What Is Ethereum? ETH and Smart Contracts Explained for Beginners

Short answer: Ethereum is a public blockchain that can run programs, called smart contracts, in addition to sending money. Its coin, ether (ETH), pays the fees for using the network. Bitcoin is mainly digital money, while Ethereum is a shared world computer that thousands of apps, tokens and stablecoins are built on.

Ethereum in one minute

Like Bitcoin, Ethereum is a network of independent computers that keep the same public record of balances and transactions. The difference is what that record can hold. On Ethereum, the ledger also stores small programs and their data. Anyone can publish a program, and anyone can use it by sending a transaction. Nobody can switch it off or change the rules for one user.

Two names are often mixed up. Ethereum is the network. Ether, with the ticker ETH, is the native coin you buy on an exchange. Every action on the network, from sending ETH to trading a token, costs a small fee paid in ETH.

A short history

2013: programmer Vitalik Buterin proposes Ethereum in a white paper, arguing that a blockchain could run general programs, not only payments.
30 July 2015: the Ethereum network launches.
2016: after a hack of a project called The DAO, the community splits. The original chain continues as Ethereum Classic (ETC).
August 2021: the “London” upgrade starts burning part of every transaction fee, which reduces ETH supply when the network is busy.
15 September 2022: “The Merge” moves Ethereum from mining (proof of work) to staking (proof of stake), cutting its energy use by more than 99%.
2024 and 2025: upgrades make layer 2 networks much cheaper to use, and spot ETH ETFs start trading in the United States.

What is a smart contract?

A smart contract is a program stored on the blockchain that runs exactly as written when someone interacts with it. A common comparison is a vending machine: you put in the right coin, press a button, and the machine gives you a drink. There is no shop assistant who can decide to treat you differently. The rules are in the machine.

A simple example: a contract can hold money from two people and automatically pay the winner of a bet once an agreed data source reports the result. Another contract can let anyone swap token A for token B at a price set by a formula. Because the code and every transaction are public, anyone can check what the contract does.

Smart contracts are written in languages such as Solidity and run inside the Ethereum Virtual Machine (EVM). Many other blockchains copy the EVM, which is why the same wallet and apps often work on several networks.

The weakness is that code can have bugs. A contract does what it says, not what its authors meant. Billions of dollars have been lost to flawed or malicious contracts, so “smart” does not mean “safe”.

What runs on Ethereum

Tokens. Thousands of tokens use the ERC-20 standard, including the large stablecoins USDC and USDT.
DeFi (decentralized finance). Lending, borrowing and trading apps that run on smart contracts instead of a company. Exchanges like Uniswap are an example, see CEX vs DEX.
NFTs. Unique tokens (ERC-721 standard) used for digital art, collectibles, tickets and in game items.
Tokenized assets. Funds, bonds and other real world assets issued as tokens on Ethereum by financial firms.

Gas fees explained

Every operation on Ethereum uses computing work measured in gas. You pay for gas in ETH. The fee has two parts: a base fee that the network sets automatically depending on how busy it is (this part is burned, so it disappears from supply), and an optional tip for validators to prioritise your transaction.

A simple ETH transfer uses less gas than a complex DeFi trade. When the network is crowded, fees rise. This is the main reason layer 2 networks exist.

Layer 2 networks

Layer 2 networks such as Arbitrum, Optimism and Base process transactions off the main chain and post compressed proofs back to Ethereum. This keeps much of Ethereum’s security while making transactions cost a few cents or less. When you withdraw ETH or USDC from an exchange, you often choose a network. Always pick a network your receiving wallet supports, or the funds may be hard or impossible to recover.

Staking and proof of stake

Since The Merge, Ethereum is secured by validators instead of miners. A validator locks (stakes) 32 ETH as a deposit and runs software that proposes and checks blocks. Honest validators earn rewards. Validators that break the rules can lose part of their deposit, which is called slashing. Most people do not run their own validator. They stake through an exchange or a staking service, which adds the risk of that provider. We explain proof of stake in more detail in how blockchain works.

Ethereum vs Bitcoin

	Bitcoin	Ethereum
Main purpose	Digital money and store of value	Platform for smart contracts and apps
Coin	BTC	ETH
Supply	Fixed cap of 21 million	No fixed cap, partly offset by fee burning
Security model	Proof of work (mining)	Proof of stake (staking)
Block time	About 10 minutes	12 seconds
Launched	2009	2015

Risks to know before buying ETH

Volatility. ETH has historically moved even more than BTC, with drops of 70% or more.
Smart contract risk. Apps built on Ethereum can be hacked or contain bugs.
Wrong network. Sending tokens on the wrong network is a frequent and expensive beginner mistake.
Scams. Fake tokens, phishing sites that ask you to “connect wallet” and malicious approvals that let a contract drain your wallet. Read how to avoid crypto scams.
Competition. Other smart contract blockchains such as Solana compete for the same users.

How to buy Ethereum

Pick an exchange that serves your country using our comparison table. In our overall ranking BingX is #1 and OKX is #2. New users can also start with our beginner shortlist.
Verify your account and deposit euros, ideally by SEPA transfer.
Buy ETH on the spot market. Check the cheapest way to buy Ethereum for verified fees.
Decide where to keep it: on the exchange for small amounts, or in your own crypto wallet for long term holdings.

Want the full checklist for choosing a safe exchange in Europe? Get our free beginner guide.

Frequently asked questions

What is Ethereum used for?

Ethereum is used to run smart contracts: programs that power tokens, stablecoins, decentralized exchanges, lending apps, NFTs and tokenized assets. ETH is used to pay the fees for all of this.

Is Ethereum the same as ETH?

Not exactly. Ethereum is the network. ETH, or ether, is its native coin that you buy, hold and use to pay gas fees.

What is a smart contract in simple terms?

A program on a blockchain that automatically does what its code says when someone uses it, like a vending machine. Nobody can change how it treats you, but bugs in the code can still cause losses.

Does Ethereum have a supply limit?

No. Ethereum has no fixed maximum supply. New ETH is issued to validators, while part of every fee is burned, so supply can grow or shrink depending on network activity.

Can I mine Ethereum?

No. Ethereum stopped mining in September 2022 when it switched to proof of stake. Today you can stake ETH instead.

What are gas fees?

Gas fees are what you pay in ETH to have a transaction processed. They rise when the network is busy. Layer 2 networks offer much lower fees.

Not financial advice. This article is for education only. Crypto prices are volatile and you can lose all the money you invest. Check the rules in your country before you buy.