What Is Ethereum? Smart Contracts Explained

Ethereum vs Bitcoin

Bitcoin was designed to do one thing extremely well: move value. Ethereum, proposed by Vitalik Buterin in 2013 and launched in 2015, was designed to do many things — anything you can express in code.

Both run on a blockchain, but Ethereum's blocks can contain not just transactions but also small programs called smart contracts. That single difference unlocks an entire universe of applications.

Smart contracts and dApps

A smart contract is a piece of code that lives on the blockchain and runs automatically when its conditions are met. Once deployed, no one — not even the author — can change it. That makes it useful for things that need to be trustworthy without a middleman: a decentralized exchange, a lending pool, an NFT collection, a voting system.

Applications built on top of smart contracts are called dApps ('decentralized apps'). Tens of thousands of them exist on Ethereum today, holding hundreds of billions of dollars in value combined.

ETH, gas, and fees

ETH is the native currency of the Ethereum network. You need it to pay 'gas' — the fee charged for every transaction or smart contract interaction. Gas costs go up when the network is busy and down when it's quiet.

Layer-2 networks like Arbitrum, Optimism, and Base process transactions off the main Ethereum chain and settle them back in bulk, dramatically cutting fees while still inheriting Ethereum's security.

Staking and 'The Merge'

In September 2022, Ethereum switched from proof of work (mining) to proof of stake — an upgrade known as The Merge. Instead of miners burning electricity, validators now lock up ('stake') 32 ETH each to help secure the network and earn rewards.

The change cut Ethereum's energy use by over 99% and made ETH slightly deflationary under normal demand, since a portion of every gas fee is burned out of circulation.

Frequently Asked Questions

Is Ethereum better than Bitcoin?+

Different tools for different jobs. Bitcoin is the simpler, harder-to-change store of value; Ethereum is the programmable platform. Many people hold both.

What is gas?+

The fee you pay to use the Ethereum network, denominated in tiny fractions of ETH. The busier the network, the higher the fee.

What is an Ethereum Layer 2?+

A separate, cheaper network that batches transactions and posts them back to Ethereum for security. Arbitrum, Optimism, and Base are popular L2s.

Can I stake ETH if I don't have 32?+

Yes — pooled staking services and liquid staking tokens like stETH let you stake any amount and share the rewards.

Will Ethereum ever have a supply cap?+

No fixed cap, but the post-Merge fee-burn mechanism can make the supply shrink during high-activity periods.

What Is Ethereum?