EEA Ethereum Intelligence
Ethereum Strategic Intelligence · Primer

Ethereum 101: How Ethereum Works

A shared computing and settlement network anyone can verify
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A shared computer no single organization controls.
Ethereum is a global network of independent nodes running the same public protocol rules. Validators stake ETH to propose and attest to blocks, while nodes independently verify execution. The result is a shared state that anyone can inspect and verify.

Operator-Controlled Infrastructure

One organization operates the core system:

  • One institution operates the core infrastructure
  • Access and operating rules are governed by that institution
  • Participants rely on the operator's records and controls
  • System changes are deployed by the operator
  • Resilience depends on the operator's architecture
  • Exceptions and reversals are handled institutionally

Shared Protocol Infrastructure

Independent participants follow common rules:

  • Many independent operators run compatible software
  • Protocol rules are public and shared
  • State and transactions can be independently verified
  • Protocol changes require coordinated network upgrades
  • No single infrastructure operator controls the network
  • Applications can be permissionless or add their own permissions
What Happens When You Send a Transaction?
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1. You Sign and Send
Your wallet signs a transaction and broadcasts it to Ethereum. The transaction contains what you want to do and a cryptographic signature proving it came from your account.
Key idea: Ethereum verifies the signature and protocol rules, not your identity or institutional relationship.
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2. It Propagates Across the Network
The transaction propagates peer-to-peer across Ethereum nodes around the world . Different nodes may see it at slightly different times, but there is no single central queue.
Resilience: Transaction propagation does not depend on one central infrastructure operator.
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3. A Validator Proposes a Block
About every 12 seconds, the protocol selects one validator to propose a block containing transactions. Other validators and nodes do not simply trust that proposal — they verify it.
Separation of roles: One participant proposes a block, while many others independently check and attest to the chain.
4. Nodes Execute the Same Rules
Ethereum nodes execute the block's transactions according to the same protocol rules. Smart contracts produce the same result when given the same valid state and inputs.
Deterministic execution: The outcome is determined by public code and protocol rules rather than by an operator deciding transaction-by-transaction.
5. Confirmation Builds, Then Finality
Validators attest to the chain they consider valid. Confidence strengthens as votes accumulate; full Ethereum finality normally arrives after roughly 15 minutes .
Why this matters: Reversing finalized history would require violating Ethereum's consensus and putting a very large amount of staked ETH at risk.
The Core Principle:
Ethereum shifts trust away from one operator and toward transparent protocol rules, cryptographic verification, economic incentives, and independent verification. You do not have to trust one institution's database to know what Ethereum's shared state says.
What Properties Does This Create?
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Global
The base protocol operates continuously across jurisdictions. Applications built on it can still apply their own access and compliance rules.
Fast Confirmation
New L1 blocks arrive about every 12 seconds. L2s can provide faster soft confirmations; full L1 finality comes later.
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Crypto-Economic Security
Security combines cryptography, independent verification, distributed infrastructure, and ETH placed at economic risk by validators.
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Deterministic Rules
Valid transactions and smart contracts are evaluated against the same protocol rules. The protocol itself does not grant discretionary exceptions.
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Programmable State
Smart contracts let assets and agreements follow programmable rules for payments, settlement, escrow, identity, markets, and more.
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Shared Settlement
A common settlement layer can reduce reconciliation between parties. Actual transaction costs vary with network demand and the layer used.
A Few Numbers Worth Remembering
Thousands
Independent Nodes Worldwide
~12 sec
Approx. L1 Block Interval
~15 min
Approx. Full L1 Finality
24/7
Continuous Operation
2015
Mainnet Live Since
~60M
Current Gas-Limit Baseline
The useful mental model: Ethereum provides fast inclusion, stronger confirmation over time, and crypto-economic finality — without relying on a single infrastructure operator.

How Ethereum Is Evolving

Think in stages, not fixed product-release promises

Live now
Fusaka is live: PeerDAS, higher blob capacity, and a ~60M gas-limit baseline
Next
Glamsterdam is targeted for Q4 2026, led by ePBS and Block-Level Access Lists
After
Hegotá follows in 2027 with FOCIL as a headliner; additional scope is still being discussed
The Big Picture:
Ethereum is a public settlement and computing layer where independent participants can verify the same shared state. Applications can be open or permissioned, but they build on infrastructure that no single operator owns. The key shift is independently verifiable shared infrastructure — not the absence of institutions.
Why This Architecture Matters
Ethereum provides common rules for execution and settlement across independent infrastructure operators. No single participant can unilaterally rewrite the protocol or decide what the shared state means.

For institutions, the important question is what guarantees come from Ethereum itself — and what still depends on the application, rollup, operator, or intermediary.

Ethereum Architecture: The Big Picture

Start with four ideas: consensus agrees on the chain, execution updates state, rollups scale execution, and Ethereum provides shared data availability and settlement.

One picture to remember

Most rollup-based activity follows this path. Users can also transact directly on Ethereum Layer 1.

User / Application Signs and submits a transaction
Layer 2 Rollup Executes many transactions and can provide fast soft confirmation
Ethereum Layer 1 Anchors data, verification or dispute mechanisms, settlement, and finality
Mental model: rollups scale execution; Ethereum anchors the shared settlement record. Exact L2 guarantees depend on the rollup design.
Layer 1 (Ethereum Mainnet)
Consensus
What it does: Keeps Ethereum aligned on one canonical chain and brings blocks to finality
Simple mental model: Consensus = which chain Ethereum agrees on
Execution
What it does: Runs transactions and smart contracts and updates Ethereum's state
Simple mental model: Execution = what transactions do to balances, contracts, and state
Data Availability
What it does: Makes rollup data available on Ethereum so others can reconstruct and verify what happened
Today: Blobs provide temporary, lower-cost data space for rollups; PeerDAS is live
Current capacity: 14 target / 21 maximum blobs per block
≈12-second block slots ≈15-minute full L1 finality
Layer 2 (Rollup Ecosystem)
Sequencer
What it does: Orders L2 transactions and can give users fast soft confirmation
Common today: Many major rollups still rely on one primary sequencer operator
Direction: Sequencing models are evolving, including decentralized and based approaches
Rollup Verification
Optimistic rollups: Assume results are valid unless successfully challenged during a defined window
ZK rollups: Submit validity proofs that Ethereum can verify
Why it matters: Ethereum can enforce the rollup's result without re-executing every L2 transaction
Settlement to Ethereum
What is anchored: Rollup data plus state commitments or proofs
What Ethereum provides: Shared data availability, verification or dispute mechanisms, settlement, and finality
Important distinction: A fast L2 confirmation is not the same thing as Ethereum finality
Fast L2 confirmation can come first; Ethereum settlement and finality come later
Optional detailAdvanced: How Blocks Are Commonly Built Today
Users
Broadcast transactions through public or private routes
Transactions enter the block-building market
MEV Searchers
Identify ordering and arbitrage opportunities
Optional participants, not a required protocol role
Block Builders
Assemble candidate blocks and compete on block value
Specialized external builders are common today
Relays
Mediate builder-proposer exchange in the common MEV-Boost flow
Off-protocol infrastructure today
Proposer
Selected validator proposes a locally built or externally built block
The proposer does not finalize the block alone
Why this is changing: Today's common builder/relay market is partly off-protocol. Glamsterdam's ePBS is designed to move proposer-builder separation into Ethereum itself and remove the protocol's reliance on trusted relays.
How Rollup Data Reaches Ethereum
L2 Users
Many transactions execute on a rollup
L2 Sequencer
Batches and compresses transaction data
Blob-Carrying Transaction
Posts compressed rollup data to Ethereum
Ethereum Network
Makes blob data available temporarily; PeerDAS lets nodes verify availability through sampling
Current target / maximum: 14 / 21 blobs per block | Scaling mechanism: PeerDAS is already live; blob capacity can be raised further without waiting for a full named fork
Cost effect: More data capacity can reduce blob-fee pressure, depending on demand | Who pays: Rollups pay blob gas for Ethereum data availability
Questions Institutions Should Ask
Transaction Ordering
Who controls it?
Is sequencing centralized? What happens during outage, censorship, congestion, or failover?
Upgrade Authority
Who can change it?
Understand upgrade keys, security councils, emergency powers, and governance processes.
Security Inheritance
What comes from Ethereum?
Separate L1 guarantees from L2-specific trust assumptions, operators, proof systems, and admin controls.
Exit & Recovery
Can users recover?
Understand withdrawal paths, challenge/proof delays, forced inclusion, and operator-failure scenarios.
Institutional takeaway: Do not treat L1 versus L2 as a simple high/low-risk choice. Map the specific technical, governance, operational, privacy, and compliance dependencies of the system you plan to use.
Ethereum Roadmap: Live → Next → Research
Live: Fusaka (Dec 2025)
• PeerDAS is live
• ~60M gas-limit baseline
• Blob target/max raised to 14/21 via BPO2
Next: Glamsterdam (Q4 2026 target)
• Enshrined proposer-builder separation (ePBS)
• Block-Level Access Lists (BALs)
• Foundation for materially higher L1 capacity
After: Hegotá (2027)
• FOCIL selected as a headliner
• Focus on stronger transaction-inclusion guarantees
• Additional scope remains under discussion
Longer-Term Research
• Faster confirmation and finality
• Further L1 and blob scaling
• Account abstraction and statelessness work
• Research items do not have fixed shipping dates
Key Takeaway: The big picture is simple: consensus decides which Ethereum history is canonical; execution computes state; rollups scale execution; Ethereum provides shared data availability and settlement. The implementation details matter when evaluating a specific system.

Why Ethereum Works This Way

The design logic, using analogies only where they help

A Useful Analogy — With Limits

A court system is useful for understanding separation of roles, settlement, records, and dispute resolution. But it is not a literal map of Ethereum. Consensus and execution are software mechanisms, not judges exercising discretion. Use the analogy to understand the shape of the system, not the protocol mechanics.

🏛️ The Foundation: Why Separate Consensus and Execution?
Consensus Client
Prysm, Lighthouse, Teku, Nimbus

The Problem

Independent nodes can receive blocks and messages at different times. How do they still converge on one accepted Ethereum history?

Simple Analogy

Think of many independent record-keepers receiving updates at slightly different times but using the same rules to converge on one official record.

Why It Exists

Consensus is the agreement mechanism. It keeps nodes aligned on the canonical chain and brings blocks to finality.

Mental model: Consensus = which Ethereum history the network agrees on.
Execution Client
Geth, Besu, Nethermind, Erigon

The Problem

Once a block is accepted, every node needs to calculate the same resulting balances, contract changes, and state.

Simple Analogy

Like running the same formula on the same data: every correct implementation should produce the same result.

Why It Exists

Execution runs transactions and smart contracts in the EVM and updates Ethereum's state.

Mental model: Execution = what transactions do to Ethereum's state.
💰 Advanced: Why Block Building Is a Separate Role Today
One Common Block-Building Path Today
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You (User)
You want to swap tokens
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Block Builder
Assembles a candidate block
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Relay
Mediates bids in today's common flow
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Proposer
Publishes the proposed block
Block Builders
Flashbots, bloXroute, Titan

The Problem

Transaction order can change economic outcomes. Specialized actors therefore compete to assemble valuable candidate blocks.

Simple Analogy

Like assembling a batch of orders when the order itself can affect the result. The sequence has economic value.

Why It Exists

Builders specialize in assembling candidate blocks. This can improve block-production efficiency, but it also creates MEV and concentration concerns.

Relays
Flashbots, Ultrasound, bloXroute

The Problem

Builders and proposers don't trust each other. Builders don't want to reveal their blocks (someone could steal the strategy). Proposers don't want to blindly accept a block that might be invalid.

Simple Analogy

Like a sealed-bid intermediary that lets builders submit bids without revealing the full block to the proposer first.

Why It Exists

Relays connect external builders and proposers in today's common MEV-Boost flow. They are off-protocol intermediaries; Glamsterdam's ePBS is designed to remove this relay dependency.

Proposer (Validator)
Selected validator for the slot

The Problem

Who publishes a block for this slot? Ethereum needs one selected proposer, but that proposer should not be able to declare the block final by itself.

Simple Analogy

Think of the proposer as the designated publisher for one round. Publishing a candidate block does not make it final by itself.

Why It Exists

The selected validator proposes the block for that slot and has staked ETH at risk. Other validators attest, and finality emerges from wider consensus — not from the proposer's signature alone.

📈 The Scale Problem: Why Layer 2?
Layer 2 Rollups
Arbitrum, Optimism, Base, zkSync

The Problem

Ethereum L1 deliberately limits how much work fits into each block because independent nodes still need to verify the chain within tight timing and hardware constraints.

Court-System Analogy

This is where the court analogy works best: rollups handle large volumes of routine activity, while Ethereum acts as the shared settlement layer where data, proofs or disputes ultimately anchor.

Why It Exists

Rollups execute many transactions outside L1, then publish data and state commitments or proofs to Ethereum. This can provide faster and cheaper execution while anchoring important guarantees to L1.

L1 settlement, L2 scale: Rollups can inherit important Ethereum security properties, but the exact guarantees depend on each rollup's architecture and maturity.
Sequencer
Currently centralized operators

The Problem

On L2, someone needs to order transactions quickly (sub-second) before they're batched to L1. Waiting for L1's 12-second slots would kill the user experience.

Court-System Analogy

Like a filing clerk that immediately timestamps and orders your submission. That gives a fast acknowledgment, while final settlement happens later.

Why It Exists

A sequencer orders L2 transactions and can provide fast "soft confirmations" before the rollup settles to Ethereum. Many major rollups still rely on a single sequencer operator today.

Sequencing is evolving: some rollups are exploring decentralized or based sequencing. These are design directions, not a universal Ethereum roadmap commitment.
Data Availability (Blobs)
EIP-4844 / Proto-Danksharding

The Problem

Rollups need transaction or state data to remain available so others can reconstruct and verify what happened, but permanent L1 storage is expensive.

Records Analogy

Like a public filing system that guarantees records remain available for a defined period so others can inspect or reconstruct what happened.

Why It Exists

Blobs give rollups lower-cost temporary data availability on Ethereum. The protocol guarantees availability for roughly 18 days, after which clients may prune the data and external archives can retain it.

Important distinction: blob retention and a rollup's fraud-challenge period are separate mechanisms. One does not determine the other.
How Rollups Prove What Happened
Optimistic vs ZK approaches

The Problem

Ethereum should not need to re-execute every L2 transaction. So how can it trust the rollup's claimed result?

Court-System Analogy

Optimistic: A result stands unless someone successfully challenges it during a defined appeal window.

ZK: The result arrives with a cryptographic proof that Ethereum can verify directly.

Why It Exists

Optimistic rollups use challenge mechanisms; ZK rollups use validity proofs. Both are ways to let Ethereum enforce an L2 result without replaying every L2 transaction.

Four Design Ideas to Remember

Separation of Concerns

Consensus determines which chain the network agrees on. Execution determines what transactions do to state. Builders may assemble candidate blocks. The roles are separated, although protocol upgrades can span multiple layers.

Unpredictability

Proposer selection distributes block-production opportunities and makes the next proposer difficult to know far in advance. It reduces some coordination and corruption risks; it does not make manipulation impossible.

Economic Incentives

Validators put ETH at economic risk and receive rewards or penalties based on their behavior. Some consensus violations can lead to slashing.

Verify, Don't Trust

Ethereum is designed so core protocol state and execution can be independently verified. Applications and L2s may add additional trust assumptions that should be evaluated separately.