Created by Vitalik Buterin in 2015, Ethereum is a “decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference”, according to ethereum.org's introduction. In simple terms, Ethereum is a decentralized, autonomous, open-source, and blockchain-based system, and also a peer-to-peer network of virtual machines where developers can run Dapps (distributed applications) by executing smart contracts.
1) Smart contracts
It is a code and data assemble, which is automatically executed when certain conditions are met. Put it simply, smart contracts are a virtual agreement between two parties securing the interest of both.
2) Virtual Machine
EVM (Ethereum Virtual Machine) is the runtime environment for smart contracts. In other words, EVM is actually a Turing complete software, and every node in the Ethereum network should run an EVM implementation on their computers and execute the same instructions.
No matter you transfer ETH, execute smart contracts or do anything else within the Ethereum network, you need to pay for the computational resources to finish the above requests. The fee within the Ethereum network is calculated based on how much “gas” an action requires. For example, the more complex a smart contract (size, types, calculation steps, etc.) is, the more gas should be paid for running this smart contract. However, you cannot directly pay for the fee with any gas token, but ether instead.
3. How Does Ethereum Work?
Knowing the basic information and definition about Ethereum, let's see how the Ethereum network works.
Miners (or nodes) download and run the EVM software, which contains the most recent state of each smart contract within the network, in their computers. EMV will schedule miners on transaction validation and smart contracts execution. Determined by the size of the contract or transaction, developers who want to create smart contracts or people who do ETH transactions should pay enough ether to miners who process and verify their requests. And how much ETH should be paid depends on how much gas consumed when running the smart contract or verifying the transaction.
Ethereum is not merely a kind of cryptocurrency. It aims at helping developers build and deploy Dapps easily on the Ethereum platform. Now, Ethereum ranks the second-highest in the crypto market cap. And will it surpass BTC? Let's wait and see.