Key concepts
- Ethereum is a programmable blockchain: alongside recording transactions, it can run code called smart contracts.
- A smart contract executes automatically and exactly as written, with no trusted intermediary needed — but it is only as reliable as its code.
- ETH is Ethereum's native asset, used to pay transaction fees and, since the move to proof of stake, to help secure the network.
- Gas measures the computational cost of a transaction; more complex operations cost more gas, and prices rise with network demand.
- Ethereum underpins much of DeFi, NFTs, and other decentralised applications (dapps) built on top of it.
- Ethereum moved from proof of work to proof of stake, replacing competitive mining with validators who stake ETH.
If Bitcoin set out to be decentralised money, Ethereum set out to be something broader: a decentralised computer that anyone can build on. Launched in 2015, Ethereum extended Bitcoin’s core idea — a shared public ledger maintained by a distributed network rather than a central authority — and added the ability to run small programs directly on that ledger. This guide covers what that means in practice, what ETH and gas actually are, and what the network makes possible.
What Ethereum actually is
Like Bitcoin, Ethereum is maintained by a global network of independent computers that each hold a copy of the same blockchain and agree on its contents through a shared set of rules. The key difference is what that ledger can store. Bitcoin’s ledger is mostly a record of who sent how much to whom. Ethereum’s ledger can also store code — small programs that run exactly as written, with no ability for any single party to alter the outcome after the fact.
Smart contracts: the core idea
Those programs are called smart contracts. A useful way to picture one is a vending machine: you put the right input in, the machine automatically gives you the specified output, and no shopkeeper needs to be present to approve the exchange. A smart contract works the same way but for digital agreements — swap one token for another, lend an asset and earn interest, prove ownership of a digital collectible, or release funds only when certain conditions are met. Once deployed, a smart contract’s code is publicly visible and runs on the network exactly as written, which is powerful, but it also means bugs or design flaws in the code can be exploited exactly as written too. Smart contracts are only as trustworthy as the code behind them, and that code is written by people who can make mistakes.
ETH and gas
What ETH is for
Ether, ETH, is Ethereum’s native asset. It is used to pay for activity on the network, it can be held as an asset in its own right, and — since Ethereum’s move to proof of stake — it is also the asset participants lock up to help secure the network, covered below. You can track ETH’s live market data on its coin page.
Gas: paying for computation
Running a smart contract takes real computing resources from the network, and someone has to pay for that. Ethereum meters this with gas: a unit that measures how much computational work a given transaction or contract call requires. More complex operations cost more gas, and gas prices rise and fall with how busy the network is at any given moment, similar to surge pricing responding to demand. Gas is paid in ETH, which is why a wallet needs a small amount of ETH in it even when the token being used is a different one entirely.
What Ethereum enables
Decentralised finance
Because smart contracts can hold and move funds automatically under rules fixed in their code, Ethereum became the base layer for decentralised finance, or DeFi — lending, borrowing, and trading applications that run without a bank or brokerage in the middle. Our introduction to DeFi covers this in much more depth, including the real risks involved.
NFTs and applications more broadly
Smart contracts can also represent unique, non-interchangeable items rather than interchangeable currency — the basis of NFTs. More broadly, any application built on top of a smart-contract platform rather than a company’s private servers is sometimes called a decentralised application, or dapp. Ethereum was the first major platform to make this general-purpose programmability practical at scale, which is why so much of the wider crypto ecosystem — other blockchains included — still measures itself against it.
Scaling with layer 2
As Ethereum grew more popular, competition for its limited block space pushed gas prices higher during busy periods. One response has been layer 2 networks: separate systems that handle most transaction processing away from Ethereum’s main chain, then settle a summary back to it, inheriting much of its security while charging far lower fees. Our guide to Ethereum layer 2 networks covers how these work in more detail; the underlying concept, layer 2, also appears across other blockchains facing the same scaling problem.
Proof of stake: how Ethereum reaches agreement
Ethereum originally used the same proof-of-work approach as Bitcoin, where miners competed using computing power. It has since moved entirely to proof of stake, a different method of reaching agreement across the network. Instead of competing with computing power, participants called validators lock up, or “stake”, ETH as a financial commitment to behaving honestly. Validators are chosen to propose and check new blocks, and can lose part of their staked ETH if they act dishonestly or fail to follow the rules properly. The practical effect is a network that reaches the same kind of agreement as proof of work but without the large energy demands of competitive mining.
How to think about Ethereum
It is worth holding two ideas at once. First, Ethereum is infrastructure: a general-purpose platform that other applications, and even other blockchains, build on top of or interact with, which gives it a different role to Bitcoin’s more singular focus on being sound digital money. Second, ETH is also a traded asset with its own market, and it carries the same category of risks as any cryptocurrency — price volatility, custody risk, and the fact that applications built on Ethereum can carry additional risks of their own, from smart-contract bugs to poorly designed incentives. Learning to tell “the network is functioning as designed” apart from “this specific application built on the network is a good idea” is a genuinely useful skill, and it takes deliberate practice.
This article is educational and does not constitute financial advice. Do your own research, and judge any specific application built on Ethereum on its own merits rather than assuming the base network’s reliability transfers automatically.
Where to go next
If Ethereum’s building blocks made sense, Intro to DeFi is the natural next step — it walks through lending, trading, and yield in plain terms. If you have not yet, it is also worth reading What Is Bitcoin to see how the two largest cryptocurrencies’ goals and designs actually differ.
Frequently asked questions
Is Ethereum trying to replace Bitcoin?
Not really — they are generally understood to solve different problems. Bitcoin focuses narrowly on being reliable, decentralised digital money with a fixed supply. Ethereum focuses on programmability: running applications and smart contracts. Many people hold both, viewing them as complementary rather than directly competing.
What's the difference between ETH and other tokens on Ethereum?
ETH is the network's native asset, required to pay gas fees for any transaction. Other tokens, including many issued under the <a href="/glossary/erc-20/">ERC-20</a> standard, are created by smart contracts running on top of Ethereum, and using them typically still requires holding some ETH to cover gas.
Why do gas fees change so much?
Gas prices respond to how much demand there is for block space at a given moment — when many people are transacting at once, gas prices rise, and when the network is quieter, they fall. This is similar to surge pricing elsewhere: the underlying computational cost is fairly stable, but competition for limited space is not.
Do I need to understand code to use Ethereum?
No. Most people interact with Ethereum through ordinary applications and wallets that handle the underlying smart contracts for you, much like most people use a website without reading its source code. Understanding the concepts in this guide is enough to use Ethereum-based applications sensibly and safely.