Ethereum and Smart Contracts Explained: EVM, Dapps, and Gas Fees
Book: Cryptocurrency QuickStart Guide: The Simplified Beginner’s Guide to Digital Currencies, Bitcoin, and the Future of Decentralized Finance
Author: Jonathan Reichental
ISBN: 978-1-63610-041-8
Chapter: 5
Bitcoin built the blockchain. Ethereum asked what else you could build on top of it. That is the whole chapter in one sentence.
Reichental opens with a fun analogy. Avis car rental was always second to Hertz. Their slogan turned that into a strength: “We try harder.” Bitcoin is Hertz. Ethereum is Avis. Except in crypto, being number two still means controlling about 20% of the entire market.
If Bitcoin is digital gold, Ethereum is closer to a decentralized computer that also happens to have its own currency.
What Ethereum is
The Ethereum.org site defines it as “the community-run technology powering the cryptocurrency ether (ETH) and thousands of decentralized applications.”
So Ethereum is two things at once:
- A cryptocurrency called ether (ETH)
- A platform for running code on a blockchain
Vitalik Buterin wrote the founding white paper in 2013 at age nineteen. He was already involved with Bitcoin Magazine. The Ethereum Foundation launched the network in July 2015 after raising $18 million in a 2014 crowdfunding campaign.
Buterin is publicly known, unlike Satoshi. Eight cofounders total. The name comes from “ether,” the old idea of an invisible medium carrying light through space.
Smart contracts: code that enforces itself
This is Ethereum’s big innovation. A smart contract is an agreement written in code that runs automatically when conditions are met. No middleman. No escrow company. No bank holding funds until paperwork clears.
Nick Szabo coined the term back in 1993, long before blockchains existed. Some people think Szabo might be Satoshi. He denies it. Either way, the concept predates crypto by decades.
Are smart contracts really “smart”? Lawyers would say no. They are not traditional legal contracts. Vitalik himself wishes he had called them “persistent scripts.” Fair point.
A basic Bitcoin transfer is a tiny smart contract: send BTC only if the sender has enough balance and the receiver has a valid address. Ethereum takes that idea and blows it wide open.
The vending machine analogy
Reichental uses a vending machine to explain it, and it works. Put in $2.50 for a $2.50 drink, you get the drink. Put in $3, you get the drink and fifty cents back. Put in $2, nothing happens. The machine enforces the rules. No human needed.
Smart contracts work the same way on the blockchain. The code is the law. Literally. “Code is law” means the program decides what happens, not a judge or regulator.
Real estate without the middlemen
The Forrest family example is vivid. Buying a house today means agents, banks, escrow, maybe lawyers. A smart contract sale could handle conditions and title transfer on the blockchain. Once executed, it cannot be undone. Trustless, transparent, decentralized.
That sounds clean. It also sounds like something that would take years of legal work to make mainstream. The technology is ahead of the paperwork.
The Ethereum Virtual Machine (EVM)
Smart contracts do not run on one server. They run on every node in the Ethereum network at the same time. All those nodes together act like one giant computer. That is the Ethereum Virtual Machine (EVM).
The vision: a censorship-resistant, decentralized world computer. No central coordinator. No single point of failure.
Gavin Wood created Solidity, a full programming language for writing smart contracts. It is Turing-complete, meaning it can run any computation (like JavaScript or C++). Bitcoin’s Script language is intentionally not Turing-complete. That saves resources but limits what you can build.
Solidity powers dapps (decentralized applications). As of 2022, about 2.4 million people used dapps daily. Over half lived on Ethereum. DeFi (decentralized finance) is the biggest use case: lending, borrowing, insurance, trading derivatives, all without a bank.
DAOs: companies run by code
A DAO (decentralized autonomous organization) takes dapps further. Members buy the DAO’s crypto token and vote on rules encoded in smart contracts. No CEO. No hierarchy. Voting power scales with how many tokens you hold.
Deepdao.io tracked nearly 5,000 DAOs by mid-2022. Uniswap became the largest in under two years. This is the foundation of Web3, the decentralized internet Tori Forrest loves and her dad Peter still doubts.
Gas: the fee that keeps Ethereum running
Every Ethereum transaction costs gas, paid in ETH. Gas is measured in gwei (one billionth of an ether). More complex smart contracts need more gas because they use more computation and memory.
The formula: total fee = gas limit × (base fee + tip)
Example from the book: sending 1 ETH needs about 23,000 gas units. Base fee is 150 gwei. You add a 20 gwei tip to speed things up. Total: 3,910,000 gwei, or about 0.00391 ETH on top of the transfer.
People complain about gas fees constantly. During busy periods, costs spike. Paying extra “tips” to jump the queue makes it worse. Ethereum 2.0’s shift to proof-of-stake was partly meant to fix this.
Ethereum vs. Bitcoin: the real differences
| Bitcoin | Ethereum | |
|---|---|---|
| Supply cap | 21 million BTC, ever | No total cap; ~18 million ETH mined per year |
| Block time | ~10 minutes | ~12 seconds |
| Main purpose | Digital money / store of value | Platform for smart contracts and dapps |
| Consensus | Proof-of-work | Proof-of-stake (since Ethereum 2.0, Sept 2022) |
| Programming | Script (limited) | Solidity (Turing-complete) |
The proof-of-stake shift is huge. Proof-of-work burns massive energy. Miners compete with computing power. Proof-of-stake lets validators “stake” their ETH to verify blocks. More staked coins means higher odds of being chosen. Cheat and you lose your stake.
It is more energy-efficient. It is also newer and less battle-tested than proof-of-work.
So why is Ethereum still number two?
Good question. Ethereum does more. It tries harder. It moved to proof-of-stake. It powers DeFi, NFTs, and thousands of dapps. Yet Bitcoin still has roughly double the market cap.
Reichental’s take: Bitcoin had a five-year head start. Name recognition matters. Most people who know one crypto know Bitcoin. Ethereum fans compare it to Betamax vs. VHS, where the better tech lost. But that analogy is shaky. Both coins coexist fine, along with thousands of altcoins.
My read: Bitcoin won the “digital gold” narrative. Ethereum won the “build stuff on blockchain” narrative. They are not really fighting for the same job.
What I took away
This chapter made me see Ethereum as infrastructure, not just another coin to speculate on. ETH is the fuel. Smart contracts are the engine. Dapps and DAOs are what people actually build.
The gas fee problem is real. The environmental improvement from proof-of-stake is real too. And the gap between “code is law” and “actual law recognizes this” is still wide.
If you only read the Bitcoin chapter, you understand money without banks. Read this one and you start to see banks, escrow companies, and middlemen of all kinds potentially getting replaced by software. That is a bigger idea. And a harder one to pull off in practice.
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