Bitcoin proved that money could work without a bank. Ethereum asked a bigger question: what if you could put any agreement — not just payments — onto a blockchain and have it run automatically? Launched in 2015, Ethereum is often described as a “world computer”: a single, shared, programmable platform that nobody owns and anybody can build on.
Beyond digital money
On Bitcoin, the main thing you can do is send bitcoin. Ethereum generalises that. As well as its own currency — ether (ETH) — it can run small programs. That turns the blockchain from a simple ledger into a platform for applications, from lending markets to games to digital art.
It helps to separate two things people muddle together: Ethereum is the network, and ether is the currency that powers it. You spend ether to use Ethereum.
Smart contracts: code as agreements
The heart of Ethereum is the smart contract — a program stored on the blockchain that runs exactly as written whenever its conditions are met. There is no manager to approve it and no way to quietly alter it once deployed.
A simple analogy is a vending machine. You do not negotiate with a shopkeeper; you insert the right amount, make a selection, and the machine is hard-wired to dispense your item. A smart contract is the same idea for digital agreements: meet the conditions in the code and the outcome happens automatically, identically, for everyone.
This is what enables decentralized applications, or “dapps” — entire services whose logic lives in smart contracts rather than on a company’s private servers.
Gas: paying for computation
Running programs on thousands of computers worldwide is not free, and unlimited free computation would invite spam and abuse. Ethereum solves both with gas.
Every operation — a transfer, a swap, minting a token — costs a small amount of computational effort measured in gas, paid for in ether. A simple transfer is cheap; a complex interaction with several contracts costs more. When the network is busy, users bid higher fees to get included sooner, which is why gas fees rise during periods of heavy demand. Gas is both the network’s pricing system and its spam shield.
Tokens, NFTs and standards
One of Ethereum’s most important inventions is the token standard — a shared template so that wallets and apps can handle new assets without custom code for each one.
- Fungible tokens follow the ERC-20 standard. Each unit is interchangeable, like currency. The vast majority of crypto tokens are ERC-20s.
- Non-fungible tokens (NFTs) follow standards where each token is unique and individually identifiable — useful for digital collectibles, tickets, or proof of ownership.
Because these standards are open, anyone can issue a token that instantly works across the whole ecosystem. That interoperability is a big part of why so much activity — including most of DeFi — was built on Ethereum first.
How Ethereum secures itself: the Merge
For its first years, Ethereum used proof of work, the same mining-based system as Bitcoin. In 2022 it completed a long-planned upgrade nicknamed “the Merge”, switching to proof of stake.
Instead of miners racing to solve puzzles, the network is now secured by validators who lock up ether as a stake and are rewarded for honestly confirming transactions — or penalised for cheating. The headline effect was a dramatic drop in energy use, since the puzzle-solving race was retired. If the difference between these two systems is unfamiliar, our guide on Proof of Work vs Proof of Stake breaks it down.
Why it matters
Ethereum’s significance is less about its price and more about what it unlocked: a neutral platform where developers can deploy financial tools, marketplaces and applications that run on shared infrastructure nobody controls. It is not the only smart-contract platform anymore — many newer networks compete on speed and cost — but it pioneered the model, and the ideas it introduced now run through most of the crypto landscape.