What ETH is and why it matters

Ethereum is a decentralized blockchain that runs programmable code called smart contracts. ETH is the native cryptocurrency used to pay for computing and transactions on the network. Because of its programmability, Ethereum hosts decentralized applications (dApps), including DeFi, NFTs, DAOs, and many other use cases.

Key technologies behind Ethereum

Blockchain and consensus

Ethereum records state and transactions on a public blockchain. It moved from a proof-of-work model to proof-of-stake (via the Beacon Chain and the Merge), where validators stake ETH to participate in consensus and secure the network. This shift aims to improve energy efficiency and scalability while maintaining security and decentralization.

Ethereum Virtual Machine (EVM) and smart contracts

The EVM is a runtime environment that executes smart contracts. Developers write contracts in languages like Solidity, deploy them to the chain, and users interact with them. The EVM is Turing-complete, enabling a wide range of programmable logic on-chain.

Gas, fees, and the fee market

Every operation on Ethereum requires gas, a unit that measures how much work is needed. Users pay gas fees in ETH to miners/validators. The fee market was updated by EIP-1559 to include a base fee that is burned (reducing supply) and a tip to incentivize validators. Gas pricing helps prevent abuse and manages network congestion.

Accounts: externally owned accounts and contract accounts

Externally owned accounts (EOAs) are controlled by private keys and hold ETH. Contract accounts run code and can autonomously execute actions. Interactions with dApps typically involve EOAs triggering contract logic.

Layer 2 scaling and rollups

To improve throughput and reduce costs, Ethereum relies on Layer 2 solutions like optimistic rollups and zk-rollups. These bundling technologies execute transactions off the main chain and post proofs back to Ethereum, increasing capacity while preserving security.

ERC standards

• ERC-20: fungible tokens (like many DeFi assets)
• ERC-721: non-fungible tokens (NFTs)
• ERC-1155: multi-token standard (fungible and non-fungible in one contract) These standards enable a broad ecosystem of tokens and interoperable dApps.

Upgrades and future directions

• Merge: transition to proof-of-stake consensus
• EIP-1559: revamped fee market and base fee burning
• Sharding (planned for future): multiple parallel blockchains to increase throughput
• Proto-danksharding and other scalability upgrades (e.g., EIP-4844) to improve data availability and costs
• Ongoing ecosystem improvements around tooling, privacy, and interoperability

How the Ethereum network works in simple terms

• You deploy or interact with a smart contract by sending a transaction that includes ETH to pay for the work.
• Validators run the transaction, execute the contract code in the EVM, and agree on the resulting state.
• Gas fees are paid in ETH, with part of the fee burned and part going to validators.
• The network packages transactions into blocks, and finality is achieved through the PoS consensus mechanism.
• Layer 2 solutions process many transactions off-chain and periodically settle them on Ethereum.

What Ethereum enables and where it shines

• Decentralized finance (DeFi) protocols for lending, borrowing, trading, and yield
• Non-fungible tokens (NFTs) and digital collectibles
• Decentralized autonomous organizations (DAOs) and on-chain governance
• Smart-contract-based games and metaverse experiences
• Oracles and data integrations that feed real-world information into on-chain logic
• Programmable money and asset issuance via tokens and standards

Benefits and caveats

• Benefits: strong programmability, large and active ecosystem, robust security via decentralization and PoS, growing scalability through Layer 2s, and a transparent, borderless infrastructure for dApps.
• Caveats: gas costs can be high during congestion, complex ecosystem has a learning curve, and security depends on smart contract design and user practices. Layer 2s add complexity and require careful integration.

Glossary of key terms

• ETH: the native cryptocurrency of Ethereum, used to pay for gas and participate in staking.
• Ethereum: the blockchain platform that supports smart contracts and dApps.
• EVM: Ethereum Virtual Machine, the runtime that executes smart contract code.
• Gas: a unit measuring the computational work of a transaction or contract execution.
• Gas price / gas fee: the amount paid per unit of gas to miners/validators; influenced by demand.
• EIP-1559: an upgrade changing the fee market, burning base fees.
• Proof of Stake (PoS): the consensus mechanism used after the Merge, with validators staking ETH.
• Merge: the transition from proof-of-work to proof-of-stake.
• Layer 2: scaling solutions built on top of Ethereum (e.g., rollups) that process transactions off-chain and settle on-chain.
• Rollups: Layer 2 solutions that execute transactions off-chain and post proofs to Ethereum (optimistic or zk-rollups).
• ERC-20 / ERC-721 / ERC-1155: token standards for fungible tokens, NFTs, and multi-token contracts.