Ethereum: Architecture and How It Works – A Deep Dive
Since its inception in 2015, Ethereum has evolved from being a “Bitcoin alternative” to becoming the foundational infrastructure for decentralized applications (dApps). With its powerful smart contract functionality, Ethereum is now the heart of DeFi, NFTs, DAOs, and more.
This article explores Ethereum’s architecture and inner workings—including its virtual machine, account system, gas mechanics, and decentralized execution model.
1. Ethereum as a Decentralized Application Platform
Unlike Bitcoin, which focuses solely on peer-to-peer value transfer, Ethereum is a general-purpose blockchain built to host decentralized applications.
Key Innovation: Smart Contracts
At the core of Ethereum is the smart contract—self-executing code that runs based on predefined conditions, without the need for intermediaries. These contracts are deployed to the blockchain and interact autonomously with users and other contracts.
Smart contracts are written in Solidity, a high-level, Turing-complete programming language, and compiled into bytecode for execution on the Ethereum Virtual Machine (EVM).
Ethereum’s Vision: The World Computer
Ethereum aspires to be a "World Computer", where anyone can deploy unstoppable applications free from censorship, server dependency, or centralized control. This vision has led to the rise of:
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Decentralized Finance (DeFi)
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Non-Fungible Tokens (NFTs)
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Decentralized Autonomous Organizations (DAOs)
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Web3 infrastructure
2. Ethereum Virtual Machine (EVM)
Purpose and Operation
The EVM is a decentralized, deterministic runtime environment for executing smart contracts on Ethereum. Every full node runs the EVM, ensuring that all computations yield the same result across the network.
Key characteristics:
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Turing-complete: Capable of performing any computation (given enough resources)
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Stack-based: Uses a 256-bit stack to execute instructions
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Deterministic: Same input always results in the same output on every node
EVM Architecture: Key Components
| Component | Function |
|---|---|
| Stack | LIFO structure for temporary values during computation |
| Memory | Volatile, temporary storage for runtime data |
| Storage | Persistent key-value store tied to each contract |
| EVM Code | Smart contract bytecode to be executed |
| Program Counter (PC) | Pointer to the next instruction |
| Gas | Limits computation and prevents abuse |
Memory is reset with each transaction, while storage persists across transactions and requires significantly more gas to access or modify. This separation ensures efficient on-chain resource usage.
3. Ethereum Gas: Resource Metering and Economic Incentives
Concept and Purpose
Gas is a unit that measures computational effort required to execute operations on Ethereum. Every transaction or smart contract execution requires gas, which:
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Prevents spam and denial-of-service (DoS) attacks
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Compensates validators for computation
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Provides a pricing mechanism for prioritizing transactions
Dynamic Pricing and EIP-1559
Gas prices fluctuate based on network demand. Under EIP-1559 (introduced in the London upgrade):
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Base fee: Automatically burned, reducing ETH supply (deflationary mechanism)
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Priority fee (tip): Incentivizes validators to include transactions in blocks
Key Gas Concepts
| Term | Meaning |
|---|---|
| Gas Limit | Max gas a user is willing to spend |
| Gas Price | Amount of ETH (in gwei) per gas unit |
| Total Fee | Gas Used × Gas Price |
| Base Fee + Tip | EIP-1559 structure for fee breakdown |
Users must understand current network conditions to effectively set gas prices—too low, and the transaction may be dropped; too high, and costs rise unnecessarily.
4. Ethereum Account Model
Ethereum supports two types of accounts:
1. Externally Owned Account (EOA)
Controlled by a private key, used by humans and wallets.
| Feature | Description |
|---|---|
| Control | Private key |
| Transaction Initiation | Yes |
| Code Attached | No |
| Balance | Yes |
| Security Risk | Loss of private key = loss of funds |
EOAs are the only accounts that can initiate transactions. They act as initiators of interaction with smart contracts.
2. Contract Account (CA)
Deployed smart contracts reside here. Controlled by code.
| Feature | Description |
|---|---|
| Control | Smart contract logic |
| Transaction Initiation | No (reactive only) |
| Code Attached | Yes |
| Storage | Yes |
| Gas Cost to Deploy | Yes (storage costs) |
CAs execute complex logic, maintain persistent state, and power DeFi protocols, NFT standards (e.g., ERC-721), and DAOs.
EOA ↔ CA Interaction
All Ethereum dApp activity begins with an EOA transaction. This may trigger multiple internal contract calls between CAs in a recursive and deterministic manner.
5. Ethereum’s Expanding Ecosystem
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EVM compatibility has enabled numerous Layer 1 and Layer 2 chains (e.g., Binance Smart Chain, Polygon, Optimism) to adopt Ethereum’s execution standard.
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Developers can deploy the same smart contracts across chains with minimal modification, fostering cross-chain interoperability and network effects.
Final Thoughts
Ethereum is not just a blockchain—it's a programmable global infrastructure for digital trust, automation, and open innovation. Its architecture, centered on the EVM, smart contracts, gas economics, and account-based design, enables a wide range of use cases across industries.
As Ethereum transitions to full scalability with Layer 2 and sharding, understanding its current architecture is critical for developers, investors, and blockchain enthusiasts alike.