What is Ethereum and what is it used for?

Ethereum is a public blockchain, a shared record kept by many computers, that can run computer programs as well as record payments. Its built-in coin is called ether (ticker ETH). Developers use the network to build applications, issue tokens and move money without one company running the system in the middle.

How is Ethereum different from bitcoin?

Bitcoin was designed to do one job, which is to track who owns bitcoin. Ethereum was proposed by the programmer Vitalik Buterin in 2013 and launched in July 2015 as a general-purpose platform. Alongside balances, its blockchain stores small programs called smart contracts, which carry out their instructions automatically when someone sends them a transaction.

Every computer on the network runs the same code and must reach the same result, so users do not have to trust a single operator. A separate guide sets out the differences between bitcoin and Ethereum in more detail.

What is ether?

Ether is the coin built into the network, and it has two roles. People hold and trade it like any other cryptocurrency. It is also the money used to pay for computing on Ethereum: every action, from a simple payment to a complicated trade, carries a charge in ether known as a gas fee.

Ether has no fixed maximum supply, which sets it apart from bitcoin. New ether is issued to the computers that secure the network, and part of every fee is destroyed, so the total in circulation can rise or fall.

What is Ethereum used for?

• Tokens. Many stablecoins, which are tokens designed to hold the value of a currency such as the dollar, are issued as smart contracts on Ethereum. So are thousands of other tokens.
• Finance. DeFi, short for decentralized finance, lets people lend, borrow and trade from their own wallets through smart contracts.
• Digital collectibles. NFTs, tokens that record ownership of one unique item, grew up largely on Ethereum.
• Apps. Games, marketplaces and voting systems built on smart contracts are known as dapps.

How is the network secured, and what are the criticisms?

Ethereum originally used mining, as bitcoin does. In September 2022, in an upgrade called the Merge, it switched to proof of stake. Under that system, participants called validators deposit ether as a security bond and take turns proposing and checking blocks. The change cut the network's electricity use by more than 99 percent, by the Ethereum Foundation's estimate.

Critics raise several points. Fees on the main network can climb sharply when it is busy, which has pushed much activity to cheaper add-on networks called layer 2s and to rival blockchains. Smart contracts can contain bugs, and flawed code has cost users large sums. Much of the staked ether has been held through a small number of large staking providers and exchanges, which some researchers see as a threat to the network's independence.