What is Ethereum?
Ethereum is a decentralized, open-source blockchain platform launched in 2015 that extends the basic blockchain concept beyond simple payments. In addition to transferring value, Ethereum allows developers to build and deploy 'smart contracts,' self-executing pieces of code that run exactly as programmed on the network. This has made Ethereum a foundation for a wide range of applications, including decentralized finance (DeFi) platforms, non-fungible tokens (NFTs), and other decentralized applications (often called dApps).
ETH is Ethereum's native digital asset. It is used to pay transaction fees, commonly referred to as 'gas,' and plays a central role in securing the network under Ethereum's current Proof of Stake system.
How does Ethereum work?
Ethereum operates as a decentralized computing platform, sometimes described as a 'world computer.' Developers write smart contracts, which are then deployed to the Ethereum blockchain and can be interacted with by anyone. Every action on the network, from a simple transfer to a complex smart contract execution, requires a fee paid in ETH, known as gas, which compensates network validators for processing and securing that activity.
Since 2022, Ethereum has used a Proof of Stake consensus mechanism, in which validators lock up, or 'stake,' ETH as collateral in order to participate in proposing and validating new blocks. This design was intended to secure the network while using significantly less energy than Proof of Work mining.
Common use cases
- Running smart contracts that power decentralized applications
- Paying transaction ("gas") fees on the Ethereum network
- Foundation for decentralized finance (DeFi) platforms such as lending and trading protocols
- Issuance and transfer of tokens, including many NFTs and other digital assets built on Ethereum
Key features
- Smart contract functionality supporting a wide range of decentralized applications
- Proof of Stake consensus, which requires validators to stake ETH
- Large, active developer ecosystem and widely used token standards
- Network fees ("gas") that vary depending on demand for block space
Risks and considerations
- Price volatility: ETH's market value can fluctuate significantly.
- Smart contract risk: bugs or vulnerabilities in smart contract code can lead to loss of funds, independent of the Ethereum network itself.
- Variable network fees: gas costs can rise substantially during periods of high network demand.
- Regulatory uncertainty: the legal treatment of ETH and tokens built on Ethereum can vary by jurisdiction.
Frequently asked questions
What is a smart contract? +
A smart contract is code deployed on a blockchain that automatically executes predefined actions when certain conditions are met, without requiring a central intermediary.
Is Ethereum still Proof of Work? +
No. Ethereum transitioned from Proof of Work to Proof of Stake in an event commonly referred to as "The Merge."
What is "gas" on Ethereum? +
Gas is the unit used to measure and pay for the computational effort required to process transactions and smart contracts on Ethereum, paid in ETH.
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Disclaimer: This page is for informational and educational purposes only and is not financial, investment, legal, or tax advice. Cryptocurrency involves risk, including the potential loss of value. Always do your own research before making decisions.