What Is Ethereum and How Does It Work?

Ethereum is a blockchain that does not only record payments - it runs programs. Bitcoin's network agrees on who owns what; Ethereum's network agrees on who owns what and on what every shared program did next. Those programs are called smart contracts, and they are why Uniswap, Aave and most of the things people mean by "crypto apps" live here. Its coin is called ether, or ETH.

What is a smart contract?

A smart contract is code that sits at an address on the network and runs exactly as written whenever someone calls it. Think of a vending machine: you put the right thing in, it gives the right thing back, and there is no clerk who can decide otherwise. Uniswap is a vending machine for swapping tokens. Aave is one for lending and borrowing them. Once a contract is deployed, nobody can change what it does unless the code itself allows it.

Why do I have to pay gas?

Every step a contract takes costs the network real work, and you pay for that work in ETH. The fee is called gas, and it rises when many people want space in the same block. A plain transfer is cheap; a complicated swap costs more because it asks the network to do more. Part of every fee is destroyed rather than paid out, which quietly removes ETH from circulation. Most everyday activity has moved to layer 2 networks such as Arbitrum and Base, which bundle many transactions together and settle them back to Ethereum for a fraction of the cost.

Who keeps it running?

Validators. Since 2022 Ethereum has used proof of stake: instead of racing with mining hardware, participants lock up 32 ETH and take turns proposing blocks. Behave and you earn a small reward; cheat and part of that locked ETH is taken away.

Before you use any Ethereum app, send a small test amount and keep a little spare ETH in the wallet - without it you cannot pay gas, and a wallet full of tokens but empty of ETH is stuck. Next: what a blockchain is and how Bitcoin works, the network Ethereum was built after.