What is Ethereum (ETH)?

What Is Ethereum (ETH)?

Ethereum is an open blockchain network where anyone can build and use digital applications. It is powered by Ether (ETH), the network's native cryptocurrency and the second-largest crypto asset by market capitalization after Bitcoin.

Ethereum launched on July 30, 2015, based on an idea first proposed by Vitalik Buterin in 2013. Bitcoin had already shown that digital money could work without a bank. Ethereum took the idea further by asking a different question: what if blockchain could also run programs?

Those programs are called smart contracts. They allow developers to create applications that run on Ethereum and follow rules written directly into code.

This has turned Ethereum into infrastructure for a much larger digital economy. People use it for decentralized finance, stablecoins, tokenized assets, NFTs, blockchain games, DAOs, payments, and many other applications.

ETH powers this ecosystem. It pays transaction fees, secures the network through staking, and is widely used as collateral and liquidity across Ethereum applications.

Ethereum has also changed considerably since it launched. It moved from proof-of-work mining to proof of stake in 2022, introduced a new data market for Layer 2 networks in 2024, upgraded Ethereum accounts and staking in 2025, and is now working on making both Layer 1 and Layer 2 faster and more scalable.

Who Created Ethereum?

Ethereum began with Vitalik Buterin, who published its original whitepaper in 2013 when he was 19 years old.

But Ethereum was not built by one person. Eight co-founders were involved during its early development:

• Vitalik Buterin: Created the original Ethereum concept and whitepaper.

• Gavin Wood: Wrote the Ethereum Yellow Paper and helped develop Solidity.

• Joseph Lubin: Later founded Consensys.

• Jeffrey Wilcke: Helped develop Go Ethereum, or Geth.

• Mihai Alisie: Helped establish Ethereum's early organizational structure.

• Anthony Di Iorio: Supported the project's early development and funding.

• Charles Hoskinson: Later founded Cardano.

• Amir Chetrit: Participated during Ethereum's early formation.

Ethereum was publicly announced in 2014. Its Ether crowdsale ran from July 22 to September 2, 2014, raising roughly 31,000 BTC, worth around $18 million at the time.

Ethereum mainnet launched the following year.

Today, Ethereum has no CEO or company that controls it. Development happens in public through researchers, independent client teams, node operators, validators, application developers, and the wider community. This is one reason Ethereum can change more slowly than a traditional technology company, but it also makes the network harder for any one organization to control.

How Is Ethereum Different From Bitcoin?

Bitcoin and Ethereum are the two largest crypto networks, but they were built for different purposes.

Bitcoin is primarily designed as decentralized digital money. Ethereum is designed as programmable digital infrastructure.

The main differences are:

• Bitcoin launched in 2009; Ethereum launched in 2015.

• Bitcoin uses BTC; Ethereum uses ETH.

• Bitcoin has a fixed maximum supply of 21 million BTC; Ethereum has no fixed maximum ETH supply.

• Bitcoin uses proof-of-work miners; Ethereum has used proof-of-stake validators since 2022.

• Bitcoin focuses heavily on monetary settlement; Ethereum can run general-purpose smart contracts and applications.

• Bitcoin uses scaling technologies such as the Lightning Network; Ethereum increasingly scales through Layer 2 rollups and blob-based data availability.

Bitcoin deliberately keeps its base layer relatively simple. Ethereum takes a broader approach.

A developer can use Ethereum to create a decentralized exchange, lending market, stablecoin, game, NFT collection, tokenized fund, or an application that did not previously exist.

In simple terms, Bitcoin is mainly built for transferring and storing digital value. Ethereum is built for programming it. This distinction is similar to the way Ethereum.org frames the two networks.

How Does Ethereum Work?

You can think of Ethereum as a global computer that is not owned by one company.

Thousands of computers called nodes run Ethereum software. They keep track of ETH balances, smart contracts, token ownership, and other network data. Each node follows the same protocol rules and independently checks whether transactions are valid.

Ethereum has several important components:

• Execution layer: Processes transactions and runs applications.

• Consensus layer: Helps validators agree on the correct version of the blockchain.

• Ethereum Virtual Machine: Executes smart contract code.

• ETH: Pays for transactions and secures the network.

• Smart contracts: Programs that live on Ethereum.

• Validators: Propose blocks and confirm the state of the network.

• Nodes: Store and verify Ethereum data.

• Layer 2 networks: Process additional activity while using Ethereum as underlying infrastructure.

Ethereum produces block opportunities roughly every 12 seconds. Validators collect transactions into blocks, while other validators check and attest to the blockchain.

The result is a shared network that can keep running even if individual computers, companies, or service providers go offline.

What Is the Ethereum Virtual Machine?

The Ethereum Virtual Machine, or EVM, is the part of Ethereum that executes smart contracts.

If Ethereum is a global computer, the EVM is the environment where its programs run.

When someone swaps tokens, borrows crypto, mints an NFT, or interacts with another decentralized application, smart contract instructions are executed through the EVM.

Developers commonly write these contracts in Solidity and compile them into code the EVM can understand.

The EVM has become important far beyond Ethereum itself. Many other networks support EVM-compatible applications, which means developers can reuse Ethereum contracts, wallets, libraries, and development tools.

This has helped turn the EVM into one of the most widely used programming environments in blockchain.

What Are Ethereum Smart Contracts?

Smart contracts are programs that live on Ethereum.

Unlike a traditional application hosted on one company's server, smart contracts can run on Ethereum's decentralized network and execute according to rules written in their code.

A lending application can use a smart contract to manage collateral. A decentralized exchange can use one to execute token swaps. A stablecoin can use smart contracts to track balances and transfers.

Smart contracts can also communicate with one another.

This feature is called composability. It means a developer can build a new application using existing Ethereum protocols instead of starting from zero.

Ethereum also introduced token standards that help different applications understand and interact with digital assets.

ERC-20 is commonly used for fungible tokens such as stablecoins and governance tokens. ERC-721 became a major standard for NFTs, while ERC-1155 can manage multiple token types from one contract.

What Is ETH Used For?

Ether (ETH) is Ethereum's native cryptocurrency and the second-largest crypto asset by market capitalization after Bitcoin.

ETH is more than a coin that can be bought and sold. It is what makes Ethereum's economy work.

Its main uses include:

• Paying gas: Ethereum transactions and smart contract operations require ETH.

• Staking: Validators lock ETH to help secure the network and can earn rewards.

• Collateral: ETH is widely used across decentralized lending and borrowing markets.

• Liquidity: ETH is paired with many other assets on decentralized exchanges.

• Settlement: ETH can move directly between users and applications.

• Network security: Validators put ETH at risk when they participate in consensus. Serious rule violations can lead to penalties or slashing.

ETH can also be divided into very small units.

The smallest unit is wei, with one ETH equal to 10¹⁸ wei. Gas prices are commonly shown in gwei, where one gwei equals 0.000000001 ETH.

Does Ethereum Have a Maximum Supply?

No. Ethereum does not have a fixed maximum ETH supply.

Instead, the supply changes over time.

New ETH is created as rewards for validators who help secure the network. At the same time, part of every Ethereum transaction fee can be permanently removed from circulation.

The basic idea is simple:

New ETH issued - ETH burned = Change in ETH supply

If Ethereum burns more ETH than it creates, total supply falls.

If issuance is higher than burning, supply grows.

This means ETH can become deflationary during periods of high activity, but it is not guaranteed to remain deflationary all the time.

Why Does Ethereum Burn ETH?

ETH burning began with EIP-1559, activated through the London upgrade on August 5, 2021.

Ethereum transactions include a base fee. Instead of paying that entire base fee to a miner or validator, Ethereum destroys it.

A user can also add a priority fee that generally goes to the validator proposing the block.

This created a direct connection between Ethereum usage and ETH supply: when more people use Ethereum Layer 1 and pay higher base fees, more ETH can be burned.

How Do Ethereum Gas Fees Work?

Every action on Ethereum uses computing resources.

Gas is simply Ethereum's way of measuring those resources.

Sending ETH requires some gas. Swapping tokens through a smart contract requires more. Deploying a complicated application may require considerably more.

A basic ETH transfer traditionally requires 21,000 gas.

The amount a user ultimately pays depends on how much gas the transaction uses and the current price of that gas.

Gas serves an important purpose. Without it, someone could repeatedly ask Ethereum to perform unlimited computation for free, making the network easy to spam.

Layer 1 gas fees can become expensive when demand is high. This is one reason Ethereum increasingly uses Layer 2 networks to process everyday activity more cheaply.

What Is Ethereum Staking?

Ethereum uses proof of stake to secure its blockchain.

Instead of miners running energy-intensive machines, validators lock ETH as a security deposit.

A validator needs at least 32 ETH to activate.

If validators perform their duties correctly, they can earn ETH rewards. If they break serious consensus rules, they can lose some of their stake.

This creates a straightforward security model: validators have something valuable to lose if they attack the network.

Pectra expanded this system in 2025. Before the upgrade, the maximum effective balance used for validator rewards was 32 ETH. Eligible compounding validators can now have an effective balance of up to 2,048 ETH, making validator management more efficient for larger stakers.

Ethereum History: Major Events and Upgrades

Ethereum today is very different from the blockchain that launched in 2015. Many of its most important features, including proof of stake, ETH burning, staking withdrawals, blobs, and PeerDAS, were introduced through later upgrades.

November 2013: Ethereum Is Proposed

Vitalik Buterin circulated the original Ethereum whitepaper in November 2013, proposing a programmable blockchain where developers could build smart contracts and decentralized applications.

January 2014: Ethereum Is Publicly Announced

Ethereum was publicly presented at the North American Bitcoin Conference in January 2014, bringing the project to a wider crypto audience.

July 22–September 2, 2014: Ethereum Holds Its Ether Sale

Ethereum's public Ether crowdsale began on July 22, 2014 and ran until September 2, 2014.

The campaign raised roughly 31,000 BTC, worth around $18 million at the time, helping fund Ethereum's early development.

July 30, 2015: Ethereum Mainnet Launches With Frontier

Ethereum officially launched its mainnet on July 30, 2015 through the Frontier release.

Frontier allowed users and developers to transfer ETH, run Ethereum nodes, deploy smart contracts, and build decentralized applications on a live public blockchain.

March 14, 2016: Homestead Upgrade

Ethereum's Homestead upgrade activated on March 14, 2016.

It was Ethereum's first major planned production upgrade and introduced protocol and networking changes that made the network more stable and easier to upgrade in the future. ETH traded around $12.50 at activation.

July 20, 2016: The DAO Fork

Ethereum implemented The DAO hard fork on July 20, 2016 after an attacker exploited vulnerabilities in The DAO smart contract and moved more than 3.6 million ETH.

The Ethereum protocol itself had not been compromised. The vulnerability was in The DAO application.

The fork allowed affected funds to be recovered. Most of the network followed the new chain, which became today's Ethereum, while miners who rejected the change continued the original chain as Ethereum Classic (ETC).

October 16, 2017: Byzantium Upgrade

The Byzantium upgrade activated on October 16, 2017.

It introduced several improvements to Ethereum's security, cryptography, smart contract functionality, and privacy-related capabilities. ETH traded around $334.23 at activation.

February 28, 2019: Constantinople Upgrade

The Constantinople upgrade activated on February 28, 2019.

It improved EVM efficiency, reduced certain gas costs, and lowered Ethereum's proof-of-work block reward from 3 ETH to 2 ETH. ETH traded around $136.29 at activation.

December 8, 2019: Istanbul Upgrade

The Istanbul upgrade activated on December 8, 2019.

It introduced further changes to gas pricing, cryptographic operations, and Ethereum's interoperability with Layer 2 and zero-knowledge technologies.

December 1, 2020: Beacon Chain Launches

The Beacon Chain launched on December 1, 2020, creating the proof-of-stake consensus system that Ethereum would later use after The Merge.

At first, the Beacon Chain operated separately from Ethereum's proof-of-work mainnet and did not process normal user transactions. ETH traded around $586 at launch.

April 15, 2021: Berlin Upgrade

The Berlin upgrade activated on April 15, 2021.

Berlin introduced transaction and gas-pricing improvements that helped prepare Ethereum for the more significant London upgrade later that year.

August 5, 2021: London Upgrade and EIP-1559

The London upgrade activated on August 5, 2021.

Its most important change was EIP-1559, which introduced Ethereum's base-fee mechanism and began permanently burning part of transaction fees.

This connected Ethereum network activity directly to ETH supply for the first time. ETH traded around $2,621 at activation.

September 15, 2022: The Ethereum Merge

Ethereum completed The Merge on September 15, 2022.

The upgrade joined Ethereum's existing execution layer with the Beacon Chain and ended proof-of-work mining. Validators staking ETH became responsible for securing the network.

Ethereum estimates that moving to proof of stake reduced its energy consumption by approximately 99.95%. ETH traded around $1,472 during The Merge.

April 12, 2023: Shapella Upgrade

The Shapella upgrade activated on April 12, 2023.

Shapella combined Shanghai on Ethereum's execution layer with Capella on the consensus layer. Its headline feature was the ability for validators to withdraw staked ETH.

ETH traded around $1,917 when Shapella activated.

March 13, 2024: Dencun Upgrade

The Dencun upgrade activated on March 13, 2024.

Dencun combined Cancun on the execution layer with Deneb on the consensus layer.

Its headline feature, EIP-4844 or Proto-Danksharding, introduced blob transactions. Blobs provide Layer 2 rollups with a cheaper, purpose-built way to publish transaction data to Ethereum.

ETH traded around $3,984 when Dencun activated.

May 7, 2025: Pectra Upgrade

The Pectra upgrade activated on May 7, 2025.

Pectra combined Prague on the execution layer with Electra on the consensus layer and introduced several important changes to accounts, staking, and scaling.

Major features included EIP-7702 for more programmable Ethereum accounts, EIP-7251 for validator effective balances of up to 2,048 ETH, and higher blob capacity for Layer 2 networks.

ETH traded around $2,222 at activation.

December 3, 2025: Fusaka Upgrade

The Fusaka upgrade activated on December 3, 2025.

Fusaka combined Osaka on the execution layer with Fulu on the consensus layer.

Its headline feature was PeerDAS, which allows Ethereum nodes to verify blob data by sampling portions of it rather than requiring every node to download every complete blob.

This created more room for Ethereum to scale Layer 2 data availability. ETH traded around $3,149 at activation.

December 9, 2025: BPO1 Increases Blob Capacity

Ethereum activated its first Blob Parameter Only fork, BPO1, on December 9, 2025.

The upgrade increased Ethereum's target blob count from 6 to 10 per block, with a maximum of 15.

January 7, 2026: BPO2 Expands Blob Capacity Again

BPO2 activated on January 7, 2026, increasing Ethereum's target to 14 blobs per block and its maximum to 21.

The BPO system allows Ethereum to increase Layer 2 data capacity without waiting for another full named network upgrade.

2026: Ethereum Doubles Layer 1 Gas Capacity

By February 2026, Ethereum's Layer 1 gas limit had increased from roughly 30 million to around 60 million, significantly expanding the amount of computation that can fit into each block.

The increase marked Ethereum's first major sustained gas-limit expansion since 2021.

Q4 2026: Glamsterdam Is Planned as the Next Major Upgrade

Glamsterdam is currently planned for Q4 2026 and will combine Amsterdam on the execution layer with Gloas on the consensus layer. Unlike past upgrades with completed activation dates, its exact mainnet date has not yet been finalized.

Glamsterdam focuses on scaling Ethereum Layer 1 through technologies such as Enshrined Proposer-Builder Separation and Block-Level Access Lists, which are designed to improve block processing, prepare Ethereum for more parallel execution, and support greater network capacity.

2027: Hegotá Is Expected to Follow Glamsterdam

Ethereum's roadmap currently places Hegotá in 2027, but an exact activation date has not yet been announced.

The upgrade is expected to continue work on Ethereum scalability, censorship resistance, and protocol efficiency.

What Was The Ethereum Merge?

The Merge was the moment Ethereum stopped using miners and started using validators.

It happened on September 15, 2022.

Before The Merge, Ethereum had two systems operating side by side. Ethereum mainnet processed normal transactions using proof of work. The Beacon Chain, launched in 2020, operated Ethereum's new proof-of-stake consensus system.

The Merge joined them together.

From that point onward, mining disappeared from Ethereum and validators became responsible for securing the network.

The change reduced Ethereum's energy consumption by roughly 99.95% and removed proof-of-work miner issuance.

But The Merge did not directly make Ethereum transactions cheaper.

Gas fees depend mainly on demand for Ethereum blockspace. Lower-cost transactions increasingly come from Layer 2 scaling, blobs, and later protocol improvements.

The Merge also did not create a new "ETH2" token. ETH remained ETH throughout the transition.

What Was Ethereum 2.0?

Ethereum 2.0 is an old name for a set of upgrades that included Ethereum's move to proof of stake.

It was never a separate blockchain that replaced Ethereum.

The name gradually fell out of use because it created the impression that users would eventually need to move from Ethereum 1.0 to an entirely different Ethereum 2.0 network.

Instead, Ethereum evolved in place.

The former proof-of-work system became known as the execution layer, while the Beacon Chain became the consensus layer. Together they form Ethereum today.

How Is Ethereum Scaling?

Ethereum used to be described as eventually splitting into many "shard chains."

That is no longer the main scaling strategy.

Today, Ethereum increasingly works like a secure foundation beneath faster Layer 2 networks.

Layer 2s process transactions outside Ethereum's main execution layer and then use Ethereum for settlement, security, or data availability.

This allows Ethereum to support much more activity without requiring every transaction to be executed directly by every Layer 1 node.

Popular Layer 2 networks include Arbitrum, Optimism, Base, and other rollup-based systems. Ethereum.org describes L2s as extensions that can make transactions much faster and cheaper while remaining connected to Ethereum.

What Are Ethereum Blobs?

Blobs are temporary data containers created mainly for Layer 2 networks.

They were introduced through Dencun in March 2024.

Rollups need somewhere to publish transaction data so Ethereum can verify that the data exists. Before blobs, they commonly used more expensive calldata.

Blobs gave rollups their own data market.

Ethereum has steadily expanded this capacity:

• Dencun: Introduced blobs.

• Pectra: Increased the target to 6 and maximum to 9.

• BPO1: Increased the target to 10 and maximum to 15.

• BPO2: Increased the target to 14 and maximum to 21.

The aim is straightforward: give Layer 2 networks more space without forcing every Ethereum node to store increasingly large amounts of data forever.

What Drives the Ethereum Price?

ETH's market price is determined by supply and demand, but several factors can change that balance:

• Ethereum activity: More DeFi, stablecoin, tokenized asset, and Layer 2 activity can increase demand for Ethereum infrastructure and affect ETH fee burning.

• ETH staking: More ETH being staked can change liquid supply, validator economics, and investor expectations.

• ETH issuance and burning: Ethereum has a dynamic supply. Burning can exceed issuance during periods of heavy activity, while the opposite can happen when usage falls.

• Ethereum upgrades: The Merge, Dencun, Pectra, Fusaka, and future upgrades can change expectations around scalability, staking, fees, and adoption.

• Layer 2 growth: Rollups are becoming increasingly important to Ethereum. Their growth affects blob demand, Layer 1 activity, and Ethereum's broader economic model.

• Institutional demand: U.S. spot Ethereum exchange-traded products began trading in July 2024, giving traditional investors another way to gain ETH exposure.

• Bitcoin and crypto market cycles: ETH often moves with the wider crypto market, particularly during major changes in Bitcoin sentiment and liquidity.

• Macroeconomic conditions: Interest rates, inflation, monetary policy, global liquidity, and the U.S. dollar can all affect demand for ETH.

• Regulation: Rules affecting staking, DeFi, ETFs, stablecoins, custody, and crypto exchanges can influence Ethereum adoption and market sentiment.

No single factor determines ETH price on its own. Strong Ethereum fundamentals can coexist with a falling ETH price when wider market conditions are weak.

What Is Ethereum Used For?

Ethereum is used as infrastructure for digital assets and applications that can operate without depending entirely on a traditional centralized service.

Some of its main use cases include:

• Decentralized finance: Trading, lending, borrowing, derivatives, liquidity pools, and other financial services.

• Stablecoins: Digital currencies used for payments, trading, settlement, and DeFi.

• Tokenized real-world assets: Digital representations of financial products such as bonds, funds, and private credit.

• NFTs: Unique digital assets used for art, gaming, memberships, collectibles, and other ownership records.

• DAOs: On-chain organizations used for governance, voting, and treasury management.

• Blockchain gaming: Games with assets that can be owned and transferred by users.

• Digital identity: Blockchain-based credentials and identity systems.

• Payments: ETH and Ethereum-based tokens can move directly between users and applications.

Ethereum's role is therefore broader than hosting ETH itself. It acts as an open platform where other assets and applications can exist.

What Is the Next Ethereum Upgrade?

Glamsterdam is Ethereum's next planned major upgrade and is currently expected in Q4 2026. Ethereum.org describes it as part of the network's current roadmap after Fusaka.

Glamsterdam shifts more attention toward making Ethereum Layer 1 itself faster.

Two of its most important technologies are Enshrined Proposer-Builder Separation, or ePBS, and Block-Level Access Lists, or BALs.

ePBS changes how Ethereum blocks are built and proposed. Today, parts of this process depend on infrastructure outside the core protocol. Bringing more of it directly into Ethereum can reduce those dependencies and give the network more time to handle larger blocks.

BALs help Ethereum nodes know in advance which parts of blockchain state transactions will need.

Today, Ethereum executes much of its workload sequentially. Giving nodes more information in advance can help prepare the network for greater parallel execution, where independent work can be processed at the same time.

Ethereum developers are also researching much higher Layer 1 gas limits once these supporting technologies are ready.

After Glamsterdam, the current roadmap points toward Hegotá in 2027, including further work on censorship resistance and Ethereum's long-term scalability.

What Is the Future of Ethereum?

Ethereum is moving toward a more layered design.

Layer 2 networks can handle more everyday transactions. Ethereum Layer 1 provides security and settlement. Blobs give rollups more data capacity. PeerDAS helps Ethereum scale that data without placing the entire burden on every node.

At the same time, Ethereum is also making Layer 1 itself more capable through higher gas limits, better block construction, smarter accounts, and future parallel execution.

The evolution can be seen through its major upgrades:

• The Merge changed how Ethereum is secured.

• Shapella completed staking withdrawals.

• Dencun introduced blobs.

• Pectra improved accounts, staking, and Layer 2 capacity.

• Fusaka introduced PeerDAS.

• Glamsterdam is designed to push Layer 1 scaling further.

ETH has evolved with the network.

It began as the currency used to pay Ethereum miners and transaction fees. Today, ETH pays for computation, secures proof-of-stake consensus, acts as collateral across DeFi, can be burned through network activity, and sits at the economic center of a growing Layer 2 ecosystem.