What is Ethereum, and what is ether actually for?
Ethereum is a shared computer as much as a payment network. This profile explains how it runs, how ether is created and destroyed, and where things have gone wrong.
Education only, not investment, tax or legal advice. Crypto-assets are high-risk — risk disclosure.
ETHThe short answer
Ethereum is a public blockchain that runs programs, called smart contracts, as well as payments. Ether (ETH) is its native currency, used to pay transaction fees and to stake. Since September 2022 Ethereum has used proof of stake, and ETH has no fixed maximum supply.
Key takeaways
- Ethereum was proposed in a 2013 paper by Vitalik Buterin and its main network went live on 30 July 2015.
- Validators lock up 32 ETH to propose and vote on blocks; this proof-of-stake system replaced mining in September 2022.
- Every transaction pays a fee in ETH; part of it, the base fee, is burned, while validators earn new ETH.
- ETH has no supply cap, so its supply can rise or fall depending on network use.
- Smart contracts can hold large sums and can fail: the 2016 DAO attack drained more than 3.6 million ETH.
What is Ethereum and who created it?
Ethereum is a blockchain: a ledger copied across many independent computers. Like Bitcoin, it records who owns what. Unlike Bitcoin, it was built to run programs, known as smart contracts, which follow their code automatically once deployed. Lending apps, token issuers and digital collectibles all run on these programs. Our smart contracts explainer covers how they work.
Ether (ETH) is the network's native currency4. People often say "Ethereum" for both, but Ethereum is the network and ether is the money that powers it.
The idea came from Vitalik Buterin, who published the introductory paper in November 20131. A public sale of ether opened on 22 July 2014 and ran for 42 days, with buyers paying in bitcoin1. The main network launched on 30 July 20151.
The Ethereum Foundation, a non-profit, supports research and development, but says it does not control or lead Ethereum and is not the only body funding its development5. According to ethereum.org, the Foundation holds less than 0.3% of the ETH supply, down from 9% in 20144.
How does Ethereum agree on new blocks?
Ethereum uses proof of stake. Instead of miners racing to solve puzzles, validators lock up ether as a security deposit. To run one, you deposit 32 ETH and operate three pieces of software3. Validators who break the rules can lose part or, in coordinated attacks, all of their stake; this is called slashing3.
One slot in proof-of-stake Ethereum
- 1
Validator picked
One validator is chosen at random to propose the block for this 12-second slot.
- 2
Block proposed
It bundles waiting transactions into a block and shares it.
- 3
Committee votes
A committee of other validators checks the block and attests to it.
- 4
Checkpoint finalized
Once validators holding two-thirds of staked ETH back a checkpoint, earlier blocks are final.
Every 12 seconds is a new slot, and 32 slots make an epoch3, about 6.4 minutes. In each slot one validator is chosen at random to propose a block and a committee of others votes on it. When validators holding two-thirds of all staked ETH back a checkpoint, the blocks before it become finalized, which is the protocol's way of marking them as settled3.
Ethereum did not start this way. It used proof of work, like Bitcoin, until an upgrade called The Merge switched mining off and proof of stake on, on 15 September 20221. Ethereum.org cites estimates that the switch cut the network's energy use by more than 99.988%7. The trade-offs are covered in our proof of work vs proof of stake explainer.
Is there a maximum supply of ETH?
No. Ethereum has no fixed cap on how much ETH can exist2. Supply is shaped by two forces pulling in opposite directions. New ETH is issued as rewards to validators. At the same time, the base fee on every transaction is burned, meaning it is destroyed and removed from circulation6. When network use is heavy, more is burned, and the burn can exceed new issuance so that total supply shrinks2.
The Merge also changed issuance sharply. Ethereum.org estimates that ending mining rewards cut total new ETH issuance by about 88%2.
How ether's supply rules differ from bitcoin's
| Rule | Ether (ETH) | Bitcoin (BTC) |
|---|---|---|
| Maximum supply | None | 21 million |
| Who earns new coins | Validators who stake ETH | Miners who add blocks |
| Are fees destroyed? | Yes, the base fee is burned | No, fees go to miners |
| Can supply shrink? | Yes, when burning exceeds issuance | No |
What is ether used for?
Ether's main job is paying for computation. Every action on Ethereum, from a simple transfer to a complex trade, uses gas, a unit that measures the computing work involved6. The fee is the gas used multiplied by the base fee plus an optional tip that goes to the validator6. Fees are quoted in gwei, one billionth of an ETH6.
Worked example
What a basic transfer costs (illustrative)
A plain ETH transfer uses 21,000 gas6. Suppose the base fee is 10 gwei and you add a 1 gwei tip (made-up numbers; real fees change block by block). The fee is 21,000 × 11 = 231,000 gwei, or 0.000231 ETH. The 210,000 gwei of base fee is burned and the 21,000 gwei tip goes to the validator.
ETH is also used to secure the network through staking, and as money inside apps for payments, collectibles and decentralised finance4. Many other tokens, including stablecoins such as USDC, run on Ethereum, but moving them still requires ETH for gas.
What are the key dates in Ethereum's history?
Figure · Ethereum: key dates
- Nov 2013Whitepaper
- Jul 2015Main network launches
- Jul 2016DAO fork after an attack
- Aug 2021London: base fee burned
- Sep 2022The Merge (PoS)
- Mar 2024Dencun
Ethereum milestones
The 2016 DAO fork is worth knowing about. An insecure smart contract called The DAO was drained of more than 3.6 million ETH, and the network adopted a fork, a deliberate change to its rules, in response1. It is a reminder that blockchains are run by people who can choose to change them. The 2024 Dencun upgrade, meanwhile, made data cheaper for layer-2 rollups1.
What are the specific risks of holding ETH?
- Price swings. In a 2023 investor alert, the SEC warned that crypto asset investments can be exceptionally volatile and speculative, and that platforms may lack important protections8.
- Smart-contract bugs. Code holds the money. The DAO attack showed that one flaw can drain a contract of millions of ETH1.
- Fees you do not get back. A transaction that runs out of gas part-way still uses all the gas spent, even though its changes are undone6.
- Staking penalties. Validators who break the rules can be slashed, losing part or all of their stake3. Staking through a third party adds that firm's risks too.
- Changing rules. Supply and fees depend on upgrades the community adopts, so the economics have changed several times since 20151.
Risk warning
Know what you are signing
Approving a smart contract can give it permission to move your tokens. ETH can lose value quickly and transactions cannot be reversed. Nothing here is investment advice; read our risk disclosure before acting.
What mistakes do beginners make with Ethereum?
Common beginner mistakes
Holding tokens but no ETH
You need ETH to pay gas, even to move a stablecoin. Wallets with tokens but zero ETH are stuck.
Sending on the wrong network
The same address format is used on Ethereum and many related networks. Check which network both sides are using before you send.
Assuming ETH is capped like bitcoin
There is no fixed maximum supply; it depends on issuance and burning.
Signing approvals without reading
Some malicious sites ask for unlimited token approvals. Approve only what you need and revoke old approvals.
Frequently asked questions
Is Ethereum the same as ether?
No. Ethereum is the network; ether (ETH) is its native currency4. In everyday speech the two names are often used interchangeably.
Who decides on Ethereum upgrades?
Upgrades are developed in the open by many teams and only take effect if node operators run the new software. The Ethereum Foundation says it supports the ecosystem but does not control it5.
Do I need 32 ETH to stake?
Running your own validator requires depositing 32 ETH3. Services exist that pool smaller amounts, but they add the risk of trusting another party with your funds.
Why are Ethereum fees sometimes high?
Each transaction pays the base fee set by the protocol plus an optional tip6, and both are priced per unit of gas. Complex actions, such as trades inside apps, use far more gas than a plain transfer, so they cost more.
The bottom line
Ethereum is a shared computer secured by proof of stake, and ether is the fuel it runs on. ETH has no supply cap: validators earn new coins while base fees are burned. Its flexibility is its strength and its main risk, because code can fail and rules can change. Check the network, the gas and the contract before every transaction.
Sources
- The history of Ethereum — ethereum.org Primary source
- How The Merge impacted ETH supply — ethereum.org Primary source
- Proof-of-stake (PoS) — ethereum.org developer docs Primary source
- What is ether (ETH)? — ethereum.org Primary source
- Ethereum Foundation — ethereum.org Primary source
- Gas and fees — ethereum.org developer docs Primary source
- Ethereum energy consumption — ethereum.org Primary source
- Exercise Caution with Crypto Asset Securities: Investor Alert — Investor.gov, U.S. Securities and Exchange Commission, 2023 Primary source
How we checked this page: every figure above links to the numbered source it came from. Spotted an error? Tell the desk — see our editorial policy.
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