What is Ethereum (ETH)?
Ethereum is a blockchain that runs smart contracts. Vitalik Buterin launched it in 2015. Developers use it to build DeFi, NFTs, and thousands of other apps. ETH is the native token that powers it all.
Key Facts
What is Ethereum?
Ethereum is a programmable blockchain. Bitcoin stores value. Ethereum runs code. Anyone can deploy programs that execute exactly as written. No downtime, no censorship, no middlemen.
This created entire industries:
- • DeFi: Decentralized Finance (lending, trading, yield)
- • NFTs: Digital ownership and collectibles
- • DAOs: Community-governed organizations
Smart contracts are the core idea. Programs that run automatically when conditions are met. Written in Solidity, deployed to the blockchain, executed by thousands of nodes worldwide.
ETH is the fuel. You pay "gas" fees in ETH. Validators stake ETH to secure the network. Since "The Merge" in 2022, Ethereum uses Proof of Stake and uses 99.95% less energy than before.
Who Created Ethereum? A Brief History
Origins
Vitalik Buterin proposed Ethereum in late 2013. He was 19. Bitcoin's scripting was too limited. He wanted a blockchain that could run any program.
Key co-founders:
- • Gavin Wood: Wrote the technical spec. Created Solidity. Later founded Polkadot
- • Charles Hoskinson: Later founded Cardano
- • Joseph Lubin: Founded ConsenSys (MetaMask, Infura)
2014 crowdsale raised ~$18 million in Bitcoin.
Key Milestones
- • 2013: Whitepaper published
- • 2014: $18M crowdsale. Foundation established
- • 2015: Mainnet launches
- • 2016: DAO hack. Hard fork creates ETH and ETC
- • 2017: ICO boom. CryptoKitties shows NFT potential
- • 2020: DeFi Summer. Beacon Chain starts PoS transition
- • 2021: NFT explosion. EIP-1559 burns fees
- • 2022: The Merge. Proof of Stake. 99.95% less energy
- • 2023+: Staking withdrawals enabled. Layer 2 costs drop
Today
The Ethereum Foundation funds research. But no one controls the protocol. Multiple client teams (Geth, Nethermind, Besu, Erigon) maintain the software. Changes require broad consensus through EIP proposals.
How Ethereum Works
Ethereum runs on the EVM (Ethereum Virtual Machine). Thousands of nodes execute the same code and reach the same result. That's how trust works without a middleman.
Smart Contracts
Programs written in Solidity, compiled to bytecode, deployed on-chain. Key properties:
- • Deterministic: Same inputs = same outputs, everywhere
- • Immutable: Code can't change after deployment (unless designed to)
- • Transparent: Anyone can read the code
- • Composable: Contracts can call other contracts
Proof of Stake
- • Validators stake 32 ETH to participate
- • Random selection to propose blocks (every 12 seconds)
- • Other validators attest to block validity
- • Final after ~15 minutes
- • Bad behavior = slashing (lose your stake)
Much more energy-efficient than Proof of Work. Security comes from economic incentives.
Gas Fees
Every operation costs gas. Fees = (base fee + tip) x gas used.
- • Base fee: Set by network congestion. Gets burned
- • Tip: Optional payment to prioritize your transaction
Fees spike during high demand. Layer 2s (Arbitrum, Optimism, Base) offer cheaper transactions with Ethereum security.
Accounts
Two types: EOAs (controlled by private keys, can send transactions) and Contract Accounts (hold smart contract code). Both start with "0x" and can hold ETH and tokens.
How to Stake Ethereum
Stake ETH to earn rewards (3-5% APY) while securing the network. Three main options.
Solo Staking (32 ETH)
- • Run your own validator node
- • Need: 32 ETH, dedicated hardware, stable internet
- • Full rewards, maximum control, best for decentralization
- • Requires technical knowledge and uptime commitment
- • Poor performance = penalties
Liquid Staking (Any Amount)
- • Lido (stETH), Rocket Pool (rETH), Frax
- • No minimum. No hardware
- • Get a liquid token you can use in DeFi
- • ~10% fee on rewards
- • Risks: smart contract bugs, de-peg risk
Most popular option due to flexibility.
Exchange Staking
- • Coinbase, Kraken, Binance
- • Easiest option. No technical knowledge
- • Exchanges take 25-50% of rewards
- • You don't control keys
- • May have lock-up periods
Warning: All staking has risks. Slashing, smart contract bugs, withdrawal delays, regulatory changes. Don't stake more than you can afford to lock up.
Why Ethereum Has Value
Utility
- • Every transaction needs ETH for gas
- • EIP-1559 burns a portion of fees, reducing supply
- • Primary collateral in DeFi (Aave, Compound, Uniswap)
- • Most NFT trading happens in ETH
Staking Economics
- • ~25% of supply is staked (~30M+ ETH)
- • Earns 3-5% APY
- • When network is busy, more ETH is burned than issued
- • Can become temporarily deflationary
Risks
- • No fixed supply cap (though issuance is low, 0.5-1%/year)
- • Competition from Solana and Layer 2s
- • Smart contract bugs have cost billions
- • Gas fees spike during congestion
- • Regulatory uncertainty around staking
- • Extreme volatility (80%+ drawdowns in bear markets)
How to Buy Ethereum
ETH is on every major exchange. Here's the process.
1Compare providers
Coinbase, Kraken, Binance, broker apps, or DEXs. Compare price + fees + spread + withdrawal costs. Best option varies by region and payment method.
2Create an account
CEXs need ID verification. DEXs just need a wallet like MetaMask (plus existing crypto to swap).
3Choose payment method
Bank transfer is cheapest but slow (1-5 days). Card is instant but costs 3-5% extra. Or deposit other crypto and swap.
4Buy and secure
Market order buys now. Limit order waits for your price. Consider recurring purchases (dollar-cost averaging). For larger amounts, move to a self-custody wallet. Back up recovery phrase offline.
Next step: Compare ETH providers in your country to find the best price.
How to Store Ethereum
Exchange Wallets
Easiest but riskiest. Exchange holds your keys. Convenient for trading. If they get hacked or go bankrupt, your ETH could be gone.
Software Wallets
- • MetaMask: Browser extension and mobile. Most popular
- • Coinbase Wallet, Rainbow, Trust Wallet: Good alternatives
You control the keys. Can interact with DeFi and NFTs. Backup your recovery phrase on paper, offline.
Hardware Wallets
Ledger, Trezor. Keys never touch the internet. Most secure for big amounts. Costs $50-150. Can connect to MetaMask for dApp access while staying secure.
Security: Write recovery phrase on paper. Store offline. Never share. Enable 2FA on exchanges. Test recovery before storing large amounts. Watch for phishing.
How to Use Ethereum (ETH)
ETH isn't just for holding. Here's what you can do with it.
Send Money
Send ETH to anyone, anywhere, in minutes. No banks needed. For cheaper fees, use Layer 2s (Arbitrum, Optimism, Base) - same security, sub-dollar transactions.
DeFi
- • Lend/Borrow: Use ETH as collateral on Aave, Compound
- • Provide Liquidity: Earn fees on Uniswap, Curve
- • Trade: Derivatives, swaps, yield strategies
Research protocols first. Smart contract risk is real.
NFTs
Buy, sell, create digital collectibles. OpenSea, Blur, Foundation. Most high-value collections (CryptoPunks, Bored Apes) trade in ETH. Also: gaming items, event tickets, domain names.
dApps
Thousands of apps. Gaming, social, governance. Join DAOs to vote on community projects. Permissionless - works for everyone.
Notable People in Ethereum
Key figures. No one controls Ethereum. Development is decentralized.
Vitalik Buterin
Created Ethereum at 19. Wrote the whitepaper. Still active in research. Most recognized face of Ethereum but deliberately avoids centralized control.
Gavin Wood
Co-founder. Wrote the technical spec (Yellow Paper). Created Solidity. First CTO. Later founded Polkadot.
Joseph Lubin
Co-founder. Founded ConsenSys (MetaMask, Infura). Drives enterprise adoption.
Ethereum Foundation
Non-profit that funds research and development. Doesn't control the protocol. Changes require community consensus through EIPs.
Core Developers
Hundreds of devs across multiple teams: Geth, Nethermind, Besu, Erigon. No single team controls the code. This decentralization is intentional.
Regulation Overview for Ethereum
ETH is treated as a commodity in most places. No central issuer, so not a security. But staking services face ongoing questions.
United States
- • SEC says ETH is not a security. CFTC calls it a commodity
- • Staking services face regulatory questions
- • Spot ETH ETFs approved in 2024
- • Capital gains tax on sales. Staking rewards taxed as income
European Union
- • MiCA regulation provides clear framework
- • Tax varies by country. Germany exempts crypto held 1+ year
Canada
- • Legal on registered platforms
- • Capital gains tax applies
- • ETH ETFs available since 2021
Australia
- • Legal with clear ATO guidance
- • Capital gains tax. Some exemptions for personal use
- • Generally crypto-friendly
Note: Rules keep changing. Check your local laws. Keep records for taxes. Consult a professional for large amounts.
FAQs About Ethereum (ETH)
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