Ethereum
Ethereum: Ethereum is a programmable blockchain that runs smart contracts, code that executes automatically on the network. Its native coin, ether (ETH), pays the transaction fees known as gas. Ethereum is secured by proof of stake and is the base layer for much of DeFi, stablecoins and NFTs.
How Ethereum works
Developers deploy smart contracts to Ethereum, and users interact with them by sending transactions that pay gas in ETH. Each transaction changes the shared state of the network, such as token balances or the result of a trade, and every node checks the result. Layer 2 networks process transactions more cheaply and settle back to Ethereum for security.
Proof of stake and staking
Ethereum moved from proof of work to proof of stake in September 2022, an upgrade known as the Merge. Validators lock up ETH as collateral, propose and attest to blocks, and earn rewards. Validators that act dishonestly can have part of their stake taken away, which is called slashing. Running your own validator needs 32 ETH, and smaller holders can stake through pools, liquid staking tokens or an exchange.
How ETH fees and supply work
Every transaction pays a base fee plus an optional tip to the validator. Since an upgrade in 2021, the base fee is burned, which removes that ETH from circulation. New ETH is issued to validators as rewards. Whether total supply grows or shrinks over a period depends on how much activity there is on the network, so ETH has no fixed supply cap.
How Ethereum relates to Bitcoin
Both are public blockchains, but they are built for different jobs. Bitcoin focuses on being a scarce store of value with a fixed 21 million supply and proof of work. Ethereum is a general purpose platform for applications. Many investors hold both because they do different things in a portfolio.
Frequently asked questions
Is ether the same as Ethereum?
Ethereum is the network and ether (ETH) is its native coin.
Can I stake ether?
Yes. You can run a validator with 32 ETH, or stake smaller amounts through pools, liquid staking or an exchange, each with its own risks.
What is gas on Ethereum?
Gas is the unit that measures how much computing work a transaction needs. You pay for it in ETH, and fees rise when the network is busy.
What is a layer 2?
A layer 2 is a separate network that bundles many transactions together and posts the result back to Ethereum, which lowers fees for users.