Blockchain Foundation: Ethereum, like Bitcoin, uses a distributed ledger known as the blockchain to record all transactions across its network. This ledger is maintained and updated by a network of nodes, ensuring transparency, security, and immutability of the data.
Smart Contracts: Ethereum's key innovation is its ability to support smart contracts. These are self-executing contracts with the terms of the agreement directly written into code. They automatically execute and enforce agreements when predefined conditions are met. Smart contracts enable a wide array of applications beyond simple value transfer, such as decentralized finance (DeFi), decentralized applications (dApps), tokenization, and more.
Ethereum Virtual Machine (EVM): The Ethereum network runs on the Ethereum Virtual Machine, a Turing-complete virtual machine that executes smart contracts. It allows developers to write code in multiple programming languages and deploy it on the Ethereum network, making it highly versatile.
Ether (ETH): Ethereum's native cryptocurrency is called Ether (ETH). It's used to compensate network participants for performing computations and securing the network (through a process called mining or, in the future, through a transition to proof-of-stake consensus). Ether also serves as a means of transaction fees for using the network and as a currency for value exchange within the ecosystem.
Decentralization and Consensus: Ethereum, like many other cryptocurrencies, relies on a consensus mechanism to validate and add new transactions to the blockchain. Historically, Ethereum has used a Proof-of-Work (PoW) consensus algorithm similar to Bitcoin, but there's an ongoing transition to Ethereum 2.0, which involves moving towards a Proof-of-Stake (PoS) consensus mechanism for scalability, security, and energy efficiency improvements.
Overall, Ethereum's flexibility and ability to execute smart contracts have made it a foundational technology for a wide range of decentralized applications, financial products, and innovative use cases beyond simple transactions.
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