Beginner's Guide to Ethereum Virtual Machine (EVM)

6 min read

A guide exploring EVM with its working, benefits, limitations, and usefulness in Web3.

The EVM, or Ethereum Virtual Machine, is the workhorse of the Ethereum ecosystem, powering the decentralized revolution. It's the infrastructure that smart contracts run on, and it allows us to engage in DeFi transactions and use Ethereum-based Web3 apps.

But what exactly is the EVM, and what's going on under the hood? In this article, we’ll give an introduction into the EVM and explain why Web3 developers prefer EVM for decentralized application development.

What Is EVM, and What Does It Do?#

The EVM is the system that provides a runtime environment for executing smart contract functions that run on the Ethereum network. It’s an important element of the Ethereum blockchain and the foundation of decentralized apps (dApps) and digital assets on the platform.

EVM is a network of computers (nodes) interconnected to execute smart contracts and run dApps.This is what makes Ethereum "programmable money", meaning it’s more than just a cryptocurrency and enables the use of smart contracts for a wide range of uses in DeFi protocols, NFTs, DEXes, gaming platforms, etc.

One common misconception is that the EVM is a single piece of software or a server somewhere. But this isn't the case. The EVM can be thought of as a decentralized computer containing millions of executable objects, each with its own permanent data store.

The EVM is quasi Turing-complete, meaning it’s capable of computing any program or computational problem; it is quasi Turing-complete because its operations are restricted to a specific number of steps based on the gas available for each smart contract execution.

In practice, the way EVM is designed encourages developers to avoid writing complex and repetitive smart contracts. Activities like performing computation, storing data, or conducting transactions on the EVM require payment of gas fees. These fees discourage wasteful programming practices and steer developers towards running only important smart contracts on the chain.

How Does the EVM Work?#

The Ethereum Virtual Machine was coded in C++ using the LLVM Project compiler. It’s a special state machine that governs what Ethereum nodes can do and sets the rules for how changes can be made from block to block. It's this capability that allows smart contracts to operate on Ethereum, powering the DeFi ecosystem.

The EVM has a stack-based memory structure that is 1024 items deep, with each item being a 256-bit word. In addition to this stack, there's a byte array that serves as temporary memory for recording changes between transactions on the blockchain. Developers can write smart contracts in any EVM-compatible language, and the virtual machine will then compile those smart contracts into opcodes for execution.

The EVM is a deterministic platform, which means any given smart contract will give the same output for the same input. This feature is essential for the consensus mechanism of Ethereum to ensure that all nodes agree on the state of the network.

Ethereum has the most reliable ecosystem for creating dApps and is the network of choice for Web3 projects. It enables users to transact with the multiple tokens that run on the Ethereum blockchain and lets Layer 2 scaling solutions connect to it to benefit from its underlying security.

Here are some of the reasons to build Web3 apps in the EVM environment:

  • Extensive Ecosystem: Ethereum has a large community of users offering extensive libraries, toolkits, frameworks, and resources that make developing Web3 apps easier on EVM.
  • Smart Contract Execution: Smart contracts execute themselves, which enables dApps to automate transactions. Since EVM is specifically designed to execute smart contracts, it’s the first choice for Web3 developers.
  • Interoperability: The EVM offers robust interoperability that allows projects to connect to several layer 2 solutions and allows dApps to interact with each other.
  • Security: The EVM provides built-in security features to protect against common vulnerabilities and has standard auditing practices. In addition, EVM is distributed over thousands of nodes, and each one stores a replica of EVM’s data, making it difficult for malicious agents to alter the data.
  • Programming Language Support: The EVM supports a wide range of popular programming languages, including Solidity for writing smart contracts.

The Benefits of the EVM#

The EVM provides a secure environment where code can be executed without having any impact on the wider Ethereum network.

Likewise, the EVM offers several other benefits. Let’s see them:

  • The EVM has thousands of nodes participating on the network at any given time, providing high availability of the network. Even if some nodes fail to operate, there are numerous nodes that operate seamlessly.
  • The EVM is deterministic i.e. the outcome of a process or computation can be uniquely predicted based on its initial conditions and the set of rules or algorithms involved. In other words, given the same starting inputs and conditions, a deterministic system, such as EVM, will always produce the same results, ensuring consistency and predictability in the Ethereum blockchain’s operations. This characteristic is crucial for maintaining consensus and ensuring that all participants in the Ethereum network can independently verify and agree on the validity of transactions and computations.
  • Anyone can participate as an “EVM Node Operator” to provide the runtime environment for smart contracts. The only requirements are a basic computer system, an internet connection, and an Ethereum client program (software) installed.
  • EVM operates transparently, allowing anyone to audit the smart contracts and transactions executed on the Ethereum blockchain.

The Limitations of the EVM#

Being a popular platform, EVM brings numerous benefits to the world of decentralized applications. However, like any technology, it's not without its limitations. Here are some important ones:

  • Layer 1 Scaling Limitations: Layer 1 scaling on the EVM is limited, which constrains the blockchain's capacity to process transactions. This limitation has become evident with lots of users joining the network, leading to network congestion.
  • Gas Fees Variation: Executing codes on the EVM requires gas fees, and the cost of gas varies depending on network congestion. These varying fees make it difficult to predict and afford transaction costs and impact the user experience on the network.
  • Steep Learning Curve: Solidity, the most popular EVM-compatible language, has similarities to JavaScript. However, it has unique concepts and syntax that make switching to Solidity challenging. Less skilled developers may find it hard to write lightweight codes that reduce gas consumption.
  • Irreversible Smart Contracts: Smart contracts on the EVM are immutable once deployed, meaning that any bugs in smart contracts can have permanent consequences. If not thoroughly tested and audited, a smart contract could result in the loss or locking up of funds.

Final Words#

It's these issues that make DeFi insurance so essential for modern Web3 platforms. No developer launches a project expecting to get hacked, but even the brightest stars make mistakes.

At Neptune Mutual, we offer parametric insurance for DeFi projects, giving users the peace of mind that if the platform they're depositing on is attacked or hacked, they'll have some protection to fall back on.

If you run a DeFi project or are a user looking to purchase cover to protect your digital assets, take a look at our marketplace on Ethereum Mainnet and Layer 2 (Arbitrum)today, or contact us to learn more about our offerings.