What is Ethereum?

Ethereum is often described as a “world computer,” a single, programmable platform that runs the same way for everyone. More than a decade after its launch, it sits at the centre of a vast ecosystem of applications, from DeFi protocols and NFT marketplaces to onchain identity and blockchain games. Its native asset, Ether (ETH), is the second-largest cryptocurrency by market capitalisation.

But what does that actually mean in practice? This guide walks through what Ethereum is, how it works, what it’s used for, and how to participate in the network securely.

What Is Ethereum

Ethereum is a decentralized, open-source blockchain network designed to host smart contracts and decentralized applications (dApps). Ethereum is a programmable platform where developers can deploy code that runs exactly as written, with no intermediaries. That capability is why Ethereum is often called the world computer.

The History of Ethereum

Ethereum began as a 2013 whitepaper by Vitalik Buterin. He proposed a blockchain with a Turing-complete scripting language, capable of executing complex logic rather than only simple value transfers. 

By early 2014, Gavin Wood, Charles Hoskinson, Anthony Di Iorio, Jeffrey Wilcke, and Joseph Lubin had joined him as co-founders. The Ethereum Foundation, a non-profit established to support the ecosystem, ran an initial coin offering (ICO) that raised roughly $18 million. The network went live on July 30, 2015.

Less than a year later, an attacker exploited a reentrancy vulnerability in The DAO, a decentralized investment fund built on Ethereum, draining approximately 3.6 million ETH (worth around $50 to $60 million at the time). The community responded with a hard fork that reversed the theft, splitting the network into two chains: Ethereum (the forked chain) and Ethereum Classic (the chain that preserved the original history).

Since then, Ethereum has gone through a series of major upgrades that improved its scalability, security, and energy efficiency.

How Does Ethereum Work?

While often used to refer to its native digital asset, known as Ether, Ethereum is actually the underlying blockchain network. This means that, similar to most public blockchains, it permanently records every transaction executed on the network. These transactions are grouped into blocks and linked sequentially to the previous block, forming a chain of all transactions ever made on the network.

It typically relies on three key components to operate: smart contracts, proof-of-stake (PoS) consensus, and Ethereum Virtual Machine (EVM)

Smart Contracts

Ethereum is acknowledged for pioneering smart contracts, which are pieces of self-executing code that execute instructions on the blockchain when certain conditions are met. Smart contracts live on the Ethereum network and can be used by anyone, ensuring that agreements are secure, transparent, and immutable.

For example, a contract can be set to automatically send 1 ETH to address A once it receives 2 ETH from address B. Ethereum enforces this instruction if the predefined condition is met. Moreover, once the smart contract is deployed, it cannot be altered, ensuring its logic and state remain permanent and tamper-proof.

Nodes and Ethereum Virtual Machine (EVM)

Rather than relying on a centralized server, a decentralized network of computers, known as nodes, powers the Ethereum network. These nodes perform roles, such as relaying information, validating transactions, and keeping a copy of the blockchain. By maintaining individual copies of the blockchain, the nodes ensure that the network remains operational even if some nodes go offline. 

At the core of this process is the Ethereum Virtual Machine (EVM) – a decentralized computing engine and runtime environment for smart contracts. The nodes run on the EVM to ensure that smart contracts adhere to the protocol’s rules. So, by ensuring that every smart contract runs consistently across all nodes, the EVM provides a secure environment for applications to run without requiring a central authority.

Proof-of-Stake Consensus Mechanism

The network originally utilized a proof-of-work (PoW) consensus, which required miners to solve complex mathematical puzzles to add new transactions to the network. This was both slow and energy-intensive, sparking environmental debate due to its massive carbon footprint.

However, Ethereum transitioned to a more energy-efficient proof-of-stake (PoS) algorithm in an event known as The Merge in September 2022. This transition replaced miners with validators and computational energy requirements with an economic stake.

Ethereum’s PoS uses a pseudo-random process to select validators to process transactions and produce new blocks. The selection is influenced by several factors: the amount of ETH staked, the duration of that stake, and a randomization aspect that considers nodes with the largest stakes and lowest hash values.

In short, these network participants must lock a set amount of crypto on the network to become eligible as validators. Ethereum specifically requires a minimum stake of 32 ETH, which acts as collateral. If a validator behaves in a way that hurts the network, a portion of this stake is deducted as a penalty through a mechanism known as slashing.

To get into more details, check out the full article on Ethereum proof-of-stake.

What is Ether (ETH)? Gas and Network Fees

The native cryptocurrency powering this network is called Ether (ETH). It is currently the second-largest cryptocurrency by market cap. Like any other digital asset, it can be bought and sold on crypto exchanges. 

Put simply, ETH is the coin that fuels all transactions on the network. Thus, every time you transfer or send value using your Ethereum wallet, you must pay a network fee in ETH for validators to process it. In Ethereum, these transaction fees are referred to as gas fees.

As mentioned earlier, new ETH typically enters circulation based on the total amount of staked ETH. At the same time, some ETH are burned with every transaction. This means that the more the network is used, the more ETH is completely removed from circulation.

The Ethereum Ecosystem: Use Cases

The blockchain’s programmability facilitates a diverse range of applications, such as:

Decentralized Finance (DeFi)

The Ethereum network’s smart contracts enable functions such as borrowing, lending, and trading without the need for intermediaries. It’s home to some of the most popular DeFi protocols, such as Aave, Uniswap, and Curve. 

What’s more, its smart contract capabilities open doors to possibilities such as real-world asset (RWA) tokenization, which democratizes access to illiquid assets. RWA tokenization typically means both digital and physical assets, such as gold, intellectual property, real estate, and commodities, are represented as onchain tokens for value transfer.

DAOs

The ecosystem also powers several successful and popular DAOs, such as MakerDAO, which uses its own governance token issued on the ETH network to allow holders to vote on community decisions and proposals.

The Creator Economy and NFTs

Ethereum allows users to connect with their audiences and monetize their content by allowing them to design, create, and sell their work directly. NFTs enable them to establish provable ownership and retain long-term control over their art. The lack of censorship and intermediaries shifted the balance of power from big corporations and traditional gatekeepers towards creators.

The Ethereum ecosystem supports some of the most prominent NFT collections, such as the wildly popular Bored Ape Yacht Club (BAYC), Doodles, and Cryptopunks. 

While other blockchains are also capable of minting NFTs now, Ethereum was a pioneer in getting NFTs mainstream. It provided the necessary infrastructure to mint, store, and trade NFTs as generative art, music NFTs, and more.

Blockchain Gaming

The blockchain’s programmability lets developers create play-to-earn blockchain games on its infrastructure. NFTs allow players to own characters or in-game items, which can be traded for fiat money or other digital assets.

Axie Infinity is a popular example, operating on the Ronin Network – an Ethereum sidechain. 

Ethereum Upgrades: The Most Important Milestones

Ethereum is upgraded through community-proposed changes called Ethereum Improvement Proposals (EIPs). Dozens of upgrades have shipped since 2015, but a handful stand out as the defining moments in the network’s history.

How to Start Using the Ethereum Network

The Ledger ecosystem provides a single, secure entry point to Ethereum. With a Ledger signer and Ledger Wallet™, you can buy, hold, stake, and swap ETH without exposing your private keys to internet-connected devices. Here’s what that looks like in practice.

Buying ETH Via Ledger Wallet™

To securely buy Ethereum or any ERC-20 tokens, set up your Ledger Wallet paired with a Ledger signer. Install the Ethereum account on your signer and buy ETH directly to your signer through the Buy/Sell feature. Use any of the supported providers, such as MoonPay or Coinbase, and verify the transaction details on your secure screen. Finally, click “Confirm” on your physical signer to confirm the payment.

Swapping ETH Via Ledger Wallet™

Swapping ETH via Ledger Wallet combines robust security and convenient access to multiple providers. The Ledger Wallet serves as an aggregator for supported third-party swap services, such as Uniswap and ParaSwap, allowing you to execute trades directly within the app. 

More importantly, it provides a secure gateway to each provider, eliminating the risks of man-in-the-middle (MITM) attacks. This safety comes from Ledger signer’s secure, tamper-proof screen used to review and confirm all transaction details before the swap is finalized.

How to Interact With Ethereum Smart Contracts Safely

Signing the wrong transaction can mean losing your ETH in a single click. How you engage with Ethereum’s dApp ecosystem matters as much as what you engage with.

A Ledger signer keeps your private keys offline inside a Secure Element chip and requires physical confirmation for every transaction. With Clear Signing, the contract call is translated into human-readable language on the device’s screen, so you see what you are about to approve rather than a string of hexadecimal data. Transaction Check goes a step further, simulating the transaction beforehand and flagging known scam patterns.

A few habits make a meaningful difference:

• Verify dApps from their official sources before connecting. Look-alike sites and cloned interfaces are common.
• Check the contract address on Etherscan to confirm it’s the one you expect.
• Send a small test transaction first when using a new dApp.
• Never share your Secret Recovery Phrase. No legitimate service will ever ask for it.

How to Stake ETH Via Ledger Wallet™

Staking lets you earn rewards while helping secure the network. Through Ledger Wallet™, you can stake ETH while the keys remain isolated on your Ledger signer. Three options are available, each suited to a different commitment level:

• Native staking through Kiln. Stake in multiples of 32 ETH to fund your own validator. Higher rewards, higher capital requirement.
• Pool staking through Coinbase. Stake any amount from around 0.001 ETH. Lower barrier to entry, simpler experience.
• Liquid staking through Lido. Stake any amount and receive stETH, an ERC-20 token pegged to ETH that can still be used across DeFi while earning rewards.

For a full walkthrough, see the Ledger Academy guide on how to stake ETH securely.

Conclusion

Ethereum extended the use of blockchain technology beyond simple peer-to-peer payments and turned it into a programmable platform. Its smart contracts, EVM, and Proof of Stake consensus together support a global ecosystem of applications, from DeFi and NFTs to onchain governance and tokenised real-world assets.

Participating in that ecosystem comes with responsibility. The same programmability that makes Ethereum powerful also makes it a target for attackers, scam contracts, and look-alike dApps. Pairing a Ledger signer with Ledger Wallet™ gives you a way to take part, buying, holding, staking, and swapping ETH, without ever exposing your private keys to the internet.

Frequently Asked Questions

Is Ethereum the same as Ether (ETH)?

No. Ethereum is the blockchain network. Ether (ETH) is the native cryptocurrency used to pay transaction fees on that network and to secure it through staking.

Who created Ethereum?

Ethereum was first proposed by Vitalik Buterin in a 2013 whitepaper. He was joined as co-founder by Gavin Wood, Charles Hoskinson, Anthony Di Iorio, Jeffrey Wilcke, and Joseph Lubin, with development supported by the Ethereum Foundation.

What is the Ethereum Virtual Machine?

The Ethereum Virtual Machine (EVM) is the runtime environment that executes smart contract code on every node in the network. It ensures that the same contract produces the same result on every machine, which is what makes Ethereum a single, shared computing platform.

How much ETH do you need to stake?

To run your own validator on Ethereum, you need a minimum of 32 ETH. If you have less, you can still stake any amount through pool staking or liquid staking services available inside Ledger Wallet™.

Is Ethereum deflationary?

Sometimes. Since EIP-1559 launched in 2021, every transaction burns a portion of its fee. When the network is busy, the burn can exceed new ETH issuance to validators, making ETH temporarily deflationary. During quieter periods, issuance outpaces the burn and the supply grows slightly.