What Is Ethereum? The Complete Guide to the World's Programmable Blockchain

What Is Ethereum and Who Created It?

Ethereum is a decentralized platform that runs smart contracts—programs that execute automatically when predetermined conditions are met. Proposed by Vitalik Buterin in 2013 and launched in 2015, Ethereum expanded blockchain technology beyond simple transactions to support complex applications, earning its description as a 'world computer.'

Buterin, a programmer and Bitcoin Magazine co-founder, recognized that Bitcoin's scripting language was too limited for complex applications. His Ethereum whitepaper proposed a blockchain with a Turing-complete programming language, enabling developers to build anything they could code.

Ethereum launched after a crowdfunding campaign that raised $18 million in Bitcoin. The founding team included Gavin Wood (who later created Polkadot), Charles Hoskinson (who later created Cardano), and Joseph Lubin (who founded ConsenSys). This team brought diverse expertise in cryptography, finance, and software development.

Today, Ethereum hosts thousands of applications and secures hundreds of billions in value. To understand the underlying technology, see how blockchain technology works.

How Does Ethereum Differ From Bitcoin?

While Bitcoin primarily serves as digital money and a store of value, Ethereum is a platform for building decentralized applications. Bitcoin uses a simple scripting language for basic transactions; Ethereum uses Solidity and other languages for complex smart contracts. Think of Bitcoin as digital gold and Ethereum as a decentralized app store and financial system.

Bitcoin was designed for one purpose: peer-to-peer electronic cash. It does this exceptionally well with maximum security and simplicity. Ethereum sacrifices some simplicity for flexibility, enabling everything from decentralized exchanges to digital art marketplaces.

Their monetary policies differ significantly. Bitcoin has a fixed supply of 21 million coins with predictable issuance through halvings. Ethereum has no hard cap but implemented a burn mechanism (EIP-1559) that can make ETH deflationary when network usage is high.

Ethereum transitioned to proof of stake in 2022 (called 'The Merge'), while Bitcoin remains committed to proof of work. This reflects their different philosophies—Bitcoin prioritizes proven security; Ethereum embraces upgrades and innovation.

What Are Smart Contracts?

Smart contracts are self-executing programs stored on the blockchain that automatically enforce agreements when conditions are met. They eliminate intermediaries by replacing 'trust' with code—if A happens, then B executes, guaranteed by the network. Smart contracts power everything from token swaps to insurance payouts to NFT royalties.

Consider a simple example: a crowdfunding campaign. A smart contract could hold funds until a goal is reached. If the goal is met by the deadline, funds release to the project. If not, contributors automatically receive refunds. No platform takes a cut, no one can run off with the money.

Smart contracts are immutable once deployed—they can't be changed, even by their creators. This provides security but also risk: bugs in smart contracts have led to millions in losses. That's why auditing is crucial before deploying contracts that hold significant value.

Ethereum's smart contracts are written primarily in Solidity, a language created specifically for this purpose. For a deeper dive, see our guide on how smart contracts work.

What Is Ether (ETH) Used For?

Ether (ETH) is Ethereum's native cryptocurrency, serving three primary functions: paying transaction fees (gas), staking to secure the network and earn rewards, and serving as a store of value and medium of exchange. ETH is required for every operation on Ethereum, making it essential infrastructure for the ecosystem.

Every smart contract execution, token transfer, or NFT mint requires ETH for gas fees. This creates constant demand for ETH beyond speculation—developers and users need it to operate. Unlike tokens built on Ethereum, ETH is native to the protocol itself.

Since The Merge in 2022, ETH holders can stake their coins to help validate transactions and earn rewards (currently around 3-4% annually). Staking requires 32 ETH to run your own validator, but liquid staking services allow participation with any amount.

ETH is also widely used as collateral in DeFi protocols, enabling borrowing, lending, and leveraged trading. Its role as 'pristine collateral' mirrors how US Treasuries function in traditional finance.

What Are Gas Fees?

Gas fees are payments made in ETH to compensate validators for processing transactions and executing smart contracts. Gas prices fluctuate based on network demand—during high activity, fees spike as users compete for limited block space. This dynamic pricing prevents spam and allocates resources efficiently, but can make Ethereum expensive during peak usage.

Gas is measured in 'gwei' (one billionth of an ETH). A simple ETH transfer might cost 21,000 gas units, while a complex DeFi transaction could require 200,000+ gas. You pay: gas units × gas price (in gwei). When the network is busy, that price rises.

EIP-1559 (August 2021) changed how gas works. Now there's a base fee (which is burned) plus an optional priority fee (tip to validators). This makes fees more predictable and introduces ETH burning—when usage is high, more ETH is burned than issued, making ETH deflationary.

Layer 2 solutions like Arbitrum and Optimism help by processing transactions off the main chain, reducing fees by 10-100x while inheriting Ethereum's security. Most users now interact with Layer 2s for everyday transactions.

How Do You Use Ethereum?

To use Ethereum, you need ETH and a wallet. Buy ETH on an exchange, transfer it to a self-custody wallet like MetaMask, and connect that wallet to decentralized applications. From there, you can swap tokens, provide liquidity, mint NFTs, or interact with any of Ethereum's thousands of dApps.

Start by purchasing ETH from an exchange like Coinbase, Kraken, or Binance. For basic holding, exchange custody works fine. For interacting with dApps, you'll need a self-custody wallet. MetaMask (browser extension and mobile app) is the most popular choice.

With your wallet funded, visit any Ethereum dApp and click 'Connect Wallet.' Your wallet will prompt you to approve the connection. From there, you can interact with the application—whether it's Uniswap for trading, OpenSea for NFTs, or Aave for lending.

For security, consider a hardware wallet like Ledger that works with MetaMask. This keeps your private keys offline while still allowing dApp interaction. Learn more in our guide on cryptocurrency wallet types.

Last Updated: December 2025