By What Is Ethereum? ETH and Smart Contracts Explained
Ask what Ethereum is and you'll usually get "a cryptocurrency," which is true but leaves out most of the actual point. Ether (ETH) is the currency. Ethereum itself is the platform ETH runs on, and that platform is built to do a lot more than move money around.
Proposed by a teenager, more or less
Ethereum was proposed in a 2013 whitepaper by Vitalik Buterin, then 19, along with several co-founders, and went live in July 2015. The pitch was straightforward once you hear it: Bitcoin proved a decentralized network could move value without a bank in the middle, so why stop at currency? Why not let that same network run arbitrary code?
Smart contracts, the actual innovation
A smart contract is code deployed to the Ethereum network that runs exactly as written, with no company or server behind it that can be shut down, altered after the fact, or asked nicely to make an exception. Developers use this to build decentralized exchanges, lending platforms, games, and thousands of other applications, all running on infrastructure nobody individually owns or controls.
Gas: what you actually pay for
Running code on a decentralized network isn't free, someone has to pay for the computation. That payment is called gas, priced in ETH (or fractions of it), and it scales with how much computational work a transaction or smart contract interaction actually requires. A simple transfer costs relatively little; a complex smart contract interaction can cost considerably more, since it's doing considerably more.
From proof of work to proof of stake
Ethereum ran on proof of work, the same general approach Bitcoin still uses, until September 2022, when an upgrade known as the Merge switched it to proof of stake, cutting the network's energy use by something like 99 percent according to the Ethereum Foundation's own estimates. We cover the actual mechanics of that switch, and why Bitcoin never made the same move, in proof of work vs proof of stake.
Scaling through layers on top
Ethereum's base layer can get congested and expensive during busy periods, which is part of why a whole ecosystem of Layer 2 networks (Arbitrum, Optimism, and Base among the larger ones) has grown up around it. These process transactions more cheaply off the main chain and periodically settle back to it, similar in spirit to how Bitcoin's Lightning Network handles scaling, though the underlying technology is quite different.
The private key for every Bitcoin wallet on Earth is on this website, even Satoshi's. But even if you try for a million years, you'll never find a funded one.
Try the key collider nowHow it stacks up against Bitcoin
Where Bitcoin optimizes for being simple and extremely hard to change, Ethereum optimizes for flexibility, at the cost of a larger and more complex system to secure. Neither approach is simply better. They're solving different problems. For the fuller comparison, see Bitcoin vs Ethereum.