Ethereum (ETH)

Overview

Ethereum is a decentralized, open‑source blockchain that introduced smart contracts, enabling developers to build decentralized applications (dApps) beyond simple payments. It is the second‑largest cryptocurrency by market capitalization and the core infrastructure powering today’s DeFi platforms, NFT ecosystems, and Layer‑2 scaling networks.

Key Features

• Speed: ~12-15 seconds per block; faster with layer-2 rollups
• Fees: Variable gas fees; higher during network congestion, lower on layer-2 networks
• Security: High — secured by a large, decentralized validator network
• Consensus type: Proof of Stake
• Smart contracts: Native — Ethereum pioneered smart contracts
• Ecosystem size: Largest — thousands of dApps, DeFi protocols and NFT platforms

History & Background

Ethereum launched in 2015, created by Vitalik Buterin and co-founders (Gavin Wood, Joseph Lubin, Charles Hoskinson, and others). To create a decentralized platform for running smart contracts and applications without downtime, fraud, or third-party interference

• 2015: Ethereum mainnet launches (Frontier)
• 2017: ICO boom brings mainstream attention to Ethereum-based tokens
• 2020: DeFi Summer drives massive growth in decentralized finance
• 2021: EIP-1559 introduces fee-burning mechanism (London upgrade)
• 2022: The Merge transitions Ethereum from Proof of Work to Proof of Stake

How It Works

Ethereum runs a global, decentralized virtual machine called the Ethereum Virtual Machine (EVM), where developers deploy smart contracts — self‑executing code that powers dApps, tokens, DeFi protocols, and many on‑chain systems. The network uses Proof of Stake, where validators lock up ETH to propose, attest to, and finalize blocks. This staking‑based consensus replaces mining and secures the chain by rewarding honest participation and penalizing malicious behavior.

Consensus Mechanism

Ethereum uses Proof of Stake (PoS), where validators lock up 32 ETH to participate in block validation. Validators are randomly selected to propose blocks, and others attest to their validity, with rewards and penalties (slashing) enforcing honest behavior.

Tokenomics

• Total supply: No fixed maximum supply (deflationary pressure from EIP-1559 fee burning)
• Circulating supply: Approximately 120 million ETH
• Issuance schedule: New ETH issued to validators as staking rewards; issuance rate adjusts based on total ETH staked
• How new coins are created: Minted as validator rewards for proposing and attesting blocks under Proof of Stake
• Utility: Gas fees for transactions and smart contracts, staking collateral, collateral in DeFi protocols

Use Cases

Strengths

• Largest and most mature smart contract ecosystem
• Strong developer community and extensive tooling
• Energy-efficient Proof of Stake consensus
• Robust security track record and decentralization

Limitations

• Gas fees can spike significantly during high network demand
• Scalability still relies partly on layer-2 solutions
• Complexity can be a barrier for new developers and users

Supported Networks

• Ethereum Mainnet: The base layer-1 network; most secure but can have higher fees
• Arbitrum: Popular layer-2 rollup offering lower fees and faster transactions
• Optimism: Layer-2 optimistic rollup focused on scalability and low costs
• Polygon: Sidechain/layer-2 known for very low fees and high throughput

How to Store It

ETH can be stored in software wallets (e.g. MetaMask), hardware wallets (e.g. Ledger, Trezor), or held on regulated exchanges. Self-custody wallets are recommended for long-term holdings and DeFi interaction. Learn more on our wallets guide.