What is Ethereum?

Ethereum is a public, programmable blockchain — a globally shared computer that anyone can send code to and no single party can shut down. Its native currency, ether (ETH), pays for the computation and storage that code consumes. While Bitcoin is mainly a store of value (digital gold), Ethereum is a world computer: a platform on which developers deploy smart contracts that automatically execute when their conditions are met, powering applications from decentralized finance (DeFi) to NFTs, stablecoins, identity, and on-chain games.

Ethereum was proposed in late 2013 by a 19-year-old programmer named Vitalik Buterin, crowdfunded in 2014, and went live on July 30, 2015. In September 2022 it completed The Merge, switching from energy-intensive proof-of-work to proof-of-stake, cutting its energy use by roughly 99.95%. Today Ethereum settles hundreds of billions of dollars in value every month and is the settlement layer for more than half of all DeFi activity.

A smart contract is a small program that lives on the Ethereum blockchain. It holds its own balance of ETH and tokens, and it runs exactly as written — every node on the network executes the same instructions and stores the same result. Because the contract enforces its own rules automatically, two parties can transact without trusting each other or relying on a middleman. The contract is the escrow, the exchange, the insurance policy, or the registry.

Smart contracts are typically written in a language called Solidity (similar to JavaScript and C++) and compiled to bytecode that runs on the Ethereum Virtual Machine (EVM). Once deployed, a contract's code cannot be changed — only new contracts can be deployed. This immutability is a feature (censorship resistance, predictable rules) and a risk (bugs are permanent, which is why high-stakes contracts are professionally audited). Every DeFi protocol, NFT collection, stablecoin, and DAO on Ethereum is, at its core, a set of smart contracts.

Example: on a decentralized exchange like Uniswap, there is no company holding your funds. A smart contract holds the liquidity pool. When you swap USDC for ETH, the contract checks it received your USDC, computes the price from its reserves, and sends you ETH — all in one atomic transaction that either fully succeeds or fully reverts.

Every operation on Ethereum — sending ETH, swapping a token, minting an NFT — consumes a measurable amount of computation. That cost is measured in gas, and the user pays for it in ETH. Gas is denominated in gwei (1 gwei = 10⁻⁹ ETH = one billionth of an ether). A simple ETH transfer costs ~21,000 units of gas; a complex DeFi operation may cost 200,000–500,000 units.

The total fee for a transaction is: gas used × base fee × priority fee. Since Ethereum's EIP-1559 upgrade in 2021, every block has a protocol-set base fee that adjusts up or down based on demand, plus an optional priority fee (tip) you pay to get your transaction included faster. The base fee is burned — permanently removed from supply — which is why ETH has sometimes been deflationary during high-activity periods.

Gas prices rise when the network is congested. A simple transfer might cost $0.20 on a quiet Sunday and $15 during a hot NFT mint. This is the main reason Layer-2 networkslike Arbitrum, Optimism, Base, and Polygon exist: they batch thousands of transactions off-chain and settle them on Ethereum as one, bringing fees down to cents while keeping Ethereum's security.

For its first seven years Ethereum secured itself with proof-of-work (mining), the same system Bitcoin uses. In September 2022, The Merge switched Ethereum to proof-of-stake (PoS). Instead of miners burning electricity to solve puzzles, validatorslock up ("stake") ETH as a security deposit and take turns proposing and attesting blocks. Honest validators earn rewards; validators that sign conflicting blocks or go offline get slashed — a portion of their stake is destroyed.

PoS cut Ethereum's energy consumption by ~99.95% and made it economically irrational to attack the network: to compromise a majority, an attacker would need to acquire and stake tens of billions of dollars of ETH, which they would then lose to slashing. Roughly 1 million validators now secure the chain, collectively staking more than 30 million ETH.

The shift to PoS also set up Ethereum's economic model: new ETH is issued to validators as a reward, while the EIP-1559 base-fee burn offsets that issuance. When network activity is high, more ETH is burned than created and the supply shrinks; when activity is low, the supply grows slowly. There is no hard cap on ETH, unlike Bitcoin's 21 million.

Stakingis the act of locking up ETH to help secure the network and earning rewards in return. Because Ethereum is proof-of-stake, validators must put capital at risk; staking rewards (currently in the ~3–5% annual range, varying with total stake and network activity) are the incentive for that capital. Staking is the closest thing Ethereum has to a "risk-free" on-chain yield, though it is not without risks (slashing, lock-up illiquidity, protocol risk).

There are several ways to stake, each with a different trade-off between control, size, and liquidity:

• Solo staking — run your own validator node with 32 ETH. Maximum rewards, maximum control, no counterparty risk, but requires hardware, uptime, and technical knowledge.
• Staking-as-a-service — you keep your 32 ETH but a provider runs the node for a fee. You keep signing keys.
• Staking pools / liquid staking — protocols like Lido (stETH), Rocket Pool (rETH), and Coinbase (cbETH) let you stake any amount and receive a tradeable token that appreciates against ETH. The most popular path for everyday holders.
• CEX staking — the easiest option: stake through a centralized exchange you already use. Convenient but custodial (the exchange holds your keys).

Liquid staking tokens (LSTs) like stETH have become a backbone of DeFi — they can be used as collateral for loans, supplied to lending pools, or paired in liquidity positions, effectively letting the same ETH earn yield twice.

Ethereum is the settlement layer for the vast majority of decentralized applications (dApps). The largest category by value is decentralized finance (DeFi) — financial primitives built from smart contracts instead of banks. A few core building blocks make up most of DeFi:

• Decentralized exchanges (DEXs) like Uniswap, Curve, and Balancer let you swap tokens peer-to-contract without an order book or an operator.
• Lending markets like Aave and Compound let you earn interest on deposits or borrow against collateral, with rates set algorithmically by supply and demand.
• Stablecoins like USDC, USDT, and DAI provide a dollar-pegged unit of account, settling on-chain 24/7.
• Perpetuals and derivatives like dYdX and GMX offer leveraged trading and options without a central clearinghouse.

Beyond DeFi, Ethereum hosts the original NFT standard (ERC-721, created on Ethereum in 2017), the DAO (decentralized autonomous organization) governance model, on-chain identity, prediction markets, and thousands of games. The reason so much activity concentrates here is network effects and liquidity: the assets, the developers, the tooling, and the users are all already on Ethereum.

You can explore live DeFi protocols and TVL (total value locked) on our DeFi dashboard.

Ethereum and Bitcoin are often mentioned together, but they aim at different goals. Bitcoinis a monetary network: hard-capped at 21 million coins, optimized to be a decentralized, censorship-resistant store of value — "digital gold." Its scripting language is intentionally limited. Ethereum is a programmable platform: uncapped (but low and dynamic) issuance, a Turing-complete virtual machine, and a design built to host arbitrary applications.

The practical shorthand: Bitcoin holds value, Ethereum runs programs. Bitcoin is simpler and has existed longer; Ethereum is more flexible and carries more surface area (and more complexity risk). Both are widely held, both have approved spot ETFs in the US, and most long-term holders own both. For a side-by-side number comparison, see our live BTC vs ETH comparison or the live Ethereum price page.