What is Ethereum?

A blockchain that runs code

Bitcoin’s blockchain mainly records who sent what to whom. Ethereum, launched in 2015, records that too, but it can also run programs called smart contractsSmart contract A program stored on a blockchain that runs automatically when its conditions are met.. Once deployed, a smart contract follows its code exactly, and anyone can use it.

That makes Ethereum a platform. Tokens, stablecoinsStablecoin A token designed to hold a steady value, usually one US dollar., decentralized exchangesDecentralized exchange A smart-contract-based marketplace where people trade tokens directly from their own wallets., lending markets and NFTs are all built from smart contracts.

What ETH is for

Ether (ETH) is the network’s currency. You need it to pay gas feesGas fee The fee you pay to have a transaction processed on Ethereum and similar networks. whenever you send a transaction or use an app. ETH is also staked by validatorsValidator A participant in a proof-of-stake network who stakes coins and helps propose and confirm blocks. to secure the network.

Proof of stake

In 2022, Ethereum switched from proof of workProof of work A consensus method where miners spend computing power to earn the right to add the next block. mining to proof of stakeProof of stake A consensus method where validators lock up coins as collateral for the right to add blocks. in an upgrade called “the Merge.” That cut the network’s energy use by more than 99%. Validators now lock up ETH as collateral. They earn rewards for doing their job and can be penalised (slashingSlashing A penalty that destroys part of a validator's stake for breaking the network's rules.) for cheating.

Layer 2s

Using Ethereum directly can be expensive when it’s busy. Layer-2Layer 2 A network built on top of a blockchain that processes transactions more cheaply and settles back to it. networks process transactions off the main chain and post compressed results back to Ethereum. Most everyday activity now happens on layer 2s, while Ethereum acts as the secure settlement layer underneath.

Supply

ETH has no fixed cap. New ETH is issued to validators, and part of every transaction fee is burned (destroyed). Depending on how busy the network is, total supply can drift up or down.