Understanding Ethereum

a simple explanation of Ethereum and its native token Ether

11 min readApr 27, 2021


Let me start by saying I am not a CFA or a registered investment advisor, nor am I a bitcoin maximalist or a crypto evangelist. However, I have spent much of the last decade researching and participating in the traditional financial system and the cryptocurrency ecosystem, and the differences between the two are considerable. Many people are working on the bridge between, but those who are less acquainted with the crypto economy ought to mind the gap.

Those on the traditional side of the spectrum must understand that the innovation behind cryptocurrencies is technical first, financial second. The most innovative aspects — novel network architectures and decentralized application infrastructure — are inherently technical. The foundation of the cryptocurrency ecosystem is not banks, brokerages, or cash flow statements. It is computer code running on hundreds of thousands of machines around the world. These new ecosystems may support familiar financial functions like lending and borrowing, but they do so in a fundamentally different way.

Armed with financial knowledge alone, you will be disappointed if you try to figure out what is so valuable about Bitcoin, Ethereum, or blockchain. DCF models are not easily applied to digital assets or the internet collectives behind them. A deeper understanding of what’s going on under the hood of these ecosystems is essential for realizing their immediate value and long-term potential.

This realization led me to look at cryptocurrencies through a different, technical lens. However, the aim of this article is to…

  1. give an overview of the Ethereum ecosystem in the least technical way possible
  2. explain why Ether, the native token in the Ethereum ecosystem, is valuable

In the spirit of transparency, I do own Ether so you should take my opinion with a grain of salt.

Ethereum, oversimplified

The term “Ethereum” refers to the blockchain at the heart of the ecosystem. The Ethereum blockchain does two things:

  1. it maintains a single source of truth for all actors in the ecosystem
  2. it provides a platform for applications, also known as smart contracts

The Bitcoin blockchain was designed to support a singular application: a peer-to-peer…




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