How Ethereum Works
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March 26, 2025
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Ethereum’s Blockchain and Nodes
Ethereum operates on a blockchain—a public ledger of transactions and smart contract executions—maintained by nodes running Ethereum software worldwide. Unlike Bitcoin, Ethereum’s blockchain can store both financial transactions and complex contract logic, making it more flexible for applications.
Ethereum Virtual Machine (EVM)
The core of Ethereum is the Ethereum Virtual Machine (EVM), a decentralized computational engine that executes smart contract code globally. When a user interacts with a contract—such as purchasing an NFT or swapping tokens—the EVM processes the transaction. This operation requires gas fees, paid in ETH, which fluctuate based on network activity.
Ethereum’s Transition to Proof of Stake (PoS)
In September 2022, Ethereum transitioned from Proof of Work (PoW) to Proof of Stake (PoS) through an upgrade known as The Merge. Previously, miners competed to solve cryptographic puzzles to validate transactions. Under PoS, validators secure the network by staking ETH, significantly reducing Ethereum’s energy consumption by 99.95%.
Validators are selected based on the amount of ETH staked, and in return, they earn transaction fees and rewards. Blocks are confirmed approximately every 12 seconds, containing both ETH transfers and smart contract interactions.