Ethereum Explained Simply
The programmable blockchain that powers most of crypto.
Why It Matters
Bitcoin proved you could create digital money without banks. Ethereum took this further: what if the blockchain could run programs, not just track money?
This innovation enabled an entire ecosystem: tokens, decentralized exchanges, lending platforms, NFT marketplaces, and more — all running on code that no one can shut down or censor.
Simple Analogy
Think of Ethereum like a global computer:
- • Bitcoin is like a calculator — it does one thing (transfer value) very well
- • Ethereum is like a smartphone — it can run any app developers create
- • ETH (Ether) is the fuel that powers this computer
- • Smart contracts are the apps that run on it
- • Tokens are like items within those apps
Key Concepts
Smart Contracts
Self-executing programs stored on the blockchain. They automatically enforce agreements when conditions are met. Example: "If Alice sends 1 ETH, automatically send her 100 tokens."
Gas Fees
Every operation on Ethereum costs gas — a fee paid in ETH. More complex operations cost more gas. Fees vary based on network demand.
ERC-20 Tokens
A standard for creating tokens on Ethereum. Most tokens you hear about (USDT, LINK, UNI, SHIB) are ERC-20 tokens living on Ethereum.
Proof of Stake
In 2022, Ethereum switched from Proof of Work to Proof of Stake. Instead of mining, validators stake 32 ETH to secure the network, reducing energy use by ~99%.
Bitcoin vs Ethereum
| Aspect | Bitcoin | Ethereum |
|---|---|---|
| Primary Purpose | Digital money / Store of value | Programmable platform |
| Created | 2009 | 2015 |
| Creator | Satoshi Nakamoto (anonymous) | Vitalik Buterin (known) |
| Supply | Fixed (21 million max) | No hard cap (but deflationary) |
| Consensus | Proof of Work | Proof of Stake (since 2022) |
| Smart Contracts | Limited | Full support |
| Transaction Speed | ~10 minutes | ~12 seconds |
What's Built on Ethereum
DeFi (Decentralized Finance)
Lending, borrowing, trading without banks. Examples: Uniswap, Aave, Compound.
Stablecoins
Dollar-pegged tokens for stability. Most USDT and USDC live on Ethereum.
NFTs
Unique digital assets for art, collectibles, gaming items.
DAOs
Decentralized Autonomous Organizations — community-governed entities.
- Gas fees: Can be very high during network congestion ($50+ per transaction)
- Smart contract bugs: Code errors can lead to fund losses
- Complexity: More moving parts = more potential failure points
- Regulatory uncertainty: DeFi and tokens face unclear legal status
- Competition: Other platforms (Solana, Avalanche) compete for users
- Ethereum is a platform; ETH is its native currency used for gas fees
- Most tokens and DeFi projects run on Ethereum
- You need ETH to interact with anything on Ethereum (even to send tokens)
- Layer 2 solutions (Arbitrum, Optimism) offer cheaper transactions
- Don't interact with smart contracts until you understand the risks