What Is Ethereum? [Smart Contract Explanation]

Have you heard about Ethereum? You know for sure. Ethereum is a cryptocurrency running on a blockchain as others. But a few amount of people know about the ethereum smart contract. So what is the ethereum smart contract?

In this post, I’m going to be talking about ethereum and it’s smart contract. Keep reading.

Basics of Ethereum

The definition of “what is ethereum?”

Ethereum is an open source, public, blockchain-based distributed computing platform, featuring “smart contract” functionality, which facilitates online contractual agreements.


Ethereum is most likely bitcoin but it’s started in 2015. It’s known as the best cryptocurrency after bitcoin. Since now, Ethereum ranking on #2 market capitalizations.


The main recognizable difference in ethereum comparing with bitcoin is the smart contract. I will explain the term.

The founder of ethereum is “Vitalik Buterin” who is a programmer involved with bitcoin magazine. The short form of ethereum is ETH.

What is Smart Contract?

Before we get into smart contracts, Let’s take a few times on normal contracts. A contract means, An agreement between two parties. For examples,
Employment contracts, Construction contracts, Banking contracts, etc.

But when talking about smart contracts, If a contract can automatically execute considering the rules, content, is a smart contract.

I’m going to use an example for further explanation.

Let’s assume you’re buying a house, Firstly you make a bid for that house when in a normal contract.

Then you check and validate the documents related to the house that you’re going to buy. Then after so many processes, you’re paying the house owner and transfer it to as your property.

That’s how a normal contract works.

But, Assume again if you integrate this contract in the blockchain technology.

Many house owners uploaded their documents to the blockchain. Everyone connected each other with the blockchain. If a potential buyer(you) can check a house whether it’s good or bad, what are the documents, etc.

If you are interested in a house, You can automatically execute the contract in the blockchain.

This the basis of how smart contract works.

For example,

Consider 4 people in a blockchain. A, B, C, D.

A wants to buy 100 books if the price of a book is 3$. B has books pricing of 5$. C has books about 7$. D has books for 3$. In the smart contract, The network will automatically process the contract by buying books from D. Because it’s what A wanted.

Check out this infographic for further understanding.


How Ethereum Transactions Work?

The transaction process of ethereum is very similar to the bitcoin transaction. I suggest you to read this article to understand how bitcoin transactions work.

Unlike bitcoin transactions ethereum transactions you made go to a mining pool.


Let me explain.


If you making a transaction on the ethereum network, You can set the transaction price for that transaction. Cool isn’t it??

Here how it happens.

You can set the gas limit and gas price according to your transaction to make it permanent.

Gas price is the price per gas.

Gas limit is the maximum amount of gas you are willing to cost. I explained more about gas prices here.

Which means your transaction fee will be,
“Gas price x Gas limit”

Higher the cost for gas, higher potential to miners can pick your transaction from the pool first which I talk above. But, Here’s the thing.

If you place a lower price for gas, the transaction will succeed. But it takes time. And also make sure that you set gas limit enough.

Did you learn something new from today’s post?

Let me know by leaving a comment down below.

Thank you for your support.

Rate this post

Leave a Reply

Your email address will not be published. Required fields are marked *