Like all cryptocurrencies, Ethereum works on the basis of a blockchain network. A blockchain is a decentralized, distributed public ledger where all transactions are verified and recorded.
It’s distributed in the sense that everyone participating in the Ethereum network holds an identical copy of this ledger, letting them see all past transactions.
It is decentralized, and therefore the network isn’t operated or managed by any centralized entity — instead, it’s managed by all of the distributed ledger holders.
(for a more in-depth look at Blockchain technology, I recommend my articles of the ‘Blockchain 101’ series:
Blockchain transactions use cryptography to keep the network secure and verify transactions. People use computers to “mine” or solve complex mathematical equations that confirm each transaction on the network and add new blocks to the blockchain that is at the heart of the system. Participants are rewarded with cryptocurrency tokens.
For the Ethereum system, these tokens are called Ether (ETH).
Ether can be used to buy and sell goods and services. It’s also seen rapid gains in price over recent years, making it a de-facto speculative investment.
But what’s unique about Ethereum is that users can build applications that “run” on the blockchain like software runs on a computer. These applications can store and transfer personal data or handle complex financial transactions.
Ethereum is currently a proof-of-work (PoW) blockchain but is making the move to proof-of-stake (PoS) with Ethereum 2.0 for scalability purposes and for a more environmentally friendly approach.
(more on the PoW and PoS in the article ‘Consensus Mechanism’:)
The computational capability turns a store of value and medium of exchange into a decentralized global computing engine and openly verifiable data store.