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Cryptocurrency and BlockchainBeginner

Ethereum (ETH)ETH

Ethereum is a blockchain that runs smart contracts — programs that power tokens, DeFi applications and more; its native currency is ether (ETH).

Bitcoin showed that digital money could work without a bank. Ethereum asked a bigger question: what if a blockchain could run any program? The answer was smart contracts, and with them came tokens, stablecoins, DeFi and NFTs. For traders, ETH is the second major crypto asset and the fuel that every Ethereum transaction burns.

Category
Cryptocurrency and Blockchain
Reading time
4 min
Also called
Ether, ETH, Ethereum network
Updated

Ethereum in plain words

Ethereum is a decentralised blockchain network and software platform, powered by the cryptocurrency ether (ETH).1

Bitcoin is built for sending and receiving digital money; Ethereum adds programs that anyone can deploy, called smart contracts.1 A smart contract is code and data that live on the blockchain.2

Every transaction pays a fee in ETH, called gas.1 See Stablecoin and Trading Fees and Commissions.

How Ethereum works, step by step

  1. Create an account

    An account is made up of a public and private key pair.3

  2. Send a transaction

    You sign a transfer or a call to a smart contract.

  3. Pay gas

    You pay a transaction fee in ETH.1

  4. Validators process it

    Validators lock up ETH to process transactions and earn ETH as a reward.1

  5. Fees are split

    Part of every fee goes to validators and part is burned.4

  6. Contracts run

    Smart contracts execute according to rules in their code.5

Worked examples

Example 1 — Units of ether

Gwei is a tiny unit of ETH

1 ETH = 1,000,000,000 gwei = 10¹⁸ wei.

Example 1 — Units of ether — calculation
0.05 ETH in gwei0.05 × 1,000,000,000 = 50,000,000 gwei
1 gwei in ETH0.000000001 ETH

Transaction fees are paid in ETH.1 Gas prices are usually quoted in gwei because the amounts are tiny.

Example 2 — A simple transfer fee

$1.26 fee

A basic ETH transfer uses 21,000 gas. Assume a hypothetical gas price of 20 gwei and ETH at $3,000.

Example 2 — A simple transfer fee — calculation
Fee in gwei21,000 × 20 = 420,000 gwei
In ETH420,000 gwei = 0.00042 ETH
In dollars0.00042 × $3,000 = $1.26

Every transaction pays a fee in ETH.1

Example 3 — Volatility in ETH terms

−$1,250

You hold 2 ETH bought at a hypothetical $2,500. ETH falls 25%.

Example 3 — Volatility in ETH terms — calculation
Value before2 × $2,500 = $5,000
Value after2 × $1,875 = $3,750
Change−$1,250

ETH can be bought and sold at crypto asset trading platforms.6 Its price can swing sharply in either direction.

Ethereum vs. Bitcoin

AspectEthereumBitcoin
Main purposePlatform for smart contractsDigital money
Native assetEther (ETH)Bitcoin (BTC)
SecurityProof of stake (validators)Proof of work (miners)
SupplyNo fixed cap; some fees burnedCapped at 21 million

What Ethereum is used for

  • Trading ETH

    Spot and derivatives on ETH itself.

  • Stablecoins

    Many stablecoins run on Ethereum.

  • DeFi

    Lending, borrowing and swapping via smart contracts.

  • Tokens

    Creating and trading new tokens.

Advantages and disadvantages

Advantages

  • Runs programmable smart contracts.
  • Largest ecosystem of DeFi apps and tokens.
  • Open to anyone with a wallet.
  • Validators are rewarded in ETH for securing the network.

Disadvantages

  • Gas fees can rise sharply when busy.
  • Smart contract bugs can lose funds.
  • ETH is volatile.
  • Supply is not capped like bitcoin.

Going deeper

Read as far as you need. Each level builds on the one before it.

A programmable blockchain

Beginner

Ethereum is a blockchain and platform powered by ETH.1 It runs smart contracts as well as payments.1

Gas and fees

Intermediate

Every action pays gas in ETH.1 Part of the fee is burned and part goes to validators.4

Staking and security

Advanced

Validators lock up ETH to process transactions and earn ETH rewards.1 Contracts run immutable code once deployed, which is powerful but makes bugs costly.5

Common mistakes

  1. Running out of ETH for gas

    Holding tokens but no ETH to pay fees.

  2. Sending to the wrong network

    Using a different chain or address format.

  3. Ignoring fee spikes

    Trading when the network is congested.

  4. Treating ETH like bitcoin

    Assuming the same supply rules apply.

Check your understanding

Test yourself before moving on. Each answer comes with an explanation.

Q1A transfer uses 21,000 gas at 10 gwei. What is the fee in ETH?
Q2What is ETH used for on the network?

Key points to remember

  1. Ethereum is a blockchain that runs smart contracts.
  2. Ether (ETH) is its native currency.
  3. Every transaction pays gas in ETH.
  4. Validators stake ETH to secure the network.
  5. It hosts most stablecoins, tokens and DeFi.

Frequently asked questions

Is Ethereum the same as ether?

Ethereum is the network; ether (ETH) is its currency.

Why did my transaction cost more today?

Gas prices rise when many people want to use the network at once.

Can ETH be staked?

Yes. Validators lock up ETH to help secure the network in return for rewards.

Further learning

Sources

This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.

  1. ethereum.org. What is Ethereum? (opens in a new tab) Checked .
  2. NIST CSRC Glossary. Smart contract (opens in a new tab) Checked .
  3. ethereum.org. Ethereum accounts (opens in a new tab) Checked .
  4. ethereum.org. What is ether (ETH)? (opens in a new tab) Checked .
  5. ethereum.org. Introduction to smart contracts (opens in a new tab) Checked .
  6. FINRA. Crypto Assets (opens in a new tab) Checked .

Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.