What is Ethereum?

Ethereum is much more than a cryptocurrency. It’s a decentralized platform that allows you to create applications, smart contracts, and much more.

If Bitcoin is like “digital gold”, Ethereum is like “a world computer” where anyone can run programs without intermediaries.

Ethereum vs. Bitcoin

Although both are cryptocurrencies, they have very different purposes:

What are Smart Contracts?

Smart contracts are programs that execute automatically when certain conditions are met. They’re like digital agreements that self-execute without the need for intermediaries.

Simple Example: Rental Contract

Traditional way:

1. You pay the landlord
2. The landlord verifies payment
3. The landlord gives you the keys
4. If there’s a dispute, you need lawyers

With a smart contract on Ethereum:

1. You send payment in ETH to the contract
2. The contract automatically verifies payment
3. The contract gives you digital access to the apartment immediately
4. Everything is coded and transparent
5. No intermediaries, no delays

Smart Contract Flow

┌─────────────────────────────────────────────────┐
│         User sends ETH to contract              │
└──────────────────┬──────────────────────────────┘
                   │
                   ▼
┌─────────────────────────────────────────────────┐
│    Contract verifies conditions (IF/THEN)       │
│    Correct payment? Valid date?                 │
└──────────────────┬──────────────────────────────┘
                   │
       ┌───────────┴───────────┐
       │                       │
       ▼                       ▼
┌──────────────┐       ┌──────────────┐
│  Conditions  │       │  Conditions  │
│     met      │       │   NOT met    │
│      ✓       │       │      ✗       │
└──────┬───────┘       └──────┬───────┘
       │                       │
       ▼                       ▼
┌──────────────┐       ┌──────────────┐
│   Execute    │       │   Reject     │
│   action     │       │ transaction  │
│ (give access)│       │ (return $)   │
└──────────────┘       └──────────────┘

More Real Examples of Smart Contracts

🏥 Decentralized insurance:

• Flight delayed → Automatic payment
• No claims, no waiting

💰 DeFi loans:

• Deposit collateral (ETH)
• Receive instant loan (USDC)
• If value drops, automatic liquidation

🎮 Gaming:

• Win in a game → Receive tokens automatically
• Verifiable items you truly own

🎫 Ticket sales:

• Prevents fraudulent resale
• Automatic royalties for artists

What is Ethereum Used For?

Ethereum enables a new generation of decentralized applications:

1. Decentralized Applications (dApps)

dApps function without centralized servers:

• Uncensored social networks: Lens Protocol, Farcaster
• Games with real economies: Axie Infinity, Gods Unchained
• Peer-to-peer marketplaces: OpenSea for NFTs
• Encrypted messaging services: Status, XMTP

2. Decentralized Finance (DeFi)

DeFi recreates traditional financial services, but without banks:

Advantages of DeFi over traditional finance:

• ✅ Global access: Anyone with internet can participate
• ✅ No KYC: You don’t need to provide identity documents
• ✅ Transparent: All transactions are public
• ✅ Composability: Protocols connect like LEGO blocks
• ✅ High yields: Often better rates than traditional banks

3. NFTs (Non-Fungible Tokens)

NFTs are unique digital certificates of ownership:

Main use cases:

• Digital art: Beeple sold an NFT for $69M
• Collectibles: CryptoPunks, Bored Ape Yacht Club
• Certificates of authenticity: Tickets, diplomas, documents
• Digital identity: Domain names (.eth)
• Exclusive memberships: Access to VIP communities
• Gaming: Items, skins, characters you can sell

NFT market in 2025: Annual volume exceeds $15B, with more emphasis on real utility vs. speculation.

4. DAOs (Decentralized Autonomous Organizations)

DAOs are companies without traditional bosses, governed by code and voting:

Popular examples:

• MakerDAO: Manages the DAI stablecoin ($5.8B in collateral)
• Uniswap DAO: Governs the Uniswap protocol
• Constitution DAO: Attempted to buy the U.S. Constitution

How they work:

1. You own governance tokens
2. Propose changes to the protocol
3. Holders vote (1 token = 1 vote)
4. If approved, the change executes automatically

What is Ether (ETH)?

ETH is Ethereum’s native cryptocurrency. It’s the “fuel” of the network:

Main uses of ETH:

• 💳 Pay gas fees (transaction fees)
• 🔧 Interact with dApps and smart contracts
• 💰 Investment and store of value
• 🔐 Participate in staking and secure the network
• 🎯 Collateral in DeFi for loans

Wei and Gwei: Understanding Ethereum Units

Just as Bitcoin has satoshis, Ethereum has wei and gwei:

Unit	Value	When used
Wei	0.000000000000000001 ETH	Smallest unit (internal calculations)
Gwei	0.000000001 ETH	Measure gas fees (1 Gwei = 1B wei)
ETH	1 ETH	Normal transactions

Practical gas fee example:

Gas fee = Gas used × Gas price (in Gwei)

If you use 21,000 gas and the price is 30 Gwei:
21,000 × 30 = 630,000 Gwei = 0.00063 ETH

At $3,000 per ETH = $1.89

The Shift to Proof of Stake (The Merge)

In September 2022, Ethereum made its most important upgrade: The Merge.

What changed?

Before - Proof of Work (PoW):

• ⚡ Consumed as much energy as a small country
• ⛏️ Miners with specialized hardware
• 🔥 Large carbon footprint
• 💰 High ETH issuance (inflationary)

Now - Proof of Stake (PoS):

• ✅ 99.95% less energy consumption
• ✅ Doesn’t require mining with hardware
• ✅ Environmentally friendly
• ✅ Reduced issuance (deflationary)
• ✅ You can stake your ETH

Impact: Ethereum went from consuming 112 TWh/year to only 0.01 TWh/year - equivalent to going from a country’s carbon footprint to that of a small town.

Staking: Earn Interest with ETH

With Ethereum 2.0, you can do staking to secure the network and earn rewards:

How does staking work?

1. Lock your ETH in a staking contract
2. Help validate transactions on the network
3. Receive rewards (similar to bank interest)
4. Currently: ~3.8% annually (varies by participation)

Staking Options for Everyone

Option 1: Solo Staking (32 ETH)

• Requires 32 ETH (~$96,000 at $3,000/ETH)
• Must maintain a node running 24/7
• Greater control and rewards

Option 2: Staking Pools (any amount)

• Lido: Stake any amount, receive liquid stETH
• Rocket Pool: Decentralized, receive rETH
• Coinbase/Binance: Easy but centralized

Option 3: Liquid Staking (recommended)

• Stake ETH, receive a liquid token (stETH, rETH)
• You can use that token in DeFi while staking
• Double benefit: staking rewards + DeFi yields

Gas Fees: The Cost of Transactions

On Ethereum, every action has a cost called gas fee. It’s like paying gasoline for your transaction to “travel” through the network.

Average cost of operations (2025)

Operation	Typical Gas Fee
Transfer ETH	$1 - $3
Swap on Uniswap	$5 - $15
Mint an NFT	$3 - $10
Approve token	$2 - $5
Complex DeFi interaction	$10 - $50

Why do prices vary so much?

Factors affecting gas:

Network congestion ──► Higher demand = Higher price
        │
        ├──► Time (weekends cheaper)
        │
        ├──► Hype (NFT drops, airdrops)
        │
        └──► Complexity (more operations = more gas)

Strategies to Reduce Gas Costs

Cost comparison:

• Ethereum L1: $15 per swap
• Arbitrum: $0.50 per swap
• Polygon: $0.05 per swap

Layer 2: Scalability Solutions

To make Ethereum cheaper and faster, there are Layer 2s - networks built on Ethereum that inherit its security but process transactions more efficiently.

Which Layer 2 to Use?

The choice depends on your use case:

For DeFi and trading:

• Arbitrum: Higher liquidity ($2.8B TVL), more DeFi protocols
• Ideal if you need market depth

For NFTs and gaming:

• Polygon: Cheapest ($0.01/tx), fast, large gaming ecosystem
• Ideal for frequent microtransactions

For development:

• Optimism: OP Stack allows creating your own rollups
• Robust technical ecosystem, good documentation

For new users:

• Base: Coinbase integration, easy onboarding
• You can deposit from Coinbase without using external bridges

How to Get Started with Ethereum?

Step 1: Buy ETH

Recommended exchanges:

• Binance: Highest volume, many pairs
• Coinbase: Easiest for beginners
• Kraken: Good reputation, competitive fees

Step 2: Create a Wallet

MetaMask is the most popular wallet:

1. Install the browser extension
2. Create a new wallet
3. SAVE YOUR SEED PHRASE (12 words)
4. Never share your seed phrase with anyone

Step 3: Explore dApps

To try with low risk:

1. Uniswap: Swap tokens (start with $10-50)
2. Aave: Deposit ETH, earn interest
3. OpenSea: Explore NFTs (without buying, just look)
4. ENS: Buy a .eth domain for your identity

Step 4: Learn about Gas

Before making large transactions:

• Do small tests first
• Check the gas fee before confirming
• Consider using Layer 2s to save

Real Use Cases in 2025

🏦 DeFi in action

Example: Generate yield with $1,000

1. Buy $1,000 in ETH
2. Stake in Lido → Receive stETH + 3.8% APR
3. Deposit stETH in Aave → Earn 2% additional lending
4. Total: ~5.8% annually ($58/year) vs. 0.5% in traditional bank

🎨 NFTs with real utility

It’s no longer just “expensive digital art”:

• Proof of Attendance: POAPs for events
• Memberships: Access to exclusive communities
• Gaming: Axie Infinity generated millions in real economies
• Identity: ENS domains (.eth) as your on-chain ID

🎮 Gaming with real ownership

Key difference vs. traditional gaming:

Traditional Gaming	Gaming on Ethereum
Company owns your items	You own your items (NFTs)
Can’t sell outside the game	Can sell on OpenSea
Company closes → Lose everything	Items persist on-chain
Closed economy	Open economy

Popular games: Gods Unchained, Axie Infinity, The Sandbox

💼 DAOs managing millions

• MakerDAO: $5.8B in assets managed by community voting
• Uniswap DAO: Governs one of the largest DEXs in the world
• Gitcoin: Has distributed $50M+ to open-source projects

Common Myths about Ethereum

Myth 1: “Ethereum is too slow”

Reality: Ethereum L1 processes ~15 TPS, but with Layer 2s it reaches:

• Arbitrum: 4,000+ TPS
• Polygon: 7,000+ TPS
• zkSync: 2,000+ TPS

The solution is here: Most users already operate on L2s.

Myth 2: “Ethereum pollutes a lot”

Reality: After The Merge (2022), Ethereum reduced its energy consumption by 99.95%. Now it uses less energy than Netflix or YouTube.

Myth 3: “Ethereum will be replaced by [another blockchain]”

Reality: Ethereum has:

• Greater network effect (more developers, apps, users)
• $48B in TVL (more than all others combined)
• Most mature and battle-tested ecosystem
• Clear roadmap toward scalability

Myth 4: “It’s only for speculation”

Reality: 70% of value in Ethereum is in productive applications:

• DeFi: $38B+ in TVL
• Staking: $35B+ securing the network
• NFTs with real utility
• DAOs managing real treasuries

Myth 5: “It’s too complicated for mass adoption”

Reality: User experience is constantly improving:

• Account Abstraction enables wallets without seed phrases
• L2s make transactions cheap and fast
• Increasingly more apps with UX comparable to Web2

Myth 6: “It’s not regulated, it’s dangerous”

Reality:

• Blockchain transparency allows better auditing than traditional finance
• Many protocols undergo rigorous security audits
• Regulation is coming (MiCA in Europe, frameworks in the U.S.)
• Responsibility is yours, but that also means total control

The Future of Ethereum: Roadmap 2025-2026

Ethereum is constantly evolving. These are the main updates in development:

🚀 Danksharding (Proto-Danksharding)

What it is: New way to store data that will make Layer 2s 10-100x cheaper.

Impact:

• Gas fees on L2s will drop to cents
• Will enable massive applications (social networks, gaming)
• Expected: 2025

🔐 Verkle Trees

What it is: New data structure that reduces requirements to run a node.

Impact:

• Lighter nodes
• Greater decentralization
• Faster validation

🌐 Single Slot Finality

What it is: Reduce transaction finality time from 15 minutes to 12 seconds.

Impact:

• Smoother experience
• Less risk of reorganizations
• Better UX for applications

📊 EIP-4844 (already implemented)

What it is: Temporary data “blobs” for L2s.

Impact:

• L2s are 5-10x cheaper (already active)
• Foundation for future sharding

Result: In 2025, transactions on Arbitrum/Optimism cost less than $0.10

Key Takeaways

✅ Ethereum is a platform: Not just a cryptocurrency, it’s a world computer for dApps

✅ Smart contracts are the core: Code that executes agreements automatically without intermediaries

✅ DeFi recreates finance: Loans, exchanges, savings - all without banks

✅ ETH is the fuel: You need ETH to pay gas fees and use the network

✅ Proof of Stake is efficient: 99.95% less energy than before, you can stake

✅ Layer 2s solve scalability: Polygon, Arbitrum, Optimism make Ethereum cheap and fast

✅ The ecosystem is huge: Highest TVL, more developers, more applications than any other blockchain

✅ The future is promising: Danksharding and other improvements will make Ethereum 100x more scalable

Conclusion

Ethereum is not just a cryptocurrency - it’s the infrastructure for a new decentralized internet. While Bitcoin is excellent as a store of value and digital money, Ethereum is the engine building the future of:

• Finance without banks (DeFi)
• Uncensored applications (dApps)
• Verifiable digital ownership (NFTs)
• Organizations without hierarchies (DAOs)

With over $48B in TVL, 7.2M active users, and a constantly growing ecosystem, Ethereum leads the Web3 revolution.

Ready to explore? Start with small amounts, use Layer 2s to save on gas, and never stop learning.

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Related articles:

• What is Crypto? - Cryptocurrency basics
• Bitcoin Explained - The first cryptocurrency
• Wallets 101 - How to keep your assets safe

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