Ethereum Ecosystem
Smart contracts and the foundation of DeFi, NFTs, and Web3
Beyond Digital Money
While Bitcoin is primarily a store of value, Ethereum is a programmable platform. It introduced smart contracts—self-executing code that runs on the blockchain—enabling applications far beyond simple payments.
Most of DeFi, NFTs, and Web3 applications run on Ethereum or chains inspired by it. Understanding Ethereum is key to navigating the broader ecosystem.
Think of Ethereum like a global computer
Core Concepts
ETH (Ether): The native currency. Used to pay transaction fees (gas) and as collateral in DeFi. Also serves as a store of value.
Gas fees: The cost of computation on Ethereum. Prices fluctuate based on network demand—high activity means higher fees.
ERC standards: Common token formats. ERC-20 for fungible tokens (like stablecoins), ERC-721 for NFTs, and others for specific use cases.
The Merge and Proof of Stake
In 2022, Ethereum transitioned from Proof of Work to Proof of Stake—a massive technical achievement that reduced energy consumption by ~99%.
Staking: Instead of miners, validators secure the network by staking ETH as collateral. Bad behavior results in "slashing"—losing staked funds.
Implications: Lower energy use, new economic model (staking rewards), and foundation for future scaling improvements.
Ecosystem Sectors
DeFi: Decentralized exchanges, lending protocols, yield farming. Billions of dollars locked in smart contracts.
NFTs: Digital collectibles, art, gaming assets. Most NFT marketplaces and collections exist on Ethereum.
DAOs: Decentralized organizations governed by token holders through on-chain voting.
Layer 2s: Scaling solutions like Arbitrum and Optimism that process transactions off the main chain but inherit Ethereum's security.
Why Ethereum Matters
- Largest smart contract platform by developer activity and TVL
- Foundation for most DeFi and NFT applications
- EVM compatibility means skills transfer to many other chains
- Continuous development with clear roadmap for scaling
Ethereum Challenges
- •High gas fees during network congestion
- •Complexity creates larger attack surface for smart contracts
- •Competition from faster, cheaper alternative blockchains
- •Staking centralization concerns with large providers
- •Smart contract bugs can result in permanent fund losses
Key Takeaways
- Ethereum is a programmable platform, not just a currency
- Smart contracts enable DeFi, NFTs, and decentralized applications
- The Merge moved Ethereum to energy-efficient Proof of Stake
- Gas fees are the cost of computation—vary with demand
- Most Web3 innovation happens on Ethereum or EVM-compatible chains