What Is Ethereum?

Bitcoin is a ledger for one asset. Ethereum is a ledger that can run arbitrary programs, which is a much larger and much messier idea.

What it adds to Bitcoin's model

Bitcoin's scripting is deliberately limited. It can express conditions like “this output can be spent by whoever provides a signature matching this key” and a handful of variations. That restriction is a security decision: less expressiveness means fewer ways to go wrong.

Ethereum took the opposite view. It provides a general-purpose execution environment, the Ethereum Virtual Machine, in which arbitrary programs run. Every node executes the same code and reaches the same result, so the outcome is verifiable by everyone without trusting whoever deployed it.

That makes possible everything from a token with its own rules to a lending market, an exchange, or a governance system — all as software with no operator. It also means bugs are now part of the security model, which is why Ethereum's history includes losses that Bitcoin's design simply does not permit.

Smart contracts in practice

A smart contract is a program deployed to an address on the network. It holds its own state and its own balance, and it executes when someone sends it a transaction. Once deployed it cannot be changed unless it was written with an upgrade mechanism — which itself introduces a trusted party.

The properties that matter:

• Deterministic. The same input always produces the same output on every node.
• Public. The bytecode is visible to anyone, and most projects publish the source.
• Autonomous. No one has to be willing to execute it, and no one can refuse.
• Immutable. A bug is permanent. This cuts both ways.

“Code is law” was the early slogan, and the 2016 DAO hack tested it: an attacker exploited a flaw to drain around $60 million, entirely within the rules as written. The community chose to reverse it with a hard fork, creating Ethereum and Ethereum Classic. The episode is worth knowing because it shows that the social layer is real even in systems designed to remove it.

Gas and why transactions cost what they do

Every operation consumes gas, a unit of computational work. Storing data costs more than arithmetic; a simple transfer costs 21,000 gas while a complex contract interaction can cost hundreds of thousands.

Gas exists to ration a shared resource and to make infinite loops impossible — a program that runs out of gas simply halts, and you still pay for the work done. The base fee adjusts automatically with demand and is destroyed rather than paid to anyone, which makes ETH's supply deflationary during busy periods.

High fees during congestion are the main practical complaint about Ethereum and the reason layer 2 networks exist. Our gas fees guide covers how to pay less.

The Merge and what changed

In September 2022 Ethereum replaced proof-of-work mining with proof of stake, in an upgrade known as the Merge. Validators now stake 32 ETH rather than running mining hardware.

What changed: energy consumption fell by roughly 99.95 %, issuance of new ETH dropped sharply, and staking became available as a way to earn yield. What did not change: transaction speed and fees were essentially unaffected, which surprised people who expected the Merge to be a scaling upgrade. Scaling is being pursued through rollups instead.

The transition is also the largest live demonstration that a major network can change its consensus mechanism without disruption, which had been widely doubted.