What is Ethereum?

Ethereum is an open blockchain network that runs programs called smart contracts. Its native currency is ether (ETH), which pays transaction fees and, through staking, secures the network. When people say they “bought Ethereum,” they almost always mean they bought ETH.

Where Bitcoin was built mainly to move value, Ethereum is a programmable platform that other applications are built on. A large share of stablecoins, DeFi protocols, NFTs and tokens live on Ethereum or on networks compatible with it.

Who created Ethereum?

Ethereum was proposed in a whitepaper by Vitalik Buterin in late 2013 and developed with co-founders including Gavin Wood and Joseph Lubin. The mainnet launched on July 30, 2015. Today development is spread across many independent teams, with the Swiss-based Ethereum Foundation playing a coordinating role.

Key milestones include the 2016 hard fork after The DAO hack (which split off Ethereum Classic), the EIP-1559 upgrade in August 2021 that started burning part of every fee, The Merge in September 2022 that replaced mining with Proof of Stake, and the Dencun upgrade in March 2024 that sharply cut costs on Layer 2 networks.

What is a smart contract and how does it work on Ethereum?

A smart contract is a program stored on the blockchain that executes automatically when its conditions are met. A Uniswap swap contract takes the token you send and returns another token within the price limit you set. A lending protocol like Aave records your collateral, tracks your debt and triggers a liquidation if the collateral falls short.

Contracts run on the Ethereum Virtual Machine (EVM), and every node reaches the same result from the same input. Because they share one environment, contracts can call each other freely, which is where DeFi’s “money legos” nickname comes from. The flip side is that code runs exactly as written, bugs included.

What is ETH used for?

• Gas fees: every action, from sending ETH to minting an NFT, costs ETH. Holding tokens but no ETH is the most common reason people can’t move their tokens.
• Staking collateral: validators lock ETH to secure the network and earn rewards.
• DeFi collateral and trading pair: ETH is one of the most widely used assets in lending and swapping protocols.

Unlike Bitcoin, ETH has no hard supply cap. New ETH is issued as staking rewards, while EIP-1559 burns the base fee of every transaction. Whether net supply grows or shrinks depends on how busy the network is.

How is Ethereum different from Bitcoin?

• Purpose: Bitcoin is primarily digital money and a store of value; Ethereum is a platform for running applications.
• Consensus: Bitcoin is secured by mining (Proof of Work), Ethereum by staking (Proof of Stake).
• Supply: BTC is capped at 21 million; ETH has no fixed cap, with issuance and burning setting the balance.
• Block time: about 10 minutes on Bitcoin versus 12 seconds on Ethereum.

How are gas fees calculated?

Gas measures how much computation a transaction uses. The fee equals gas used multiplied by the price per unit of gas, which is quoted in gwei; one gwei is a billionth of an ETH.

A plain ETH transfer uses 21,000 gas. At 10 gwei, that’s 21,000 × 10 = 210,000 gwei, or 0.00021 ETH. A token swap uses far more. A transaction that fails still consumed computation, so the fee isn’t refunded. Our gas fee guide works through more examples.

How does Ethereum staking work?

Since The Merge, Ethereum has run on Proof of Stake, so there’s no mining. Running your own validator requires 32 ETH and a node that stays online. For smaller amounts there are staking pools, exchange staking services and liquid staking protocols.

Staking yields float with the total amount of ETH staked and with network fees. Rewards are paid in ETH, so if the price falls you can lose money in dollar terms. Pooled and liquid staking add smart contract and provider risk on top. We compare the options in our Ethereum staking guide.

What is an ERC-20 token, and how do you find the right one?

ERC-20 is the standard for interchangeable tokens; the Ethereum versions of USDT, USDC and LINK all use it. ERC-721 covers NFTs, where every token is unique. Standards make tokens easy for wallets and apps to recognize, but they say nothing about whether a token is trustworthy.

Anyone can launch a token with any name or ticker. Before adding or buying one, confirm its contract address on the project’s official site or a reputable block explorer.

What is Ethereum Layer 2?

Layer 2 networks process transactions in batches off the main chain and post the results back to Ethereum. Rollups such as Arbitrum, Optimism and Base let users make transactions for a fraction of what they can cost on mainnet during busy periods.

Mainnet and Layer 2 balances are separate. Using the same address doesn’t mean your ETH shows up on every network; you need a bridge, or an exchange that withdraws directly to the network you want.

What should you watch out for on Ethereum?

It helps to think of risk in three layers: the network, the app you’re using, and your own wallet. The network can be working perfectly while a single signature on a phishing site drains your tokens. If you don’t understand what a wallet prompt is asking you to approve, don’t approve it, and never share your recovery phrase with anyone.

Sources

• Ethereum: Introduction to the Network
• Ethereum: Gas and Fees
• Ethereum: Staking Methods
• Ethereum: Layer 2 Networks