Ethereum: how does it work?

Let's dive a bit deeper

What Is Ethereum?

Bitcoin proved you could have digital money without banks.

Ethereum asked: What if you could have digital PROGRAMS without companies?

Think about apps you use:

• Uber matches drivers and riders

• Banks hold and transfer your money

• Insurance companies process claims

All controlled by companies. What if the same services could run on code that nobody owns?

That’s Ethereum — a shared computer that runs programs nobody controls.

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The World Computer

Imagine a computer that:

• No single person owns — shared by everyone

• Nobody can turn off — runs on thousands of machines worldwide

• Anyone can use — just pay a small fee

• Everyone can verify — all the code is public

Your laptop is YOUR computer. Ethereum is the WORLD’S computer.

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Smart Contracts: The Key Idea

A smart contract is just code that runs automatically.

Example: Buying tokens the old way

1. You send money to someone’s PayPal

2. They see the payment

3. They manually send you tokens

4. You hope they don’t scam you

Problems: You’re trusting a stranger. They could disappear. They might be asleep. It’s slow.

Example: Buying tokens with a smart contract

1. Someone writes a rule: “When anyone sends 1 ETH, automatically send them 100 PIZZA tokens”

2. They deploy this code to Ethereum

3. You send 1 ETH

4. Code runs instantly

5. You receive tokens

6. No human involved

The code doesn’t “decide” anything — it just follows the rules.

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Why This Matters

• No middleman — not trusting a company or person

• Can’t be cheated — code does exactly what it says

• Always available — works 24/7

• Transparent — anyone can read the code before using it

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Contracts Talking to Contracts

Smart contracts can call other smart contracts.

When you swap tokens on Uniswap:

1. Swap contract checks the price

2. Price contract checks the pool

3. Tokens move between accounts

4. All in one transaction

No company in the middle. All automatic.

This is why DeFi exploded — anyone can build on top of existing contracts.

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What About Fees?

Using Ethereum costs a small fee called “gas.”

Why?

• Stops people spamming the network

• Stops bad code running forever

Simple stuff = cheap. Complex stuff = more expensive.

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Key Takeaway

Ethereum is a world computer where:

• Code runs automatically

• No one can stop it

• No middleman needed

That’s the foundation of DeFi.