What is the Ethereum Virtual Machine (EVM)?

Introduction

Vitalik Buterin created Ethereum with the vision of expanding the boundaries of blockchain technology beyond what Bitcoin offered. While he drew inspiration from Bitcoin's revolutionary peer-to-peer transaction system, Buterin believed that blockchain technology should serve a broader purpose than merely processing financial transactions. This vision led to the creation of the Ethereum blockchain network, which inherited all of Bitcoin's capabilities—processing P2P transactions and storing them in an immutable and decentralized manner—while introducing groundbreaking features that Bitcoin lacked, most notably the ability to execute smart contracts.

The question that naturally arises is: how does a blockchain network execute smart contracts? Ethereum accomplishes this through the Ethereum Virtual Machine (EVM), which serves as the computational engine at the heart of the Ethereum network. The EVM is the critical infrastructure that enables developers to deploy and execute smart contracts, transforming Ethereum from a simple cryptocurrency into a global, decentralized computing platform. In this comprehensive article, we will explore what the EVM is, how it functions, its advantages, practical applications, and its limitations. Before diving into the main topic, let's briefly examine the concept of smart contracts to establish a foundation for understanding the EVM's role.

Key Takeaways

• Vitalik Buterin created Ethereum to pioneer the implementation of smart contracts, which are self-executing contracts that operate on the Ethereum Virtual Machine (EVM).

• The EVM is sophisticated software infrastructure that enables the execution and deployment of smart contracts within the Ethereum network, serving as the computational backbone of the entire ecosystem.

• The EVM processes transactions across two distinct states: the world state level (managing account balances and smart contracts) and the machine state level (executing individual transaction steps).

• Smart contracts are written in the Solidity programming language and compiled into bytecode, which the EVM then executes. Gas fees ensure network security and prevent resource abuse by malicious actors.

• The EVM's influence is evident across numerous blockchain innovations, including ERC-20 tokens, decentralized exchanges (DEXs), non-fungible tokens (NFTs), DeFi lending protocols, and decentralized autonomous organizations (DAOs).

What are Smart Contracts?

Smart contracts represent a revolutionary concept in blockchain technology—they are autonomous programs or applications that operate within a blockchain network without requiring human intervention. These digital contracts consist of code and data that developers deploy to execute specific predetermined instructions. Once deployed, smart contracts operate according to their programmed logic, and users cannot control them since they function based on their embedded code.

The concept of smart contracts was first successfully implemented on the Ethereum network, marking a pivotal moment in blockchain evolution. As a result of this pioneering implementation, millions of smart contracts have been created and deployed on the Ethereum blockchain over the years. The EVM has played a crucial role in this widespread adoption, providing the computational environment necessary for smart contracts to function reliably and securely. These self-executing contracts have enabled countless decentralized applications and services, fundamentally changing how we think about digital agreements and automated transactions.

What is the Ethereum Virtual Machine (EVM)?

The Ethereum Virtual Machine lies at the core of the Ethereum protocol, serving as its computational engine. The EVM is essentially a virtual machine—a sophisticated digital software environment that powers the entire Ethereum network. This virtual machine software possesses the capability to execute programs, store data, connect to networks, and handle various other computational tasks that are essential for a functioning blockchain ecosystem.

More specifically, the EVM is responsible for executing code and deploying smart contracts on the Ethereum blockchain. It acts as a decentralized computer that runs on thousands of nodes worldwide, ensuring that smart contracts execute exactly as programmed without any possibility of downtime, censorship, fraud, or third-party interference. The EVM provides a runtime environment for smart contracts, enabling developers to build complex decentralized applications (dApps) that can interact with the Ethereum blockchain in sophisticated ways.

How It Works

Since Ethereum goes beyond merely processing peer-to-peer transactions, it requires a sophisticated computational system to manage its expanded functionality. Ethereum developers conceptualize the network as an "unbounded state machine" rather than simply a distributed ledger, which reflects how the EVM operates. The EVM manages Ethereum's operations across two distinct states: the world state and the machine state, each serving different but complementary purposes.

World State

The world state represents the global level where Ethereum stores account balances and smart contracts. Similar to Bitcoin's ledger, this state is decentralized, immutable, and publicly accessible online to anyone who wishes to view it. The EVM updates this world state each time a transaction is completed, ensuring that the blockchain reflects the most current information about all accounts and contracts.

This means that anyone can use a block explorer to examine the Ethereum blockchain and retrieve identical, real-time data about the network's current state. The world state essentially provides a snapshot of all Ethereum accounts, their balances, and the current state of all deployed smart contracts at any given moment. This transparency is fundamental to Ethereum's trustless nature, as it allows anyone to verify the state of the network independently.

Machine State

In the machine state, the EVM performs step-by-step transaction processing. This state is often referred to as Ethereum's "sandbox" for developers, providing an isolated environment where code execution occurs. The Ethereum network processes two primary types of transactions, each handled differently by the EVM.

The first transaction type is a message call, which occurs when one account transfers ETH tokens to another account. In this case, the EVM moves ETH tokens from one wallet address to another, updating the transaction information in the world state upon completion. The sender is charged a gas fee for the computational resources consumed during the transaction processing.

The second transaction type is contract creation, which occurs when a developer wants to execute a smart contract on Ethereum. In this scenario, the sender provides the required gas fee and submits the smart contract's bytecode to the network. The EVM then processes this bytecode, executing the contract's logic and updating the world state accordingly. This two-state system allows Ethereum to maintain consistency while processing complex smart contract operations.

Solidity Programming Language

The most commonly used programming language for creating Ethereum smart contracts is Solidity. Like JavaScript, Solidity is a high-level programming language designed for human readability and understanding, but machines cannot directly interpret it. This presents a challenge: while developers can write smart contracts in human-readable Solidity code, the EVM can only execute machine-readable instructions.

To bridge this gap, after writing a smart contract in Solidity, developers must translate it into machine language, or bytecode, using an Ethereum Virtual Machine compiler such as solc. This compilation process converts the high-level Solidity code into low-level bytecode that the EVM can understand and execute. The compiler ensures that the smart contract's logic is accurately translated into a format that the EVM can process efficiently while maintaining the intended functionality of the original code.

Smart Contract Execution

As the EVM executes smart contract code, the gas supply decreases in accordance with the computational costs of the operations being performed. Each operation within a smart contract has an associated gas cost, which reflects the computational resources required to execute it. If at any point before the transaction completes the gas supply drops to zero, the EVM immediately halts execution.

When execution stops due to insufficient gas, the transaction is terminated, and no changes are written to the world state. This mechanism protects the network from infinite loops and resource-intensive operations. While this doesn't affect the network's overall integrity, the sender's ETH balance decreases because they must pay for the computational resources consumed before execution stopped. However, if the transaction executes successfully with sufficient gas, the EVM updates the world state to match the machine state, permanently recording the transaction's effects on the blockchain.

This gas mechanism serves multiple purposes: it compensates network validators for their computational resources, prevents spam and denial-of-service attacks, and ensures that developers write efficient code. By requiring payment for computational resources, Ethereum creates economic incentives for both efficient smart contract design and responsible network usage.

Ethereum Gas Fees

Gas fees are essential for processing transactions on the Ethereum blockchain, serving as the economic fuel that powers the network. When Ethereum used the Proof of Work (PoW) consensus mechanism, executing transactions required significant hardware resources and electricity, and miners needed financial incentives to perform these computational tasks. Gas fees provided this incentive structure, ensuring that miners would dedicate their resources to securing the network and processing transactions.

For simple ETH token transfers, gas fees vary depending on network congestion in the transaction pool. When many users attempt to transact simultaneously, gas prices increase as users compete to have their transactions processed quickly. Conversely, during periods of low activity, gas fees decrease, making transactions more affordable.

For smart contract execution, gas fees play a more nuanced role in network security and resource management. During execution, smart contract bytecode is broken down into smaller components called opcodes (operation codes). These opcodes are the fundamental instructions that the EVM uses for computations. Each opcode has an associated gas cost—the more complex the opcode, the higher its cost. This granular pricing mechanism is necessary to protect the Ethereum blockchain from malicious attacks.

For example, during a Distributed Denial of Service (DDoS) attack, the EVM will continue executing a malicious smart contract in the machine state. However, gas fees are charged for each computation performed, and when the sender's gas supply is exhausted, the transaction is rejected before it can harm the network. This economic defense mechanism makes attacks prohibitively expensive while allowing legitimate users to interact with smart contracts efficiently.

Advantages of the EVM

As mentioned earlier, the EVM protects the network from various types of attacks through its gas fee mechanism and isolated execution environment. This security feature ensures a safe and reliable platform for executing smart contracts and providing other automated services, giving users confidence that their transactions will execute as intended without interference.

Over the years, the Ethereum network has grown to become the largest cryptocurrency ecosystem in the blockchain space. It is widely regarded as the gold standard for creating decentralized applications and deploying smart contracts. The EVM's robust architecture and widespread adoption have inspired many other blockchain networks to create sidechains and compatible environments that allow Ethereum developers to port their applications without modifying their code. This compatibility has created a vast ecosystem of EVM-compatible blockchains, expanding the reach and utility of Ethereum-based applications.

Thanks to the EVM's decentralized nature, anyone can create a smart contract on Ethereum without requiring permission from any central authority. This permissionless innovation has democratized access to blockchain technology, enabling developers worldwide to contribute to the ecosystem. Additionally, the EVM empowers developers to create and deploy decentralized services and applications that have gained significant popularity in recent years, driving innovation across finance, gaming, social media, and numerous other sectors.

The EVM's deterministic execution ensures that smart contracts produce identical results regardless of where or when they are executed, as long as the input conditions are the same. This predictability is crucial for building reliable decentralized applications and has made the EVM the foundation for countless innovative projects in the blockchain space.

EVM Use Cases

Thanks to the Ethereum Virtual Machine's ability to execute smart contracts, numerous innovative solutions have emerged in the blockchain space, transforming how we interact with digital assets and services. Here are five of the most popular and impactful use cases of the EVM:

ERC-20 Tokens

Smart contracts generate ERC-20 tokens using predefined data structures that handle token naming, distribution, and tracking. These standardized contracts ensure that tokens behave consistently across the Ethereum ecosystem, making them interoperable with wallets, exchanges, and other applications. During the Initial Coin Offering (ICO) boom in 2017, numerous new tokens were launched using the ERC-20 standard, demonstrating the power of standardized smart contracts.

In recent years, ERC-20 tokens have found their most effective application in stablecoins, such as USDT (Tether), USDC (USD Coin), and DAI. These digital assets maintain price stability by pegging their value to traditional currencies or other assets, providing a reliable medium of exchange and store of value within the cryptocurrency ecosystem. The ERC-20 standard's simplicity and widespread support have made it the de facto standard for fungible tokens on Ethereum.

Decentralized Exchanges (DEXs)

Decentralized exchanges enable users to buy, sell, or trade cryptocurrencies through smart contract deployment, eliminating the need for centralized intermediaries. Platforms like Uniswap, SushiSwap, and others utilize Automated Market Maker (AMM) applications that allow users to access token liquidity pools without third-party intervention.

These DEXs operate entirely through smart contracts, which manage liquidity pools, execute trades, and distribute fees to liquidity providers. Users maintain custody of their assets throughout the trading process, significantly reducing counterparty risk compared to centralized exchanges. The transparency of smart contracts also ensures that trading rules are consistent and cannot be arbitrarily changed, providing users with greater confidence in the fairness of the platform.

Non-Fungible Tokens (NFTs)

Non-Fungible Tokens are unique digital objects stored on the blockchain that verify ownership and cannot be replicated or substituted. Blockchain users employ smart contracts to create NFT collections, with each token representing a distinct digital asset such as artwork, music, virtual real estate, or collectibles.

Among the most valuable NFT collections are Bored Ape Yacht Club (BAYC) and CryptoPunks, which have achieved significant cultural and financial prominence. Owners can sell or trade NFTs on marketplaces like OpenSea, Rarible, and others, with smart contracts automatically handling ownership transfers, royalty payments to creators, and other complex transactions. The EVM's ability to execute these sophisticated contracts has enabled the explosive growth of the NFT market.

DeFi Lending

Decentralized Finance (DeFi) lending platforms allow users to borrow and lend cryptocurrency without involving third-party intermediaries like traditional banks. Smart contracts govern borrowing and lending protocols, automating the entire process from collateral management to interest distribution.

Borrowers can receive loans instantly upon providing sufficient collateral, while lenders sometimes receive interest payments daily, creating efficient capital markets that operate 24/7 without geographical restrictions. Platforms like Aave, Compound, and MakerDAO have demonstrated the power of smart contract-based lending, managing billions of dollars in assets and providing financial services to users worldwide who might otherwise lack access to traditional banking infrastructure.

Decentralized Autonomous Organizations (DAOs)

A Decentralized Autonomous Organization is a community-driven entity without a central authority, where participants collectively make decisions about project governance. Core community members establish DAO rules, which are implemented and enforced through smart contracts.

These smart contracts handle various functions, including voting mechanisms, treasury management, proposal submission and execution, and membership management. DAOs represent a new paradigm for organizational structure, enabling global collaboration and decision-making without traditional hierarchical management. Examples include investment DAOs, protocol governance DAOs, and social DAOs, each leveraging the EVM's capabilities to create transparent, automated governance systems.

EVM Limitations

The EVM has two significant limitations that potential users and developers should understand. First and foremost, users must know Solidity and possess programming skills to create and interact with smart contracts effectively. This technical requirement creates a barrier to entry that makes it challenging for new users to create and interact with smart contracts, limiting the ecosystem's accessibility to those with specialized knowledge.

The second limitation involves the potentially high gas fees associated with creating smart contracts or deploying applications on the Ethereum network. During periods of high network congestion, gas fees can become prohibitively expensive, making certain applications economically unviable. This cost issue has driven the development of layer-2 scaling solutions and alternative EVM-compatible blockchains that offer lower transaction costs while maintaining compatibility with Ethereum's ecosystem.

EVM-Compatible Cryptocurrencies

EVM-compatible blockchains address the high gas fee problem by offering alternative execution environments that maintain compatibility with Ethereum smart contracts. Developers have borrowed certain components of the Ethereum network architecture and created decentralized applications (DApps) that enable quick and easy asset transfers between any EVM-compatible networks. This interoperability has created a multi-chain ecosystem where developers can deploy their applications across multiple networks without rewriting code.

Many popular blockchains offer EVM compatibility, including:

• BNB Smart Chain: offering lower transaction costs and faster block times while maintaining Ethereum compatibility
• Avalanche: providing high throughput and near-instant finality with EVM support
• Fantom: utilizing a directed acyclic graph (DAG) architecture for improved scalability
• Cardano: implementing EVM compatibility through sidechains to bridge ecosystems
• Polygon: serving as a layer-2 scaling solution specifically designed for Ethereum
• Tron: offering an alternative platform with EVM compatibility for decentralized applications

These networks enable developers to deploy Ethereum smart contracts with minimal modifications, expanding the reach of their applications while offering users alternatives when Ethereum's gas fees become too high.

The Future of the EVM

Vitalik Buterin built upon Bitcoin's foundation with the vision of creating a decentralized supercomputer accessible to virtually everyone. The Ethereum Virtual Machine has been instrumental in bringing this vision to life, transforming blockchain technology from a simple transaction ledger into a global computing platform. Since its creation, the EVM has undergone multiple updates and continues to evolve and improve, adapting to the growing demands of the blockchain ecosystem.

The Dencun upgrade implemented proposal EIP-4844, which added proto-danksharding to Ethereum. This significant update substantially reduces gas fees by enabling the network to process layer-2 transaction data more efficiently. At the core of proto-danksharding is a new data type called blob objects. Unlike traditional blockchain data, blobs are deleted from the blockchain rather than stored permanently, reducing long-term storage requirements. Additionally, EIP-4788, another component of the Dencun upgrade, improves compatibility and provides the EVM with direct access to the Beacon Chain state. This enhancement is crucial for liquid staking and cross-chain interactions, enabling more sophisticated financial applications. The Dencun upgrade was completed in early 2024, marking a significant milestone in Ethereum's evolution.

Ethereum's roadmap emphasizes scalability through rollups, with zero-knowledge Ethereum Virtual Machines (zkEVMs) playing a crucial role in this strategy. zkEVMs enable efficient off-chain transaction processing while maintaining compatibility with Ethereum, significantly enhancing scalability without compromising security. These advanced implementations use zero-knowledge proofs to verify transaction validity, allowing thousands of transactions to be processed off-chain and then verified on-chain with minimal computational overhead.

Looking ahead, the EVM is expected to continue evolving with improvements in execution efficiency, enhanced security features, and better integration with layer-2 solutions. Research into stateless clients, improved storage models, and advanced cryptographic techniques promises to make the EVM even more powerful and accessible in the coming years.

Conclusion

The Ethereum Virtual Machine represents a fundamental component of Ethereum's infrastructure, serving as the computational engine that powers the entire ecosystem. It is essential for executing smart contracts on the blockchain, and its sophisticated software handles countless computational tasks that enable decentralized applications to function reliably and securely.

The EVM also protects the network through its gas fee mechanism and isolated execution environment, preventing attacks while supporting the security, resilience, and decentralization of the platform for developers worldwide. By providing a consistent, deterministic execution environment, the EVM has enabled the creation of thousands of decentralized applications spanning finance, gaming, social media, supply chain management, and numerous other sectors.

As Ethereum continues to evolve with upgrades like Dencun and the ongoing development of layer-2 solutions, the EVM remains at the heart of the ecosystem, adapting to meet the growing demands of users and developers. Its influence extends far beyond Ethereum itself, with numerous EVM-compatible blockchains expanding the reach of Ethereum-based applications and creating a vibrant multi-chain ecosystem. The EVM's continued development and widespread adoption ensure that it will remain a cornerstone of blockchain technology for years to come, driving innovation and enabling new forms of decentralized collaboration and economic activity.

FAQ

What is the Ethereum Virtual Machine (EVM)? What is its core function?

The EVM is Ethereum's core component that executes smart contracts in an isolated environment. Its primary function is to process and verify contract code across the network, ensuring security and decentralization while enabling programmable blockchain applications.

How does the EVM execute smart contract code?

The EVM executes smart contract code by interpreting compiled bytecode into opcodes, using a stack-based model to process instructions sequentially, maintaining isolated state changes and memory within a sandboxed environment.

What is the difference between EVM and other blockchain virtual machines such as Solana VM and Cosmos VM?

EVM is designed for Ethereum, supporting smart contract execution with account-based model. Solana VM uses parallel processing for high throughput, while Cosmos VM emphasizes interoperability. Each has distinct architecture, consensus mechanisms, and programming languages.

Why is the EVM called the 'World Computer'?

The EVM is called the 'World Computer' because it operates as a decentralized network distributed across computers globally, executing smart contracts. This distributed architecture enables borderless, permissionless computation accessible to anyone worldwide.

What is Gas fee? What is its relationship with the EVM operating mechanism?

Gas fee is the cost required to execute transactions and smart contracts on the Ethereum network. It directly relates to EVM operations, as each computational step consumes gas, ensuring network security and preventing spam attacks.

How do developers deploy and run smart contracts on the EVM?

Developers write smart contracts in Solidity, then use tools like Truffle or Hardhat to compile and deploy them to EVM-compatible blockchains. Once deployed, the contracts execute automatically on the network based on predefined logic and user interactions.