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What is Ethereum?

Henning Taeger
Henning Taeger
Henning is a writer and editor here at Dollargeek who is passionate about personal finance, pets and cryptocurrency. He enjoys sharing his knowledge about financial management with readers, helping them make informed decisions about their money. In his spare time, Henning can be found playing the latest video games or jamming on his guitar. He is constantly on the lookout for new ways to improve his financial literacy and stay up-to-date on the latest trends in the world of finance.

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What is Ethereum?
Table of Contents

Bitcoin may be the king of cryptocurrencies, but Ethereum is another big player in the game. Before investing in Ethereum, it’s essential to understand what it is and what it offers. This comprehensive guide will teach you everything you need to know.

What exactly is Ethereum?

Ethereum is a public blockchain-based distributed computing platform, featuring smart contract functionality (applications that run exactly as programmed without any possibility of fraud or third-party interference).

It provides a decentralized virtual machine, the Ethereum Virtual Machine (EVM), which can execute scripts using an international network of public nodes.

Ethereum also provides a cryptocurrency token called “ether”, which can be transferred between accounts and used to compensate participant nodes for computations performed.

“Gas”, an internal transaction pricing mechanism, is used to mitigate spam and allocate resources on the network.

Ethereum was proposed in 2013 by Vitalik Buterin, a cryptocurrency researcher and programmer. Development was funded by an online crowd sale that took place between July and August 2014.

The system went live on 30 July 2015, with 11.9 million coins “premined” for the crowd sale.

This accounts for approximately 13 percent of the total circulating supply.

Ethereum was created as a more versatile and general-purpose alternative to Bitcoin. While Bitcoin is primarily a digital currency, Ethereum is a decentralized platform that can be used to build decentralized applications (dapps).

Ethereum is designed for use in decentralized finance (DeFi), virtual gaming, non-fungible tokens (NFTs), and many other applications.

Unlike fiat currencies, Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of fraud or third-party interference. Fiat currencies are legal tender that is backed by the government that issued them.

There are a few key ways that Ethereum differs from fiat currencies:

Ethereum is decentralized, while most fiat currencies are centralized. This means that there is no central authority controlling the Ethereum network. Instead, it is maintained by a global network of computers running the Ethereum software.

Ethereum is not backed by a physical commodity like gold or silver. Instead, it is backed by the “full faith and credit” of its users.

Ethereum transactions are irreversible, while fiat currency transactions can be reversed. This makes Ethereum more suitable for certain types of transactions, such as those involving digital assets.

How does Ethereum work?

Smart contracts are computer programs that automatically execute the terms of a contract when certain conditions are met. Ethereum’s smart contracts use blockchain technology to provide a decentralized, tamper-proof way to store and execute contracts.

This makes them well-suited for applications where trust is important, such as escrow, voting, and crowdfunding.

The Ethereum blockchain is maintained by a worldwide network of computers running a decentralized version of the Ethereum software. All Ethereum nodes are responsible for maintaining the blockchain and keeping track of who owns what.

This means that there is no one entity in control of the system. Anyone can run a node, and anyone can use the Ethereum blockchain.

All nodes store information about transactions on the same Ethereum blockchain. However, each node stores different information. For example, some nodes will record the transaction addresses involved in each transaction, while others will store blocks (groups of transactions).

The latter is known as the Merkle tree data structure, which allows nodes to verify and validate transactions. Nodes write to the blockchain using the ruleset of the second-most popular software client, geth.

How is Ethereum created?

Ethereum mining is done through the use of graphics processing units (GPUs). GPUs are used to process the complex mathematical equations that are required to mine Ethereum. While mining Ethereum with a GPU is possible, there are many challenges to overcome to successfully mine Ethereum.

Here are the top 5 factors that can affect your Ethereum mining with a GPU:

  • The Ethereum Network Hashrate: The difficulty of mining Ethereum depends on the hashrate of the Ethereum network. The more people who are mining Ethereum and the more computer processing power that is required to find a block, the higher the difficulty will be for a specific algorithm.
  • The Hash Rate of Your GPU: The hash rate of your GPU is crucial in determining if you can mine Ethereum successfully. The faster your GPU’s hash rate, the greater your chance of finding a block and earning rewards. To increase your hash rate get a more powerful GPU, make sure you have enough power supply, and change your mining software to a better one.
  • The Difficulty of Ethereum Algorithms: The difficulty of an algorithm is important for the Ethereum network because it determines how much computing power is required to mine a block. If the difficulty of a certain algorithm is too high, it will take more time and energy to mine Ethereum.
  • Mining Ethereum with a PC: Ethereum can be mined using CPU (central processing unit) and GPU (graphics processing unit) hardware. If you have a PC, you should try mining Ethereum with your PC first before switching to a GPU. You may not get the best results from GPU mining because it can take up a lot of power, heat, and space.
  • Choosing the Right Cryptocurrency Wallet: If you are planning on mining Ethereum, you will need to choose a cryptocurrency wallet to store your cryptocurrency.

What is an Ethereum wallet?

An Ethereum wallet is a digital wallet that holds your cryptocurrency keys and enables you to interact with the Ethereum network. The wallet can be downloaded to your computer, smartphone, or any device with internet access. You can choose from several Ethereum wallets, including Electrum, Exodus, MyEtherWallet, etc.

There are a few things to consider when choosing a wallet:

  • Make sure your wallet is secure: You should make sure that you are storing your cryptocurrency wallet in a secure location such as a hardware or cloud-based wallet. You should also make sure that your wallet password is strong and that you can access your wallet easily.
  • Be careful with fees: Some wallets may charge extra fees if you mine Ethereum. You should do your research before selecting a wallet for mining.
  • Have an active Ethereum wallet: Ideally, you should keep an active Ethereum wallet to be able to mine and send your cryptocurrency.
  • Choose a hardware wallet: Hardware wallets are secure, offline wallets that store your cryptocurrency keys in physical security devices. They are also secure from hackers because they can’t access the device without physically breaking into it.


Ethereum is a decentralized platform that can be used to build decentralized applications (dapps). Ethereum is a game changer in the decentralized finance (DeFi) sector, virtual gaming, non-fungible tokens (NFTs), and many other applications. It allows users to create their currencies and store data and value in the blockchain.

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