If Bitcoin is digital money, Ethereum is closer to a global, programmable computer. That distinction is the key to understanding why Ethereum ended up powering most of the DeFi, NFT and Web3 activity across the entire crypto industry.
Why Ethereum Was Created
Ethereum was proposed by Vitalik Buterin in 2013 and launched in 2015, built on a simple but powerful idea: instead of a blockchain that only tracks payments, why not build one that can run arbitrary code? That code takes the form of smart contracts, self-executing programs deployed directly on the blockchain, which is what enables everything from decentralised exchanges to NFT marketplaces to run without a central company operating them.
How Ethereum Actually Works
Smart Contracts
A smart contract is code deployed on Ethereum that runs exactly as written, automatically, whenever the conditions programmed into it are met. This removes the need to trust a counterparty, since the contract itself enforces the rules. Our blockchain security guide covers the risks that come with relying on code this way, including bugs and exploits.
The Move to Proof-of-Stake
Ethereum originally used proof-of-work, the same energy-intensive mining process Bitcoin still uses. In 2022, in an upgrade known as The Merge, Ethereum switched to proof-of-stake, where network security comes from validators locking up ETH as collateral rather than competing computational power. This cut Ethereum’s energy consumption dramatically. Our staking guide explains how this mechanism works and how individuals can participate.
Gas Fees
Every action on Ethereum, from a simple transfer to a complex smart contract interaction, costs gas, paid in ETH, to compensate the network for processing it. Gas costs rise during busy periods, which is why many applications now run on Layer 2 networks that process transactions more cheaply before settling back to Ethereum. Our guide to trading on Uniswap for cheap covers practical ways to manage this cost.
What Ethereum Actually Powers
- Decentralised finance (DeFi), including lending, borrowing and trading without a bank, covered in our DeFi guide.
- NFTs, using token standards built on Ethereum to represent verifiable digital ownership, covered in our NFT marketplaces guide.
- Stablecoins, many of which run natively on Ethereum, covered in our stablecoins guide.
- Web3 applications generally, using Ethereum wallets as a login and ownership layer, covered in our blockchain and Web3 guide.
Ethereum vs Bitcoin: The Short Version
Bitcoin prioritises simplicity and predictability as a store of value. Ethereum prioritises programmability and flexibility as infrastructure for applications. Neither goal makes one better than the other; they solve different problems. Our full Ethereum versus Bitcoin comparison covers this in more depth.
How to Hold Ethereum Safely
The same core principles apply as with any cryptocurrency: buy through a properly vetted exchange, checked against our exchange legitimacy checklist, then move meaningful holdings to a wallet you control, with your seed phrase backed up properly using the methods in our seed phrase backup guide.
Frequently Asked Questions
Is Ethereum the same as ETH?
Ethereum is the name of the network and platform. ETH is the name of its native cryptocurrency, used to pay gas fees and, since the move to proof-of-stake, to secure the network through staking.
Does Ethereum have a fixed supply like Bitcoin?
No. Ethereum does not have a hard supply cap in the way Bitcoin does, though changes introduced in 2021 that burn a portion of transaction fees mean its supply growth is considerably slower than it once was, and can even shrink during high network usage.
What are Layer 2 networks and why do they matter for Ethereum?
Layer 2 networks process transactions off the main Ethereum chain before settling back to it, significantly reducing gas costs while still relying on Ethereum’s underlying security. They have become the standard way most everyday Ethereum activity happens today.
This article is for general educational information only and is not financial advice. Cryptocurrency is high risk and you should never invest more than you can afford to lose.
