What Is Ethereum (ETH)?

Ethereum is a decentralized blockchain platform that runs smart contracts and decentralized applications. Ether (ETH) is the native cryptocurrency on the network, used to pay transaction fees and secure the chain through proof-of-stake validation. Unlike a simple payment ledger, Ethereum is programmable: developers deploy code that executes automatically when conditions are met, without a company or bank in the middle.

Smart Contracts and the EVM

At the center of Ethereum is the Ethereum Virtual Machine, or EVM. Think of it as a shared global computer that thousands of nodes run in parallel. When you send a transaction, validators check that it follows the rules, include it in a block, and every node updates its copy of the state.

Smart contracts are programs stored on the blockchain. They can hold funds, enforce rules, and interact with other contracts. A lending protocol might lock collateral and release a loan when collateralization ratios stay above a threshold. A decentralized exchange might swap tokens according to a pricing formula baked into the code. Once deployed, the contract runs as written. There is no pause button unless the developer built one in.

This programmability is why Ethereum became the home base for much of decentralized finance, or DeFi. Users lend, borrow, trade, and earn yield through protocols that operate 24 hours a day. Non-fungible tokens, governance votes, and on-chain identity tools also live on Ethereum and compatible layer-2 networks that settle back to the main chain.

Proof-of-Stake and Gas Fees

Ethereum originally used proof-of-work, similar to Bitcoin, where miners competed with computing power to add blocks. In September 2022, a major upgrade called The Merge shifted the network to proof-of-stake. Validators now lock up ETH as stake and are chosen to propose blocks based on that stake plus randomness. Honest behavior earns rewards; cheating risks losing part of the stake.

Proof-of-stake cut Ethereum's energy use dramatically compared with mining. It also changed how new ETH enters circulation, though the total supply dynamics depend on network activity and staking participation.

Every action on Ethereum costs gas, paid in ETH. Gas measures computational work: a simple transfer costs less than a complex DeFi swap that touches multiple contracts. When demand spikes, fees rise because users bid for limited block space. Layer-2 rollups help by processing transactions off the main chain and posting compressed proofs back to Ethereum, often lowering costs for everyday users.

Ethereum vs Bitcoin

Bitcoin and Ethereum are often grouped together as "crypto," but they solve different problems. Bitcoin focuses on being a scarce, peer-to-peer digital asset with a fixed supply cap of 21 million coins. Its scripting language is intentionally limited, which reduces attack surface and keeps the network simple.

Ethereum prioritizes flexibility. Its supply is not hard-capped like Bitcoin's, though fee burning introduced in 2021 can reduce net issuance during busy periods. ETH is used as money inside the ecosystem, but many investors also treat it as a bet on blockchain-based applications rather than purely as digital gold.

Both networks rely on a blockchain to record history, but Ethereum's state includes account balances plus contract storage. That richer state makes the chain heavier to run but unlocks a wider range of use cases.

Risks and Practical Considerations

Ethereum's openness is a strength and a weakness. Anyone can deploy a contract, including scammers. Bugs in unaudited code have led to large losses. Phishing sites mimic popular wallets and protocols. Users must verify addresses, read approvals carefully, and understand that transactions are irreversible once confirmed.

Regulatory treatment of ETH and DeFi products varies by country and continues to evolve. Tax reporting on swaps, staking rewards, and airdrops can get complicated quickly. For investors, ETH exposure can come through self-custody wallets, exchanges, or regulated products, each with different trade-offs around control, counterparty risk, and fees.

Despite the risks, Ethereum remains the most active smart-contract platform by developer count, total value locked in protocols, and institutional experimentation. Whether you use it to send value, interact with DeFi, or simply hold ETH as an asset, understanding gas, staking, and how it differs from Bitcoin gives you a clearer picture of what you are actually buying into.