How Ethereum Works

Ether or ETH is the currency of Ethereum. Think of Ethereum as the system itself, and Ether as the power driving it. This is the case due to the fact that if you want to do anything on the Ethereum system, you will need Ether. It is referred to as “GAS”.

This leads us to the conclusion that Ether is a digital fuel for the automated smart contracts of the Ethereum network. There is currently no cap as to how much Ether can exist. The Ethereum transaction time is extremely quick and Ether smart contracts take a few seconds.

Ethereum Accounts Explained

There are two types of account within this network including:

User Accounts

User accounts can create transactions, and for them to be valid, they must be signed through the usage of the account’s private key which is a 64-character hexadecimal string that is only known by the owner of the account. The signature algorithm that is used Is known as ECDSA. This algorithm has the property that allows one to derive the signer’s address from the signature without them even knowing the private key.


Contracts are accounts that have associated codes with them. This is a set of functions and variable declarations. They also have contract storage or the values of the variables at any given time.

These are passive entities and are only able to do anything as a result of an account calling for them. Throughout the execution of a code, a contact can send ETH, alter the storage value it has and even create temporary memory that becomes obsolete at the end of a certain function.

Both of them have ETH balances and can send ETH to any account, can call any public function of a contract or even create a new contract and are identified on the blockchain.

Then we have addresses, which are comprised of the prefix “0x”. This is a common identified for hexadecimal and has 20 bytes of the Keccak-256 hash of the ECDSA public key.

Ethereum Mining Explained

ethereum cryptocurrency mining servers

The Ether is created through the process of mining. This means that Nodes on the blockchain have to verify the transactions, and the nodes are rewarded with a new currency.

The Ethereum node, or in other words, the miner, is rewarded with Ether. Instead of digging on the ground as you would when mining diamonds, as a miner you are verifying the transactions.

This way of mining Ether is known as “Proof-of-Work” due to the fact that the node has to show that it has verified the transactions in order to receive the Ether reward. The only downside to this is that it takes a lot of computing power and electricity to manage, so it is extremely expensive and horrible for our planet.

Ethereum developers are pushing newer ways of mining such as PoS (Proof-of-Stake) that require a lot less hardware and electricity. In PoS, users with a lot of Ether are randomly selected to verify transactions.

So let’s talk about Ethereum storage.