What Is Ethereum? A Beginner's Guide to the World Computer

Ethereum is one of the most important networks in crypto, but it can be confusing because it does more than just move money around. If BitcoinThe first and largest cryptocurrency, launched in 2009 — digital money with a fixed 21-million supply. is digital gold, Ethereum is closer to a shared computer that anyone in the world can use. Let's unpack what that actually means.

What Ethereum is

Ethereum is a blockchain: a shared, tamper-resistant record of transactions kept in sync by thousands of computers around the world. No single company or government runs it. What makes Ethereum special is that it does not only track who owns what. It can also run small programs.

Those programs are called smart contracts: code that lives on the blockchainA shared, tamper-resistant digital ledger that records transactions across many computers at once. and runs exactly as written, automatically, whenever its conditions are met. Think of a vending machine. You put in the right amount, you press the button, and it hands you the snack. There is no cashier to negotiate with. A smart contractSelf-executing code on a blockchain that runs automatically when its conditions are met. works the same way. It holds the rules, and it carries them out without needing a middleman to approve or process the request.

Because of this, people sometimes call Ethereum a "world computer." Developers deploy applications to it, and those applications keep running as long as the network exists.

ETH and gas

Ethereum has its own cryptocurrencyDigital money secured by cryptography and run by a network of computers instead of a bank or government. called ether, usually written as ETH. ETH plays two roles. First, it is money you can hold, send, and trade like any other crypto asset. Second, it is the fuel that pays for activity on the network.

Every time you do something on Ethereum, such as sending ETH or using an app, the network has to do work, and you pay a small fee for that work. This fee is called gasThe fee paid to process a transaction on a blockchain like Ethereum.. Gas is measured in tiny fractions of ETH, and the price moves up and down depending on how busy the network is. When lots of people are transacting at once, gas gets more expensive, much like surge pricing on a ride-hailing app. When the network is quiet, fees fall.

Gas exists for a practical reason: it stops people from spamming the network with endless free requests, and it rewards the validators who secure Ethereum. Ethereum runs on Proof of StakeA consensus method where validators lock up coins as collateral to secure the network (used by Ethereum).: validators lock up — "stake" — ETH as collateral for the right to process transactions, and lose some of it if they cheat. (See consensus mechanisms for how that works.)

What people use Ethereum for

Because Ethereum can run programs, developers have built a huge range of applications on top of it. A few of the big categories:

• Decentralized finance (DeFiDecentralized finance — lending, trading, and earning built on blockchains without traditional intermediaries.): apps that let you lend, borrow, trade, and earn without a bank. If you want the full picture, see our guide to DeFi.
• Stablecoins: digital tokens designed to hold a steady value, often pegged to the US dollar. Learn more in stablecoins explained.
• NFTs: unique digital items used for art, collectibles, and ownership records. See NFTs explained.
• Tokens: thousands of other crypto projects issue their own tokens that live on Ethereum.

The common thread is that all of these run as smart contracts, with no central company holding your assets or flipping the off switch.

Ethereum vs Bitcoin

People often ask which is "better," but they were built for different jobs. Here is a simple comparison:

	Bitcoin	Ethereum
Main purpose	Store and send value	Run programs and apps
Native coin	Bitcoin (BTC)	Ether (ETH)
Smart contracts	Very limited	Core feature
Common nickname	Digital gold	World computer

Bitcoin is intentionally simple. It does one thing, moving and storing value, and it does that very conservatively. Ethereum is deliberately flexible, designed so developers can build almost anything on it. That flexibility is powerful, but it also means more moving parts and more complexity. Many people end up owning both, for different reasons. If you are still getting your bearings, start with what is cryptocurrency.

A note on fees and speed

Ethereum's popularity is also its biggest growing pain. When the network is busy, gas fees can climb and transactions can slow down. The community has spent years working on solutions, the most important of which are "layer 2A network built on top of a base blockchain to make transactions faster and cheaper, while inheriting its security." networks that handle transactions more cheaply and then settle back to Ethereum. We cover those in understanding layer 2s.

Key takeaways

• Ethereum is a blockchain that can run programs called smart contracts, not just track payments.
• Its native coin is ether (ETH), which you both hold as an asset and spend on fees.
• Those fees are called gas, and they rise and fall with network demand.
• Ethereum powers DeFi, stablecoins, NFTs, and thousands of tokens.
• Bitcoin focuses on storing value; Ethereum focuses on flexibility and applications.

Ready to go deeper into what gets built on Ethereum? Continue with our guide to DeFi.