a committee which verifies it and votes for its validity validators who act dishonestly are punished under proof of stake those who attempt to attack the network are identified by gasper which flags the blocks to accept and reject based on the validators votes 8dishonest validators are punished by having their staked eth burned and removed from the network burning is the term for sending crypto to a wallet without private keys effectively taking it out of circulation ethereum owners use wallets to store their ether keys a wallet is a digital interface that lets you access your cryptocurrency your wallet has an address which can be thought of as an email address in that it is where users send ether much like they would an email 9ether is not stored in your wallet your wallet holds private keys you use as you would a password when you initiate a transaction you receive a private key for each ether you own this key is essential for accessing your ether you can t use it without it that s why you hear so much about securing keys using different storage methods the smallest unit or denomination of ether is a wei there are seven total denominations wei kwei mwei gwei micro ether twei milli ether pwei and ether ethereum vs bitcoinethereum is often compared to bitcoin while the two cryptocurrencies have many similarities there are some important distinctions ethereum is described by founders and developers as the world s programmable blockchain positioning itself as a distributed virtual computer on which applications can be developed 10 the bitcoin blockchain by contrast was created only to support the bitcoin cryptocurrency as a payment method the maximum number of bitcoins that can enter circulation is 21 million 11 the amount of eth that can be created is unlimited although the time it takes to process a block of eth limits how much can be minted each year 12 the number of ethereum coins in circulation as of may 2024 is just over 120 million 13another significant difference between ethereum and bitcoin is how the respective networks treat transaction processing fees these fees known as gas on the ethereum network are paid by the participants in ethereum transactions and burned by the network the fees associated with bitcoin transactions are paid to bitcoin miners ethereum uses a proof of stake consensus mechanism bitcoin uses the energy intensive proof of work consensus which requires miners to compete for rewards the future of ethereumethereum s transition to the proof of stake protocol which enabled users to validate transactions and mint new eth based on their ether holdings was part of a significant upgrade to the ethereum platform however ethereum now has two layers the first layer is the execution layer where transactions and validations occur the second layer is the consensus layer where attestations and the consensus chain are maintained 14the upgrade added capacity to the ethereum network to support its growth which will eventually help to address chronic network congestion problems that have driven up gas fees 115to address scalability ethereum is continuing to develop a scalability solution called danksharding sharding was a planned concept that would allow portions shards of the blockchain to be stored on nodes rather than the entire blockchain however sharding was replaced with plans for danksharding where transactions are processed off chain rolled up summarized using data availability sampling and posted to the main chain via a blob binary large object danksharding using blobs rollups and data availability sampling is expected to greatly reduce costs and increase transaction processing speeds when eventually combined in a future update 7lastly ethereum publishes a roadmap for future plans as of may 2024 four primary categories were listed for future work those changes will push for web3 is still a concept but it is generally theorized that it will be powered by ethereum because many of the applications being developed for the future of the internet use it 17ethereum is also being implemented into gaming and virtual reality decentraland is a virtual world that uses the ethereum blockchain to secure items contained within it virtual land avatars wearables buildings and environments are all tokenized through the blockchain to create ownership 18axie infinity is another game that uses blockchain technology and has its own cryptocurrency called smooth love potion slp slp is used for rewards and transactions within the game 1920non fungible tokens nfts gained popularity in 2021 nfts are tokenized digital items created using ethereum 21 generally speaking tokenization gives one digital asset an identifying token with a private key the key gives only the owner access to the token the nft can be traded or sold and is a transaction on the blockchain the network verifies the transaction and ownership is transferred nfts are being developed for all sorts of assets for example sports fans can buy a sports token also called fan tokens of their favorite athletes which can be treated like trading cards some of these nfts are pictures that resemble a trading card and some of them are videos of a memorable or historic moment in the athlete s career the applications you may use in the metaverse such as your wallet a dapp or the virtual world and buildings you visit are likely to have been built on ethereum decentralized autonomous organizations daos are a collaborative method for making decisions across a distributed network 22 they have been created for many uses from web 3 development to gaming and venture capital here s how daos are generally designed imagine that you created a venture capital fund and raised money through fundraising but you want decision making to be decentralized and distributions to be automatic and transparent your dao could use smart contracts and applications to gather the votes from the fund members buy into ventures based on the majority of the group s votes and automatically distribute any returns the transactions could be viewed by all parties and there would be no third party involvement in handling any funds 