Ethereum is a public, programmable blockchain that executes smart contracts, self-running programs whose code and state are shared by every node, and whose native cryptocurrency, ether (ETH), pays for computation and secures the network. Among cryptocurrencies, it is the largest platform for decentralized applications, tokens, stablecoins and decentralized finance.
Ethereum was proposed in 2013 and launched in 2015 with the goal of extending blockchains beyond simple payments. Where Bitcoin focuses on being digital money, Ethereum provides a general-purpose computing layer: anyone can deploy code that holds assets and enforces rules without an intermediary. Since 2022, the network has been secured by proof of stake instead of mining.
How Ethereum works
Ethereum works as a shared state machine. Its state is the full set of accounts, balances and contract storage, and every transaction changes that state according to rules executed identically by all nodes in the Ethereum Virtual Machine, or EVM. Because every node reaches the same result, the network agrees on one authoritative state without trusting any single computer.
Ethereum uses an account model with two account types. Externally owned accounts are controlled by private keys held in wallets, while contract accounts are controlled by their code and act only when called. A transaction from an external account can transfer ether, deploy a contract or call contract functions.
| Component | Role | Notes |
|---|---|---|
| Ether (ETH) | Native currency for fees and staking | Smallest unit is the wei, one ether equals 10^18 wei |
| EVM | Executes contract bytecode deterministically | Also adopted by many other chains |
| Smart contract | Code that holds assets and enforces rules | Usually written in Solidity or Vyper |
| Gas | Unit measuring computational work | Limits and prices each transaction |
| Validator | Proposes and attests to blocks | Requires staking 32 ETH to activate |
Node software is split into an execution client, which runs the EVM and maintains state, and a consensus client, which follows proof of stake. Several independent implementations of each exist, and this client diversity reduces the risk that a single software bug halts or corrupts the network.
Gas, fees and the supply of ether
Every operation in the EVM costs a defined amount of gas, and the sender pays gas multiplied by a price quoted in gwei, one billionth of an ether. A simple ether transfer uses 21,000 gas, while complex contract interactions can use hundreds of thousands. The gas system prevents infinite loops and makes heavy computation expensive.
Since the London upgrade in 2021, defined by EIP-1559, each block has a base fee that adjusts automatically with demand and is burned, removing that ether from circulation, plus an optional priority fee paid to the validator. Ether has no fixed supply cap; net supply depends on the balance between issuance to validators and the amount burned, so it can rise or fall over time.
| Fee part | Who receives it | How it is set |
|---|---|---|
| Base fee | Burned, no one receives it | Protocol adjusts per block with demand |
| Priority fee | Validator proposing the block | Chosen by the sender as a tip |
| Gas limit | Not a payment, a ceiling | Maximum gas the sender allows |
A transaction that runs out of gas fails but still pays for the work already performed, because validators spent resources executing it. Wallets therefore estimate gas before sending, and users can raise the priority fee when they need faster inclusion during congestion. Each block also has its own gas limit, which caps how much computation the whole network performs per slot and indirectly limits throughput.
Consensus and major upgrades
Ethereum reaches consensus through proof of stake. Time is divided into 12-second slots, grouped into epochs of 32 slots; in each slot one validator proposes a block and committees of validators attest to it. Validators that act dishonestly can lose part of their stake through slashing, and blocks become final after checkpoints are confirmed, typically in about 13 minutes.
The network evolves through coordinated upgrades, specified in Ethereum Improvement Proposals. The table lists several milestones that shaped its current design.
| Upgrade | Year | Main change |
|---|---|---|
| Mainnet launch | 2015 | Programmable blockchain goes live with proof of work |
| London | 2021 | Base fee burning under EIP-1559 |
| The Merge | 2022 | Switch from mining to proof of stake |
| Shanghai | 2023 | Withdrawals of staked ether enabled |
| Dencun | 2024 | Blob data lowers costs for layer 2 networks |
The Merge reduced the network’s energy consumption by an estimated more than 99 percent, because validators run ordinary servers instead of competing with mining hardware.
Ethereum compared with other cryptocurrencies
Ethereum is often compared with Bitcoin and with newer smart contract platforms. The main differences lie in purpose, programmability and scaling strategy.
- Bitcoin prioritizes a fixed supply and simple, conservative scripting; Ethereum prioritizes expressive smart contracts.
- Solana and similar layer 1 chains seek high throughput on the base layer, while Ethereum pursues a rollup-centric roadmap that moves most activity to layer 2 networks.
- Tokens issued on Ethereum, such as those following the ERC-20 or ERC-721 standards, are not separate blockchains but contracts that live on Ethereum.
- EVM-compatible chains reuse Ethereum’s tooling, so developers can deploy similar code across many networks.
Limitations and risks
The base layer has limited throughput, and fees rise sharply when demand spikes, which is why ordinary users increasingly transact on layer 2 networks. Those networks inherit Ethereum security to varying degrees, and their bridges and sequencers introduce additional trust assumptions.
Smart contracts are immutable once deployed unless designed to be upgradeable, so coding errors can cause irreversible losses. Other recurring risks include phishing approvals that let attackers drain tokens, concentration of staked ether among a few large providers, and price volatility of ether itself.
A non-technical view
Ethereum is like a worldwide computer that nobody owns. People can put small programs on it, for example a program that holds money and releases it only when certain conditions are met, and everyone can check that the program runs exactly as written.
Ether is the currency used to pay for this computer’s work. Using Ethereum is a bit like paying postage to send a letter: the more complicated the delivery, the higher the fee.
A concrete example
A small online shop wants to accept a dollar-pegged stablecoin issued as a token on Ethereum. The shop owner sets up a self-custody wallet and shares its address with customers. When a customer pays, the transaction calls the stablecoin’s token contract, which moves the balance from the customer’s address to the shop’s.
On a busy day, the base fee rises and a payment on the main network costs noticeably more in gas than usual. The owner therefore also accepts the same stablecoin on a layer 2 network, where fees are typically a small fraction of mainnet costs. Customers choose the network, and the shop sees every payment confirmed in its wallet and on a block explorer, without a card processor in between.