Key Takeaways
- Ethereum is a programmable blockchain that runs smart contracts, powering DeFi, stablecoins, NFTs and thousands of apps.
- Ether (ETH) is its native currency, used to pay transaction fees (gas) and to secure the network through staking.
- Since the Merge in September 2022, Ethereum has used proof of stake instead of energy-intensive mining.
- Layer 2 networks such as Arbitrum, Optimism and Base make Ethereum transactions faster and cheaper.
If Bitcoin is digital money, Ethereum is closer to a global, shared computer. It lets developers build applications that run exactly as programmed, without a company in control. This guide explains what Ethereum is, how it works, what people use it for and how it differs from Bitcoin.
What is Ethereum?
Ethereum is a decentralized blockchain network that can run code, not just record payments. That code comes in the form of smart contracts: programs that automatically execute when certain conditions are met. Anyone can deploy a smart contract, and anyone can interact with it, which has made Ethereum the foundation for most of the crypto economy beyond Bitcoin.
The network's native currency is ether (ETH). People often call the cryptocurrency "Ethereum", but strictly speaking Ethereum is the network and ETH is the coin.
A short history
Ethereum was proposed in a 2013 white paper by programmer Vitalik Buterin and launched on July 30, 2015, with several co-founders. Key milestones include:
- 2016: after a hack of a popular smart contract called The DAO, the community split, creating Ethereum (ETH) and Ethereum Classic (ETC).
- 2021: the London upgrade introduced a fee-burning mechanism (EIP-1559) that destroys part of every transaction fee.
- September 2022: "the Merge" switched Ethereum from proof of work to proof of stake, cutting its energy use by more than 99%.
- 2024 and 2025: the Dencun and Pectra upgrades made layer 2 networks much cheaper to use and improved staking and wallet features.
How does Ethereum work?
Smart contracts
A smart contract is like a vending machine: put in the right input and you reliably get the expected output, with no attendant needed. A lending app, for example, can hold your collateral, calculate interest and release funds automatically. Because the code lives on the blockchain, everyone can inspect it and no one can quietly change the rules for one user.
The Ethereum Virtual Machine
Every node on the network runs the Ethereum Virtual Machine (EVM), which executes smart contract code in the same way on every computer. Many other blockchains are "EVM-compatible", so the same apps and wallets such as MetaMask work across them.
Proof of stake
Instead of miners, Ethereum is secured by validators who lock up, or stake, ETH. Validators propose and attest to new blocks and earn rewards for doing so honestly. If they act maliciously or go offline, part of their stake can be destroyed, a penalty called slashing. Running your own validator requires 32 ETH, but you can participate with smaller amounts through exchanges and liquid staking services. Learn more in our guide to crypto staking.
Gas fees
Every action on Ethereum, from sending ETH to swapping tokens, uses computing resources measured in gas. You pay gas in ETH. Fees rise when the network is busy and fall when it's quiet. Part of each fee is burned, which reduces the supply of ETH over time when network activity is high. Our crypto fees guide explains how network fees compare with exchange fees.
Layer 2 networks
To handle more users at lower cost, many transactions now happen on layer 2 networks such as Arbitrum, Optimism and Base. These bundle thousands of transactions together and settle the results on Ethereum, inheriting much of its security while charging a fraction of the fee.
What is Ethereum used for?
- Decentralized finance (DeFi): lending, borrowing, trading and earning yield without banks. See what is DeFi.
- Stablecoins: most of the major dollar-pegged tokens, such as USDC and USDT, circulate heavily on Ethereum. Read how stablecoins work.
- NFTs and digital ownership: unique tokens representing art, collectibles, game items or tickets.
- Tokenized real-world assets: traditional institutions issue tokenized funds and treasury products on Ethereum.
- DAOs: organizations whose rules and treasury are managed by smart contracts and token-holder votes.
Ethereum vs Bitcoin
| Bitcoin | Ethereum | |
|---|---|---|
| Main purpose | Digital money and store of value | Platform for apps and smart contracts |
| Launched | 2009 | 2015 |
| Consensus | Proof of work (mining) | Proof of stake (staking) |
| Supply | Hard cap of 21 million | No fixed cap; issuance offset by fee burning |
| Block time | About 10 minutes | About 12 seconds |
Many investors hold both: Bitcoin as a scarce store of value and ETH as exposure to the growth of blockchain applications. Read our full Bitcoin vs Ethereum comparison.
How to buy and store ETH
You can buy ETH on almost every major crypto exchange, and in some countries you can also gain exposure through spot Ether ETFs in a brokerage account. The process is the same as buying Bitcoin; follow our step-by-step buying guide and select ETH instead.
To use Ethereum apps you'll need a self-custody wallet such as MetaMask. For long-term holdings, a hardware wallet like a Ledger or Trezor is safer. Always keep a small amount of ETH in your wallet to pay gas, even if you mostly hold other tokens.
Risks to consider
- Price volatility: ETH has historically been even more volatile than Bitcoin.
- Smart contract risk: bugs in apps can lead to hacks and lost funds.
- Phishing and approvals: malicious sites can trick you into signing transactions that drain your wallet. Learn the signs of crypto scams.
- Competition: other smart contract platforms, such as Solana, compete for users and developers.
Frequently asked questions
Is Ethereum the same as ETH?
Ethereum is the blockchain network and ETH (ether) is its native cryptocurrency. People use the terms interchangeably in everyday conversation.
Does Ethereum have a maximum supply?
No. Unlike Bitcoin, ETH has no hard cap. New ETH is issued to validators, but part of every transaction fee is burned, so total supply can rise or fall depending on network activity.
Can I mine Ethereum?
No. Ethereum stopped mining when it switched to proof of stake in September 2022. You can now earn rewards by staking ETH instead.
Why are Ethereum gas fees sometimes high?
Fees rise when many people want to use the network at the same time, because users bid for limited block space. Using a layer 2 network is the easiest way to pay much lower fees.
What is the difference between Ethereum and Ethereum Classic?
Ethereum Classic is the original chain that continued without reversing the 2016 DAO hack. It still uses proof of work and is a separate, much smaller project.
Convert ETH to your local currency with our crypto converter.
This guide is for educational purposes only and is not financial advice.
This content is for educational purposes only and is not financial advice. Cryptocurrency investments are volatile and risky. Some links may be affiliate links — see our disclosure.