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Ethereum

In simple terms

Ethereum is a blockchain that can run small programs, not just record payments. That is what lets people build things on it — lending, trading, NFTs — without a company in the middle. Its own currency is called Ether, or ETH.

Definition

A blockchain that runs programs, called smart contracts, as well as moving its native currency, Ether.

In depth

Ethereum maintains a global state of accounts alongside the code and storage of deployed contracts, updated deterministically by the Ethereum Virtual Machine. Every operation carries a fixed gas cost, paid in ETH, which bounds execution and prevents unterminated loops. Since the Merge in September 2022 consensus has been proof-of-stake: validators deposit 32 ETH, propose and attest to blocks, and are penalised for equivocation or prolonged unavailability. EIP-1559 splits fees into a burned base fee and a priority tip, so net issuance varies with demand and Ethereum has no fixed supply cap.

How does Ethereum work?

Ethereum keeps a running record of account balances and of the code and storage belonging to each contract. When you send a transaction, validators execute whatever code it triggers, and every validator running that code must arrive at the same result. Each operation costs a set amount of gas, paid in ETH, which is what stops a program running forever. Since September 2022 the network has been secured by staking rather than mining: validators lock up ETH, propose and attest to blocks, and lose part of that stake if they misbehave.

An example

A swap on a decentralised exchange might use around 150,000 gas. At a fee of 20 gwei per unit of gas that transaction costs roughly 0.003 ETH. The same swap during heavy congestion at 100 gwei costs about 0.015 ETH — identical work, five times the fee, because the price of gas moves with demand for block space rather than with the size of your trade.

Figures are illustrative only.

What beginners get wrong

  • Gas is paid in ETH even when the transaction is moving some other token, so a wallet holding only that token cannot send it.
  • A failed transaction still consumes gas. The work was performed and charged for whether or not the operation succeeded.
  • Ethereum and Ether are different things — the network and the currency it uses.

Related terms

Educational only — not financial advice.