Token page: Ethereum
What is Ethereum?
Ethereum, often called "ETH" or "Ether," is a decentralized, open-source blockchain conceived by Vitalik Buterin in 2013 and launched in 2015. As the backbone for decentralized applications (dApps) and smart contracts, Ethereum has earned the title of the World’s Decentralized Operating System or “World Computer.” This status has emerged because, while Bitcoin primarily serves as a digital currency, Ethereum enables an entire ecosystem of decentralized applications, free from intermediaries, that can redefine entire industries from finance and gaming to art and fundraising. At Bankless, we see Ethereum as a gateway to a new internet, where we rely less on banks and centralized tech giants — and more on each other. Many people who buy Ethereum don't see it as just an investment. Rather, it’s a stake in a global, self-sovereign ecosystem where finance, governance, and ownership are transparent, borderless, and in the hands of the people.
Ethereum was co-founded by Vitalik Buterin, along with prominent figures like Joseph Lubin (founder of Ethereum-centric company, ConsenSys), Gavin Wood (founder of Polkadot blockchain), and Charles Hoskinson (founder of Cardano blockchain). These early pioneers envisioned Ethereum as a platform beyond digital currency, as one allowing developers to create applications that don’t just sit within the walled gardens of big tech but instead live freely on the blockchain, accessible to anyone, anywhere.
Why is Ethereum Important?
Ethereum is one of the most widely used smart contract platforms, supporting over 4,000 projects and 53 million smart contracts. Given its impact, many investors track the Ethereum price closely, with a growing interest to buy Ethereum as it powers decentralized finance (DeFi), non-fungible tokens (NFTs), and decentralized autonomous organizations (DAOs). Ethereum’s utility and substantial economic value have made ETH a foundational component of the blockchain ecosystem.
Originally operating on the energy-intensive, Proof-of-Work consensus, Ethereum switched to Proof-of-Stake in 2022, significantly reducing its energy consumption (by 99.95%) while maintaining robust security through validator staking. The 2024 Dencun upgrade, with its introduction of proto-danksharding, continued to improve Ethereum’s scalability, reducing associated costs with Layer 2 blockchains built on top of it.
https://ethereum.org/en/what-is-ethereum/
How Does Ethereum Work? (Explained)
Ethereum’s functionality rests on a few core components. At its heart is blockchain technology, a distributed ledger that securely records transactions. Building on this, Ethereum supports smart contracts and decentralized applications (dApps), which enable secure, automated transactions without intermediaries.
Ethereum relies on Proof-of-Stake (PoS) to validate blocks, with gas fees covering the computational costs of running transactions. Meanwhile, wallets give users a secure way to interact with Ethereum and manage their digital assets.
Together, these elements make Ethereum a powerful, decentralized platform for diverse applications.
Blockchain Technology
Ethereum, also known as ETH, operates on blockchain technology, which functions as a public, distributed ledger that stores the network’s data or “state.” Each “block” stores new transaction data and a reference to the previous block, creating a secure “chain” of information about the current “state” of Ethereum. For those following the Ethereum price or considering whether to buy Ethereum, understanding this blockchain structure clarifies how ETH transactions maintain security and integrity across the network. Once added to the chain, data is permanent and tamper-proof, a feature that supports Ethereum’s reputation for security.
This blockchain ledger is distributed across thousands of computers, known as nodes, creating a decentralized network. This setup means that no single entity controls the blockchain. Instead, each node holds a complete copy of Ethereum's blockchain, which helps to ensure security and reliability. For a hacker to manipulate Ethereum’s records, they would need to control at least 51% of all these computers at once — a virtually impossible task given the size and spread of the network.
In Ethereum, validators are responsible for proposing new blocks. To ensure the security and integrity of the network, Ethereum uses its Proof-of-Stake (PoS) mechanism, where validators are chosen based on the amount of ETH they "stake" as collateral, demonstrating their investment in the network. When validators propose a new block, other nodes in the network verify its contents. This consensus method allows Ethereum to maintain an accurate, tamper-proof ledger, even in a decentralized system.
Smart Contracts and dApps
A key feature of Ethereum (ETH) is its ability to support smart contracts, which are self-executing contracts with the terms of the agreement directly written into code. Think of a smart contract as an automated rule book: once the conditions written in the code are met, the contract automatically executes the next action. For instance, a smart contract could be programmed to release payment only when certain conditions, like delivery confirmation, are met. This automation reduces the need for middlemen and ensures that all parties follow the agreed-upon rules.
Smart contracts run within Ethereum’s main computational environment, called the Ethereum Virtual Machine (EVM). The EVM ensures that smart contracts execute in the same way on every computer in the network, creating consistency across the decentralized platform. These smart contracts form the backbone of decentralized applications, or dApps, which operate without centralized control. This enables the construction of a wide variety of trustless applications, meaning they don’t require a trusted central authority to function securely.
Proof-of-Stake Validation Process
Ethereum originally relied on Proof-of-Work (PoW), like Bitcoin, to validate transactions but transitioned to Proof-of-Stake (PoS) in 2022, making the system significantly more energy-efficient. Now, instead of miners racing to solve complex math problems to validate transactions, Ethereum relies on validators, who "stake" or lock up a certain amount of Ethereum (32 ETH) as collateral to support the network.
In Ethereum’s PoS system, validators are randomly chosen to propose new blocks based on the amount of ETH they’ve staked. This PoS model strengthens Ethereum’s scalability and security, factors that influence the ETH price as the network grows and develops. The more ETH validators stake, the greater their role in helping secure Ethereum’s decentralized structure. Once a validator proposes a new block, other validators check and confirm its accuracy. If the block is valid, it’s added to the blockchain, and the validator earns rewards. However, if a validator acts dishonestly, they can lose part of their staked ETH — a strong incentive to act in good faith.
Gas Fees
When users perform actions on Ethereum — whether it's sending ETH, executing a smart contract, or interacting with a dApp — they must pay what’s known as gas fees. Think of gas as the “fuel” that powers the Ethereum network. Each action on Ethereum requires computational resources, and gas fees compensate the network for the effort needed to complete these tasks. The more complex the action (like running a smart contract), the more gas it requires.
Gas prices fluctuate based on demand: when many users are trying to interact with the network at once, fees increase. To make transactions more affordable, Ethereum has developed Layer 2 solutions, such as Optimistic Rollups and zk-Rollups. These solutions process transactions “off-chain,” meaning they handle transactions outside Ethereum’s main network and then later settle them on Ethereum’s blockchain. This reduces the load on the main network, making gas fees lower and transactions faster, while still providing the transactions the security of Ethereum’s network.
Wallets
To interact with Ethereum and access decentralized applications (dApps), users need a wallet to securely manage ETH and other digital assets. A wallet is essentially a digital tool that holds the private keys necessary for users to access, transfer, and control their Ethereum funds. Private keys work like a password, allowing full control over ETH and any tokens on the Ethereum blockchain.
Popular wallets like MetaMask and Coinbase Wallet don't store Ethereum or tokens directly; instead, they protect the private keys that allow access to these assets on the blockchain, functioning like a digital safe. The ETH and other tokens remain stored on the Ethereum blockchain itself. Wallets also provide an interface for users to interact with dApps, making it easy to connect with Ethereum’s decentralized applications for a range of uses.
https://www.coinbase.com/wallet
What Is the Ethereum Roadmap?
The Ethereum roadmap is a series of major upgrades aimed at improving the network’s scalability, security, and decentralization. These upgrades address key challenges, such as reducing transaction fees, increasing transaction speed, and making it easier for more people to participate in securing the network. Ethereum’s evolution is currently divided into six stages like The Merge, The Surge, The Scourge, The Verge, The Purge, and the Splurge. These are all in different stages of development and focus on different aspects of the blockchain’s functionality, from switching to Proof-of-Stake to enabling stateless clients and scaling to 100,000+ transactions per second.
What Are the Major Ethereum Upgrades?
The Merge
The Merge, completed in 2022, marked Ethereum's transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS), cutting energy consumption by 99% and enhancing network security through staking. However, according to Vitalik Buterin, upgrades related to The Merge are ongoing.
The goal moving forward is to speed up transaction finalization, reducing the current wait time from around 15 minutes to just one block, or about 12 seconds. Vitalik recently shared that another goal of The Merge will be to lower the staking requirement from 32 ETH to just 1 ETH, allowing more people to participate and help secure the network.
By speeding up transaction confirmation and making staking easier for everyone, Ethereum will become even more decentralized without compromising its security.
The Surge
The Surge is all about making Ethereum faster and more scalable, aiming for over 100,000 transactions per second (TPS). This will be done by optimizing Layer 2s and improving data storage techniques.
A big part of The Surge was EIP-4844, introduced in the Dencun upgrade earlier in 2024, which added “blobs"— blockspace exclusively reserved for storing L2 data. Next, PeerDAS, expected in the Pectra upgrade in 2025, will enhance how Ethereum manages these blobs, boosting network bandwidth while keeping costs low. Data compression will also help by making transactions smaller, which will further improve the efficiency of rollups.
These upgrades will make Ethereum much more scalable while keeping it decentralized and secure.
The Scourge
The Scourge tackles a major challenge: centralization risks in Ethereum’s staking and block creation processes. Right now, building blocks — the process of choosing which transactions go through — favors big players who use advanced algorithms to earn more money. This can lead to transaction delays or manipulation, which isn't good for Ethereum’s decentralization goals.
To fix this, Ethereum plans to split the block-building job into smaller, more manageable parts. One proposal, called inclusion lists, would allow smaller validators to ensure that certain transactions get included in a block, reducing the power of big block builders. Further, ongoing research into encrypted mempools aims to improve security by hiding transaction details until they’re confirmed. A mempool is a waiting area for transactions before they’re added to a block. Currently, anyone can view these pending transactions, which allows block builders to reorder them for profit (a practice known as MEV, or Maximal Extractable Value). By encrypting mempools, transaction details would be concealed until confirmed, reducing opportunities for manipulation.
In addition, Ethereum is looking at ways to reduce the rewards for staking to prevent too much of the network’s wealth from concentrating in the hands of a few large validators. These combined efforts aim to keep Ethereum decentralized and protect users from exploitation.
The Verge
The Verge focuses on making Ethereum easier and cheaper to run, especially for people running their own nodes. Right now, running a node requires storing hundreds of gigabytes of data, which can be a barrier for many users. The Verge aims to change this by introducing "stateless clients" that don’t need to store all that data. Instead, they’ll rely on cryptographic proofs (either Verkle trees or STARKs) to verify the blockchain.
Stateless clients mean that even a phone or a basic laptop could fully verify Ethereum. This would greatly expand who can help run and secure the network, making it more decentralized. In the long run, Ethereum aims to use cryptographic proofs to verify entire blocks, so that even low-power devices can quickly confirm that everything on the blockchain is correct.
The Verge also looks at making Ethereum quantum-resistant by possibly replacing Verkle trees with a more future-proof alternative, ensuring the blockchain can withstand emerging technologies like quantum computing.
The Purge
The Purge looks to make Ethereum leaner and less complex over time. As blockchains grow, they tend to accumulate more and more data, which every node must store, making it harder for new nodes to join the network. The Purge tackles this by reducing the need for nodes to keep all historical data and unused protocol features.
One goal of the Purge is history expiry, where older data — such as transactions and accounts — are stored in a distributed way, similar to how torrent networks work. Instead of every node storing every past transaction, each node would only keep a part of this history, with other nodes storing other parts. This way, Ethereum stays secure and decentralized, but nodes don’t need massive storage to join the network.
Another part of the Purge is state expiry, which addresses the growth of “state data” like account balances and contract storage. This involves automatically removing or archiving unused data over time, making it easier to manage Ethereum’s long-term storage needs. The Purge will also clean up old, rarely-used protocol features, simplifying the code to keep Ethereum efficient and accessible.
The Splurge
The Splurge is Ethereum’s “finishing touches” phase, focused on various improvements that don’t fit neatly into other categories but are crucial for enhancing Ethereum’s user experience and technical robustness.
One of the Splurge’s main goals is optimizing the Ethereum Virtual Machine (EVM), Ethereum’s core computational engine, to make it faster and more secure. This includes adding features like account abstraction, which allows users to create flexible, user-friendly accounts with advanced security options. The Splurge also works on improving transaction fee mechanics to keep costs stable and fair, even as network demand fluctuates.
Additionally, the Splurge continues exploring advanced cryptographic techniques that could make Ethereum more resilient to future technological shifts, such as quantum computing. These upgrades aim to future-proof Ethereum, ensuring it remains a reliable platform for decentralized applications in the long run.
How Will Ethereum Upgrades Affect Gas Fees?
Ethereum's recent upgrades are designed to significantly lower gas fees, particularly for Layer 2 solutions. Earlier this year, when the Dencun upgrade introduced EIP-4844 and blobs, it reduced Layer 2 gas fees by up to 10x.
Looking ahead, the aforementioned Pectra upgrade, expected in early 2025, will bring PeerDAS, a system that improves data availability for Layer 2s, further lowering fees and boosting Ethereum's scalability.
https://www.growthepie.xyz/fundamentals/transaction-costs
What Are the Real-World Use Cases for Ethereum?
Ethereum serves as the backbone for a variety of blockchain applications, ranging from decentralized finance (DeFi) to non-fungible tokens (NFTs) and decentralized autonomous organizations (DAOs). Here’s how Ethereum is transforming these sectors:
How Is Ethereum Used in DeFi?
Ethereum powers decentralized finance (DeFi), enabling lending, borrowing, and trading without the need for traditional banks. Platforms like Aave and Compound let users lend out their crypto assets to earn interest or take loans by offering collateral, all without involving banks or financial institutions. These actions are handled by Ethereum’s smart contracts, which automate transactions securely and trustlessly.
Ethereum also supports decentralized exchanges (DEXs) like Uniswap, where users can swap tokens directly from their wallets without a centralized exchange or classic intermediary. This peer-to-peer trading, facilitated by code, offers users around the world lower fees, faster transactions, and more control over their finances, creating a more efficient and inclusive system in the process.
How Does Ethereum Power NFTs and DAOs?
Ethereum plays a critical role in supporting non-fungible tokens (NFTs) and decentralized autonomous organizations (DAOs).
NFTs are unique digital assets that represent ownership of items like digital art, music, collectibles, and more. Ethereum’s smart contracts allow NFTs to be securely created, bought, sold, and traded on platforms like OpenSea and Blur. Major NFT projects across digital art, gaming, and entertainment are built on Ethereum, offering verifiable ownership and rarity.
Ethereum also enables DAOs — organizations run by community members that use smart contracts to enforce rules. This decentralized decision-making structure is increasingly popular for managing projects, investments, and digital communities, giving members a direct voice in organizational decisions.
Through NFTs and DAOs, Ethereum is enabling new forms of digital ownership and community-driven management across a wide range of industries.
Frequently Asked Questions (FAQs)
What is Ethereum?
Ethereum, also referred to as ETH, is a decentralized blockchain that enables developers to create smart contracts and decentralized applications (dApps). Many see Ethereum as both a valuable asset and a platform for innovation and buy ETH as a way to gain exposure to this development. Unlike traditional apps, dApps on Ethereum operate without centralized control, offering new opportunities across finance, gaming, art, and many other industries.
How is Ethereum Different from Bitcoin?
While Bitcoin was designed primarily as a digital currency and store of value, Ethereum is a more versatile platform. Bitcoin’s main goal is to act as "digital gold" for transactions and savings. Ethereum, on the other hand, allows for much more functionality. It powers smart contracts and decentralized apps (dApps), which make it useful for things like decentralized finance (DeFi), non-fungible tokens (NFTs), and decentralized governance systems (DAOs). In short, Ethereum offers a wider range of possibilities beyond just currency.
What Are Ethereum Gas Fees?
Gas fees on Ethereum are the costs users pay to process transactions or execute smart contracts on the network. These fees cover the computational work required to run these operations. When the network is busy, gas fees can increase due to demand. Layer 2 solutions like Optimism and Arbitrum help lower these fees by bundling transactions off the main Ethereum chain and settling them later, making transactions faster and more affordable for users.