Ethereum explained

Ethereum is a blockchain that runs programs, not just payments. Bitcoin records who sent money to whom; Ethereum records that too, and also runs code that anyone can write and anyone can use.

Its coin is called ether, or ETH. You need ETH to pay for anything you do on the network.

A blockchain with an app store attached

ethereum.org describes EthereumA network that runs programs, not just payments. as “an open, public blockchain launched in July 2015.” Like Bitcoin, it keeps a shared ledger that thousands of computers check. The difference is what that ledger can hold.

On Bitcoin, the ledger mostly tracks coins moving around. On Ethereum, the ledger can also store small programs and their data. That turns the network into a shared computer that nobody owns and anyone can build on. Tokens, digital collectibles, trading apps and lending apps all run on top of it.

If Bitcoin is a calculator that does one job very reliably, Ethereum is closer to a phone: the base system matters, but most of what people actually do happens in the apps.

Smart contracts, the programs that run themselves

Those programs are called smart contracts. ethereum.org describes them as computer programs that follow “if this then that” logic and are “guaranteed to execute according to the rules defined by its code, which cannot be changed once created.”

The site’s favourite analogy is a vending machine: “specific inputs guarantee predetermined outputs.” Put in the right coins, press the button, get the snack. No shop assistant decides whether you deserve it.

A Smart contractA program on a blockchain that runs exactly as written. works the same way. If you send the right token to a swap contract, it sends you the other token back, automatically. Nobody can stop it on a whim. That is also the catch: nobody can step in when it does something you did not expect.

ETH and gas, the fuel that pays for everything

Every action on Ethereum costs a fee. ethereum.org puts it simply: “Network fees on Ethereum are called gas,” and you pay them in ETH. The fee pays the network for the computing work your transaction needs, and ethereum.org adds that it also helps prevent spam.

GasThe fee you pay the network to process a transaction. is not a fixed price. “Gas fees are not set, they change based on network congestion,” according to ethereum.org, and gas prices move “every twelve seconds” depending on how busy the network is. Fees are usually shown in gwei, which ethereum.org describes as “a smaller unit of ETH, just as pennies are to dollars.”

The practical lesson: if a transaction looks expensive, waiting for a quieter time can cost less.

Layer 2, the cheaper lanes

Because the main network gets busy, a whole set of networks has been built on top of it. These are known as layer 2 networks, or rollups. ethereum.org says “Layer-2 chains are built atop Ethereum, offering lower fees and handling more transactions.”

Rollups lean on Ethereum for security. ethereum.org calls the main chain “the settlement layer for other newer networks.” It also notes a fair warning: how safe a given network is depends on its technology, its smart contract security and its maturity, so start with small transactions.

From mining to staking

Ethereum originally used mining, like Bitcoin. In 2022 it switched. ethereum.org’s timeline says: “The Merge replaces mining with staking, cutting energy use by 99%.”

Under this system, called proof of stake, validators lock up ETH to earn the right to confirm transactions. ethereum.org explains that a solo validator “requires at least 32 ETH,” and that validators who go offline “miss rewards and lose small amounts of ETH.” Validators who act maliciously can be slashed, which means larger penalties and removal from the network.

You do not need to run a validator to use Ethereum. Step 6 of this course explains StakingLocking coins to help run a network, in exchange for rewards. in detail, including the ways regular people take part and what can go wrong.

The risks that come with apps

Ethereum’s openness is its strength and its biggest danger for beginners. Anyone can deploy a smart contract, including scammers.

• Code is final. ethereum.org stresses that contract rules “cannot be changed once created.” A bug or a malicious design stays in place.
• Blind signing is dangerous. ethereum.org warns against approving transactions you do not understand. Your wallet will ask you to confirm; read what you are confirming.
• Fees are real money. A failed or rushed transaction still costs gas.
• Payments are final. The FTC notes crypto payments “typically are not reversible.”
• Promises are a red flag. The FTC is blunt: “Only scammers will guarantee profits or big returns.”

Ethereum vs Bitcoin in one minute

Both are public blockchains with no single owner. Both have native coins with prices that move fast. The design goals differ.

Bitcoin focuses on being money with a fixed supply, and it keeps its feature set deliberately small. Ethereum focuses on being a platform that other projects build on, which means more possibilities and more moving parts that can break. Neither one is “the better coin.” They are trying to do different jobs.

What to do next

You now have the three foundations: what crypto is, how Bitcoin works, and how Ethereum adds programs on top. The next chapter is about tools, starting with the one that holds your keys.

• Move on to Crypto wallets explained, step 4 of the course.
• Read Web3 explained for the bigger idea that Ethereum apps feed into.
• Learn how staking works before anyone pitches you rewards.