What is Ethereum?

Our previous article closed this series' arc by returning to BitcoinBitcoinBitcoin is a decentralized digital currency that enables secure peer-to-peer transactions without relying on a central authority.Keep learning, the networkBlockchain NetworkA blockchain network is a system of computers connected to each other that follow the same set of rules to record, share, and validate transactions.Keep learning that started it all. This article turns to the second name that's appeared throughout this series almost as often: Ethereum. Where Bitcoin set out to reinvent money, Ethereum, launched roughly six years later, set out to do something considerably more ambitious; reinvent the very idea of what a blockchainBlockchainThink of blockchain as a public notebook that everyone owns a copy of. Whatever gets written in it is permanent and visible to all.Keep learning could be used for in the first place.

Origins: Beyond a Single Use Case

Ethereum was proposed in a 2013 whitepaperWhitepaperA whitepaper is a detailed document that explains a project’s concept, technology, goals, and how it plans to work or solve a problem.Keep learning by Vitalik Buterin, then a teenage programmer and Bitcoin Magazine co-founder, alongside several co-founders including Gavin Wood, who would go on to author the more technically detailed Ethereum "Yellow Paper" formally specifying the EVMEthereum Virtual Machine (EVM)EVM (Ethereum Virtual Machine) is the software environment that executes smart contracts and decentralized applications on compatible blockchains.Keep learning's execution model discussed in our earlier article. The network officially launched in July 2015.

Buterin's core observation, as detailed in the original whitepaper, was that Bitcoin's scripting language; the underlying logic governing how Bitcoin transactions could be structured; was deliberately limited, by design, to keep the network simple, predictable, and secure. This was, and remains, a reasonable design choice for a network whose primary purpose is to securely move currency, as our UTXOUnspent Transaction Output (UTXO)UTXO (Unspent Transaction Output) is a blockchain transaction output that has not yet been spent and can be used as input in a future transaction.Keep learning article explored in depth. But Buterin argued that a blockchain built instead around a fully general-purpose, programmable computing environment; capable of running arbitrary, developer-written code, rather than only a constrained set of currency-transfer operations; could unlock an entire category of decentralized applicationsdAppsdApps are decentralized applications that run on blockchains, using smart contracts to operate without central control or single points of failure.Keep learning well beyond simple payments.

That programmable environment became the EVM, covered in detail in our previous article, and it remains the single most consequential design decision distinguishing Ethereum from Bitcoin. The original whitepaper remains available in full at ethereum.org/whitepaper, and is genuinely worth reading directly for anyone who has followed this series closely; particularly for how clearly it anticipates, even in 2013, much of what the broader decentralized application ecosystem has since become.

Ether: Currency and Fuel, Simultaneously

Ethereum's native currency, Ether (ETH), serves a meaningfully different role than Bitcoin does on its own network. It functions as a tradeable currency in its own right, much like Bitcoin; but it also serves as the gasGas FeesGas fees are transaction costs paid to network validators to process and secure operations on a blockchain, varying with demand and complexity.Keep learning described in our EVM article, the fuel required to pay for every single computation, smart contractSmart ContractsA smart contract is a self-executing computer program deployed on a blockchain. It contains rules and conditions written directly into code.Keep learning execution, and transaction the network processes. This dual role is a direct, practical consequence of Ethereum's broader purpose: a network designed to run arbitrary code needs some mechanism to price and meter that code's execution, and Ether is the currency that mechanism is denominated in.

Monetary Policy: A Deliberately Different Approach

Our Bitcoin article detailed Bitcoin's fixed, predictable 21 million coin supply cap. Ethereum takes a meaningfully different approach to monetary policy, worth understanding directly rather than assuming it simply mirrors Bitcoin's.

Ethereum has no fixed maximum supply. New ETH is issued continuously to validators as a reward for securing the network under Proof of StakeProof of StakeProof of Stake is a consensus method where validators stake tokens to secure the network and earn rewards for validating transactions.Keep learning; but that issuance is now counterbalanced by a mechanism introduced in 2021 through EIP-1559 (referencing the Ethereum Improvement Proposal process covered in our blockchain protocolBlockchain ProtocolA blockchain protocol is the set of rules and standards that govern how a blockchain network operates, validates transactions, and reaches consensus.Keep learning article): a portion of every transaction's gas fee is permanently destroyed, or "burned," rather than paid out to validators, removing that ETH from circulation entirely.

During periods of high network activity; when gas fees, and therefore the total amount burned, are elevated; it's entirely possible for more ETH to be burned than is newly issued to validators in the same period, making Ethereum's total supply temporarily deflationary, an outcome with no real Bitcoin equivalent, given Bitcoin's fixed, purely additive issuance schedule. During quieter periods of lower network activity, issuance can outpace burning, making supply mildly inflationary instead. You can track this dynamic directly, in real time, using ultrasound.money, a dedicated dashboard specifically built to monitor Ethereum's current net issuance rate, total ETH burned since EIP-1559's introduction, and whether the network is currently in a net-deflationary or net-inflationary state.

This represents a genuinely different philosophical approach to monetary policy than Bitcoin's: rather than a fixed, unconditional cap, Ethereum's supply dynamically responds to actual network usage, tying its monetary characteristics directly to real, ongoing demand for the network's computational resources, rather than to a predetermined schedule set in advance.

The Merge: A Defining Moment

Our Proof of Stake article covered the technical mechanics of "the Merge"; Ethereum's September 2022 transition from Proof of WorkProof of WorkProof of Work (PoW) is a consensus mechanism where miners use computing power to validate transactions and secure the blockchain.Keep learning to Proof of Stake; in detail, so it's worth only briefly recapping here, specifically in the context of Ethereum's broader history. The Merge represented the culmination of years of planning and research, executed without network downtime, and remains one of the most significant, successfully delivered upgrades in the history of any major blockchain network. It cut Ethereum's energy consumptionCrypto Environmental ConsiderationsCrypto environmental considerations refer to the energy use, carbon footprint, and sustainability impacts associated with cryptocurrency activity and networks.Keep learning by roughly 99.95%, fundamentally altered the network's monetary issuance (since validators require dramatically less ETH compensation than miners previously did, given the vastly lower operating costs of validating versus miningCrypto MiningCrypto mining is the process of using computing power to validate blockchain transactions and earn cryptocurrency rewards.Keep learning), and shifted Ethereum's entire securityBlockchain SecurityBlockchain security is the protection of blockchain networks and assets against attacks, fraud, and vulnerabilities using cryptography and consensus mechanisms.Keep learning model from the computational-cost foundation explored in our Proof of Work article to the financial-collateral foundation explored in our Proof of Stake article.

What Actually Runs on Ethereum

It's worth grounding Ethereum's significance in concrete terms, beyond the purely technical description offered so far. The smart contracts our EVM article introduced have, in practice, given rise to several genuinely substantial categories of application:

Decentralized Finance (DeFiDeFiDeFi stands for Decentralized Finance. It refers to a collection of applications and platforms built on blockchain that allow people to transact without banks.Keep learning) encompasses lending platformsLending and Borrowing ProtocolsLending and borrowing protocols are DeFi platforms where users supply crypto to earn interest or borrow assets by providing collateral.Keep learning, decentralized exchangesDEXs (Decentralized Exchanges)DEXs are decentralized exchanges that let users trade cryptocurrencies directly from their wallets using smart contracts, without a central authority.Keep learning, and other financial services operating entirely through smart contract logic, without a traditional bank, broker, or exchange acting as an intermediary. Non-fungible tokens (NFTsNFTsAn NFT is a unique digital asset stored on a blockchain that proves ownership of something.Keep learning), use Ethereum's smart contract infrastructure to represent verifiable ownershipOwnershipOwnership in crypto means control over assets via private keys, allowing users to hold, transfer, or manage funds without intermediaries.Keep learning of unique digital (and increasingly, real-world) assets. Decentralized autonomous organizations (DAOsDAOsA DAO is an organization governed by code and community members rather than a central authority.Keep learning) use smart contracts to encode an organization's governanceGovernanceGovernance in crypto is how decisions about a blockchain or protocol are made, often through token holders voting on changes and proposals.Keep learning rules directly; voting, treasury management, and decision-making; executed transparently and automatically rather than through a traditional corporate structure.

You can explore the genuinely enormous scale of activity this has produced directly using Etherscan, referenced throughout this series; its homepage alone displays live transaction counts, gas prices, and a constantly updating feed of real contract deployments and interactions happening across the network at any given moment.

Layer 2s: Ethereum's Scaling Strategy

Our blockchain networks and Blockchain TrilemmaThe Blockchain TrilemmaThe blockchain trilemma is the challenge of balancing decentralization, security, and scalability in blockchain systems, where improving one impacts the others.Keep learning articles both touched on Ethereum's Layer 2 ecosystem; networks like Arbitrum, Optimism, and Base, built specifically to handle the bulk of everyday transaction volume off Ethereum's base layer, while still settling back to it for final security. It's worth restating directly here just how central this strategy has become to Ethereum's overall roadmap: rather than attempting to dramatically increase the base layer's own raw throughput (a path that, as the trilemma article explored, risks compromising decentralization or security), Ethereum's core development has deliberately prioritized making the base layer an excellent, highly secure settlement foundation, while pushing the bulk of scaling work outward onto this growing ecosystem of Layer 2Layer 2 BlockchainLayer 2 blockchain is a secondary protocol built on top of a Layer 1 chain to improve scalability, reduce fees, and speed up transactions.Keep learning networks instead.

You can compare activity, fees, and total value secured across this Layer 2 ecosystem using L2Beat, a dedicated, independent dashboard tracking the major Layer 2 networks built on Ethereum, including detailed breakdowns of each network's specific security assumptions and how directly it actually relies on Ethereum's base-layer security; a genuinely useful resource for understanding that not all Layer 2 networks make identical trade-offs, despite sharing the same general category.

Ethereum vs. Bitcoin: A Direct Comparison

Given how frequently these two networks are compared, and given that this series has now covered both in considerable depth, a direct, side-by-side comparison is worth laying out explicitly.

Neither network is simply a "better" or "worse" version of the other; as this comparison makes clear, and as the Blockchain Trilemma article explored more generally, the two networks were built around genuinely different priorities from the outset, and the comparison is better understood as two different, well-reasoned answers to two related but distinct questions, rather than as direct competitors solving the exact same problem.

Bringing It Together

Ethereum took the foundational blockchain concepts this series began with and extended them into something considerably broader than a payment network alone. To summarize:

• Ethereum was proposed by Vitalik Buterin in 2013, specifically to extend blockchain technology beyond Bitcoin's deliberately constrained scripting model into a fully general-purpose computing platform
• Ether (ETH) functions both as a tradeable currency and as the gas fueling every computation on the network
• Ethereum's monetary policy has no fixed supply cap, instead balancing ongoing validator issuance against the EIP-1559 burn mechanism, making net supply dynamically responsive to actual network usage
• The Merge marked one of the most significant successfully executed upgrades in blockchain history, transitioning the network's entire security model from Proof of Work to Proof of Stake without downtime
• Ethereum's smart contract infrastructure has given rise to DeFi, NFTs, and DAOs, representing a genuinely distinct category of application from anything Bitcoin's design was built to support
• Ethereum's scaling strategy leans heavily on a growing Layer 2 ecosystem, deliberately prioritizing base-layer security over raw base-layer throughput

Taken together with the previous article on Bitcoin, this series has now examined both of the two networks most responsible for shaping the entire blockchain industry; one built to be the most conservative, secure, and predictable form of digital money possible, and the other built to be the most flexible, general-purpose decentralized computing platform possible. Nearly every concept covered across this entire series; hashing, nodes, consensus mechanisms, cryptography, custody, security; finds its clearest, most concrete expression in one or both of these two networks.