What Is Ethereum (ETH)? How It Works, Use Cases and Risks
What is Ethereum? A plain-English guide to how the network and ETH work, what they are used for, how supply works, the main risks and how to avoid fakes.
Ethereum is a public, programmable blockchain that lets anyone run applications, called smart contracts, without a central operator, and Ether (ETH) is its native currency used to pay fees and secure the network. Where Bitcoin was designed mainly as digital money, Ethereum was designed as a shared global computer on which tokens, exchanges, lending markets and NFTs can be built.
Understanding Ethereum matters because a large share of crypto activity runs on it or on networks built around it. Many tokens you will see are issued on Ethereum, and many newer blockchains copy its design. This guide explains how it works, what ETH is used for, and the risks worth knowing.
Origin and Founders
Ethereum was proposed in a 2013 whitepaper by programmer Vitalik Buterin, who wanted a blockchain that could run general-purpose programs rather than only track payments. A group of co-founders joined the effort, including Gavin Wood, who wrote the technical "Yellow Paper" specification, as well as Joseph Lubin and Charles Hoskinson, among others.
The project raised funds through a public crowdsale in 2014, and the network went live in July 2015. The non-profit Ethereum Foundation supports research and development, but no single company controls the protocol. Changes are proposed through Ethereum Improvement Proposals (EIPs) and adopted only if client developers and node operators run the new software.
How Ethereum Works
Smart contracts and the EVM
A smart contract is a program stored on the blockchain that runs exactly as written when someone calls it. Every Ethereum node runs these programs inside the Ethereum Virtual Machine (EVM), so all nodes agree on the result. Because the EVM became a de facto standard, many other blockchains are "EVM-compatible," meaning the same contracts and wallets work there too. If you want to go further, read What Is a Smart Contract? If Turbo is new to you, start with what Turbo is and how it works.
Gas and fees
Every operation on Ethereum costs gas, paid in ETH. Since an upgrade in 2021 (EIP-1559), each block has a base fee that is burned, plus an optional tip that goes to the validator. When demand is high, the base fee rises automatically. Our guide to gas in Ethereum explains how to read and estimate fees. Our EigenLayer (EIGEN) explainer covers the project's basics, use cases and risks.
Proof of stake
Validators lock up ETH as collateral, then take turns proposing blocks and attesting to other validators' blocks. Running an independent validator requires 32 ETH, but liquid staking services and exchanges let people stake smaller amounts, with extra risks. Validators that break the rules can be "slashed," losing part of their stake. See proof of stake explained for the details. For background on the project itself, see Cardano (ADA) explained. For background on the project itself, see Waves explained.
Layer-2 scaling
Instead of making the main chain handle every transaction, Ethereum's roadmap relies on rollups, which bundle many transactions together and post compressed data back to Ethereum. Networks such as Arbitrum and Optimism work this way. A 2024 upgrade added a cheaper data format for rollups, which lowered their costs.
What ETH Is Used For
ETH has several roles in the ecosystem:
- Paying fees for every transaction and contract interaction on Ethereum.
- Staking to secure the network and earn protocol rewards.
- Collateral in decentralized finance (DeFi) lending and stablecoin protocols.
- A trading pair and unit of account for many tokens and NFTs.
- Gas on many layer-2 networks, which also use ETH for fees.
Supply Design
ETH does not have a hard cap like Bitcoin's 21 million. Instead, supply changes based on two forces. New ETH is issued to validators as rewards, and the base fee portion of every transaction is burned, removing it permanently. If you want to know what could move ETH over the next two years, see our Ethereum price prediction for 2026–2027.
During periods of heavy network use, burning can exceed issuance and total supply can shrink. During quiet periods, issuance is larger and supply grows slowly. This design is sometimes described with the slogan "ultrasound money," but supply direction depends on activity and is not guaranteed either way. We cover this in more detail in Coins vs Tokens.
Ecosystem and Use Cases
Ethereum hosts a broad range of applications:
| Area | Examples of what runs on Ethereum |
|---|---|
| Stablecoins | Dollar-pegged tokens such as USDC and DAI |
| DeFi | Decentralized exchanges, lending markets, derivatives |
| NFTs | Digital art, collectibles, tickets, domain names |
| Tokens | Thousands of ERC-20 tokens for projects and governance |
| Identity | Name services and on-chain credentials |
The ERC-20 standard defines how fungible tokens behave, which is why so many tokens share wallets and tooling. Read what is an ERC-20 token for more.
Risks and Criticisms
Ethereum is large and established, but it is not risk-free.
- Smart-contract risk. Applications built on Ethereum can contain bugs. The 2016 DAO hack led to a controversial fork that created Ethereum Classic.
- Fees and complexity. Main-chain fees can be high during busy periods, and moving between layer-2 networks adds complexity and bridge risk.
- Staking concentration. A large share of staked ETH sits with a few large staking providers and exchanges, which critics see as a centralization risk.
- Layer-2 trust assumptions. Many rollups still rely on upgradeable contracts or centralized sequencers controlled by their teams.
- Regulatory uncertainty. Rules for staking and tokens differ by country and keep changing.
- Price volatility. ETH can fall sharply, and you could lose a significant part of what you invest.
How to Avoid Fake ETH and Find Official Information
ETH is the native coin of Ethereum, so it has no token contract address on Ethereum itself. If someone shows you an "ETH" token with a contract address on Ethereum mainnet, it is not real ETH. Wrapped versions such as WETH and bridged ETH on other networks do have contract addresses, and those should be checked carefully using our guide on how to verify a token's official contract address.
The official community website is ethereum.org. Be wary of "ETH 2.0 token" offers, "migration" requests or giveaways asking you to send ETH first; these are long-running scams.
You can follow the live price, supply data and market information on the Ethereum coin page.
Bottom line
Ethereum is a programmable blockchain, and ETH is the fuel and security asset behind it. Its strength is a large developer ecosystem and an open standard that many other chains copy; its weaknesses include fee spikes, growing complexity across layer-2 networks and concentration in staking. If you hold or use ETH, learn how gas, wallets and layer-2 networks work before moving meaningful amounts.
Frequently asked questions
What is the difference between Ethereum and Ether?
Ethereum is the blockchain network and software platform. Ether (ETH) is its native cryptocurrency, used to pay transaction fees, called gas, and as the asset validators stake to secure the network. People often say "Ethereum" when they mean the coin, but technically the network and the asset are different things.
Does Ethereum have a maximum supply?
No. Unlike Bitcoin, Ethereum has no hard cap on supply. New ETH is issued to validators as rewards, while part of every transaction fee is burned. Whether total supply grows or shrinks over a given period depends on how much ETH is issued versus how much is burned through network activity.
Is Ethereum proof of work or proof of stake?
Ethereum has used proof of stake since an upgrade called the Merge in September 2022. Before that it used proof of work mining. Under proof of stake, validators lock up ETH as collateral to propose and confirm blocks, and can lose part of it if they act dishonestly.
Why are Ethereum fees sometimes high?
Ethereum's block space is limited, so when many people want to transact at once they bid against each other and gas prices rise. Many users now move activity to layer-2 networks, which process transactions off the main chain and post data back to Ethereum, usually at much lower cost.