Chapter 1 - What is Ethereum?

1. What is Ethereum?

From a computational perspective, Ethereum is a deterministic but practically unbounded state machine, made up of a globally accessible shared state and a virtual machine that applies changes to that state.
From a practical perspective, Ethereum is an open-source decentralized infrastructure that allows programs called smart contracts to run. It uses a blockchain to synchronize and store changes to the system state. It uses the Ether cryptocurrency to measure and limit the cost of execution resources.

Bitcoin was created with the goal of being decentralized money, presented as electronic cash. Ethereum, by contrast, was created as a global platform for decentralized computation.
Bitcoin has a programming language limited to true-or-false statements. Ethereum is Turing-complete, which means any general computer program can be developed on top of it. Ethereum is conceived as a computer.
In 2022, the The Merge upgrade introduced another major difference from Bitcoin: the move from proof of work to proof of stake.

A P2P network that connects all participants and propagates transactions and new blocks.
Messages in the form of transactions that represent a change in state.
A set of rules that defines what a transaction is and how a state transition takes place.
A state machine that processes transactions according to those rules.
A consensus algorithm that decentralizes control of the blockchain by forcing participants to cooperate.
A sound incentive system that economically secures the network state in an open environment.
One or more open-source implementations of each component (clients).

The chapter categorizes blockchains according to participation requirements and public access.

Ethereum emerged as a response to Bitcoin’s limitations when trying to support more complex applications directly on-chain. Building on Bitcoin meant accepting strong restrictions; creating a new blockchain meant rebuilding the entire infrastructure.
In late 2013, Vitalik Buterin proposed a general-purpose, Turing-complete blockchain. Gavin Wood joined the project early and helped turn the idea into a protocol and implementation.
The key conceptual shift was moving from a blockchain focused only on programmable money to a general platform for decentralized computation, capable of becoming the foundation for use cases such as DeFi, NFTs, and DAOs.
Ethereum’s genesis block was mined on July 30, 2015.

Ethereum’s development was organized into four major stages, each introducing hard forks and non-backward-compatible changes.
1. Frontier: the initial 2015 release, aimed at miners and developers. It allowed the network and the first dApps to be tested and also introduced the difficulty bomb to encourage a future transition away from proof of work.
2. Homestead: improved protocol security and stability through upgrades that made Ethereum safer and more developer-friendly, while still in beta.
3. Metropolis: expanded network functionality and made building dApps easier. It included forks such as Byzantium, Constantinople, and Istanbul, with improvements to security, gas costs, and scalability.
4. Serenity: the stage associated with Ethereum 2.0 and the move from proof of work to proof of stake. It aims for better sustainability, efficiency, and scalability.
Serenity is also divided into several sub-stages: The Merge, The Surge, The Scourge, The Verge, The Purge, and The Splurge.

Bitcoin can be understood as a distributed state machine that tracks ownership of its currency. Ethereum is also a distributed state machine, but instead of being limited to balances, it maintains a general-purpose key-value data store.
Ethereum can store code and data in its state and execute that code on the EVM. The blockchain records how that global “memory” changes over time.
The core idea is that Ethereum answers the question: what happens if we can program any arbitrary state transition in a world computer governed by consensus?

P2P network: Ethereum operates on mainnet using the ÐΞVp2p protocol and TCP port 30303.
Consensus rules: originally Ethash (proof of work); since The Merge, proof of stake.
Transactions: network messages that include sender, recipient, value, and a data field.
State machine: the Ethereum Virtual Machine (EVM), a stack-based virtual machine that executes bytecode. Smart contracts are written in high-level languages such as Solidity and then compiled.
Data structures: each node stores state and transactions in a local database, usually LevelDB, organized with hash-based structures such as the Merkle-Patricia trie.
Economic security and consensus: in proof of stake, validators lock capital to participate in validation and secure the network.
Clients: Ethereum uses interoperable execution and consensus clients, such as Geth or Nethermind for execution and Prysm or Lighthouse for consensus.

A Turing-complete system can simulate any Turing machine; in other words, it can execute any computable algorithm, given enough time and finite memory.
Ethereum is Turing-complete because the EVM can execute stored programs, read and write memory, and produce arbitrary state transitions.
This flexibility introduces a problem: it is impossible to know in advance whether a program will halt or how many resources it will consume. This is the halting problem.
To limit that risk, Ethereum uses gas: each instruction has a cost, and every transaction sets a maximum gas limit. If gas runs out, execution stops. This makes general computation possible without allowing infinite resource consumption.

Ethereum quickly evolved from being a programmable blockchain into a platform for building decentralized applications, or dApps.
A dApp includes at least one smart contract deployed on-chain and a web interface for the user.
In a fuller vision, it can also integrate P2P storage and decentralized messaging, although in practice many current dApps combine smart contracts with more traditional web frontends.

Web3 represents the “third age” of the internet: a shift from centralized web applications toward applications built on decentralized protocols.
The concept was pushed by Gavin Wood and proposes that application logic, data, and coordination rely less on central intermediaries and more on open P2P networks.
In that context, Ethereum is presented as a foundational layer for web applications with ownership, execution, and shared rules enforced at the protocol level.

Bitcoin development culture is conservative: it prioritizes stability, backward compatibility, and slow change. Ethereum, by contrast, prioritizes rapid evolution and innovation, even when that breaks compatibility.
In Ethereum, changes are coordinated publicly, and developers have to assume that the platform will continue evolving. That forces builders to stay flexible and be ready to migrate contracts, users, and funds.
There is an important tension between deploying software on supposedly “immutable” infrastructure and, at the same time, building on top of a platform that is still actively changing.
The advantage of this culture is faster innovation; the downside is that it demands more adaptation from anyone building on Ethereum.