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Ethereum is a public blockchain that runs programs. Bitcoin was built mainly to send and hold one digital currency; Ethereum was built so that anyone can deploy code, known as smart contracts, that runs exactly as written on thousands of computers at once. Ether (ETH) is the network’s own currency. You need it to pay for every transaction and every program that runs, and validators lock it up to secure the network.
That is the core idea. The rest of this guide explains how it works in practice, in the order most beginners run into it.
What is the difference between Ethereum and ETH?
People use the words interchangeably, but they are not the same thing:
- Ethereum is the network: the blockchain, the software and the computers running it.
- Ether (ETH) is the asset that lives on it. You buy, hold and send ETH; you use Ethereum.
The smallest unit of ETH is a wei (one quintillionth of an ETH). Fees are usually shown in gwei, which is one billionth of an ETH. You will see that word a lot in wallets.
Where did Ethereum come from?
Vitalik Buterin described Ethereum in a white paper in late 2013, and the network went live on 30 July 2015. It has changed a lot since then through planned upgrades, each agreed by developers and node operators and given a name. A few matter for understanding today’s network:
- London (August 2021) changed how fees work. Part of every fee, the “base fee”, is now destroyed (“burned”) instead of going to whoever processes the block.
- The Merge (September 2022) switched Ethereum from mining to proof of stake, cutting its energy use by well over 99%.
- Dencun (March 2024) added cheaper data space for layer-2 networks, which lowered their fees considerably.
- Pectra (May 2025) let validators hold far more than 32 ETH in a single validator and allowed normal accounts to behave more like smart-contract wallets.
- Fusaka (December 2025) changed how nodes check that layer-2 data is available, so the network can carry more of it.
The next upgrade, called Glamsterdam, went live on the Sepolia test network in October 2026, but its next test-network step was postponed on 22 October so developers could look into a gas-accounting issue. At the end of October 2026 there was no date for the main network yet. Nothing changes for ETH holders until it actually happens, and anyone telling you to “upgrade” or “migrate” your ETH is running a scam.
How does Ethereum actually work?
Accounts and transactions
Every user has an account identified by an address starting with “0x”. Your wallet holds the private key that controls it. When you send ETH or use an app, your wallet signs a transaction with that key and broadcasts it. Validators bundle transactions into a block about every 12 seconds.
Smart contracts
A smart contract is a program stored at its own address. Once deployed, it runs exactly as coded when someone calls it. That makes things possible that Bitcoin was never designed for: tokens (including stablecoins such as euro and dollar tokens), decentralised exchanges, lending protocols, NFTs and much more. It also means a bug in a contract can be exploited, and there is often nobody who can reverse the damage.
Gas: why fees go up and down
Every operation on Ethereum costs a certain amount of gas. A simple ETH transfer uses 21,000 gas; a complex swap uses far more. The price per unit of gas floats with demand: when many people want block space at once, fees rise. You pay the base fee, which is burned, plus an optional tip to the validator to get included faster.
Two practical consequences: fees on the main network can be cheap one hour and expensive the next, and you always need a little ETH in your wallet to move any token, even a stablecoin.
Layer 2 networks
Because block space on Ethereum itself is limited, much everyday activity has moved to layer-2 networks (such as Arbitrum, Optimism and Base). They process transactions separately and post the results back to Ethereum, which keeps fees low. Your address usually works on both, but the funds are on different networks. Sending to the right network is one of the most common beginner mistakes, so check the network before every withdrawal.
Proof of stake: how Ethereum is secured
Since the Merge, blocks are proposed and confirmed by validators instead of miners. A validator locks up at least 32 ETH and runs software that checks and votes on blocks. Honest work earns rewards; going offline costs a little; provably cheating can lead to “slashing”, where part of the stake is destroyed.
Most people do not run a validator themselves. They stake through an exchange or a staking service, which brings its own risks: lock-up periods, the provider’s fees and, for custodial services, the provider itself. Rewards are variable and are never guaranteed. Our guide to staking and its risks goes through the options.
How is Ethereum different from Bitcoin?
| Bitcoin | Ethereum | |
|---|---|---|
| Main purpose | Digital money and store of value | Platform for apps and tokens |
| Security model | Proof of work (mining) | Proof of stake (validators) |
| Supply | Capped at 21 million BTC | No fixed cap; issuance offset partly by fee burning |
| Block time | About 10 minutes | About 12 seconds |
| Programmability | Deliberately limited | Full smart contracts |
Neither design is “better”; they make different trade-offs. If you have not read it yet, our guide to how Bitcoin works makes a good companion to this one.
How Ethereum is regulated in the EU
ETH itself is not issued by a company, but under MiCA the exchanges, brokers and custodians that let you buy or hold it must be authorised as crypto-asset service providers. Licensed providers must also publish information about the energy use of Ethereum’s consensus mechanism. Check any provider against the ESMA register before you sign up.
Storing ETH safely
You can keep ETH on an exchange, in a software wallet on your phone or computer, or on a hardware wallet. If you hold an amount that would hurt to lose, the usual advice is to control your own keys and keep them offline.
Ethereum adds one extra risk: because apps run on smart contracts, your wallet often asks you to approve a contract or sign a message. A malicious approval can let a scammer move your tokens later. Read what you are signing, check it on your hardware wallet’s screen, and avoid “blind signing” where the device cannot show you the details. Fake token airdrops and copycat app sites are common, as our guide on spotting crypto scams explains.
Before you choose a device, our guide to choosing a hardware wallet covers what to look for.
Trezor Safe 3
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Common beginner mistakes
- Sending to the wrong network. ETH on a layer 2 is not the same as ETH on the main chain, even at the same address.
- Having no ETH left for gas. You cannot move tokens without a little ETH to pay the fee.
- Approving unknown contracts. Revoke old approvals you no longer need.
- Treating staking rewards as fixed income. They change, and the value of ETH can fall much further than any reward.
- Sharing the recovery phrase. No real support desk, app or airdrop will ever ask for it.
In short
Ethereum is a programmable blockchain; ETH is the currency that pays for using it and secures it through proof of stake. Fees depend on demand, layer-2 networks carry much of the everyday traffic, and the extra flexibility of smart contracts brings extra risks. Learn how approvals and networks work before you move larger amounts, and remember that ETH, like every crypto-asset, can lose a large part of its value quickly.
Sources: ethereum.org documentation on accounts, gas, proof of stake and the network upgrade history (London, The Merge, Dencun, Pectra, Fusaka); Ethereum Foundation blog posts on the Fusaka mainnet activation and the Glamsterdam testnet schedule (including the 22 October 2026 postponement); Regulation (EU) 2023/1114 (MiCA). Information as of October 2026.