What Is Ethereum?

Ethereum is a public blockchain network that records transactions and runs smart contract code. It runs on a decentralized set of nodes and proof-of-stake validators.

ETH, or Ether, is the network’s native asset. People pay fees in ETH to send transactions and interact with apps. Teams use Ethereum to move value, issue tokens, and even create entire services on the Blockchain.

Table of contents:

What Is Ethereum in Simple Terms?

In simple terms, Ethereum is a shared system that lets people send value and run code on a public ledger.

You can think of it as:

• a shared database where anyone can verify what happened on-chain;
• a platform for running small programs that control digital assets;
• a set of rules that lets agreements settle automatically once conditions match the code.

Example:

Someone sends funds to a smart contract. The contract releases the payment after the agreed condition is met on-chain, such as a third party confirming that the deal is complete.

Programmability makes Ethereum a popular choice for tokens. Most stablecoin providers issue tokens on the network, which allows businesses to receive USD-equivalent payments on Ethereum while using ETH only to pay network fees (gas).

Key takeaways about Ethereum

• Ethereum is a blockchain platform that supports payments and on-chain applications.
• ETH is used to pay network fees, usually called gas, for transactions and smart contract calls.
• Smart contracts are programs deployed on-chain. They can hold assets and execute predefined rules without manual processing.
• Ethereum hosts tokens such as stablecoins, ERC-20 assets, NFTs, and other on-chain records.
• Transactions are transparent and verifiable. Addresses are public, even when their owners remain private.

Ethereum vs Ether (ETH)

Ethereum and Ether are closely related, but they are not the same thing.

Ethereum is a blockchain network. Ether (ETH) is the network’s cryptocurrency.

So, developers deploy smart contracts, tokens, and applications on the Ethereum network, and they use Ether to pay transaction fees or send funds with the help of Ether.

Ethereum is the network. ETH is what you spend to use it.

How Ethereum Works

Ethereum relies on a global network of nodes that share the same state and validate the same rules. Validators propose and confirm blocks under proof of stake, and nodes re-run transactions to verify the outcome.

Ethereum Blockchain

Ethereum stores transactions in blocks that link together in chronological order. Each transaction updates the blockchain state, such as account balances and smart contract data.

Example:

An ETH transfer will show the sender address, recipient address, amount, fee paid, and the block that included it in a blockchain explorer..

Smart Contracts

Smart contracts are programs deployed on Ethereum at a specific on-chain address. They can hold ETH and tokens, apply rules, and interact with other contracts. Contract code is public. Anyone can inspect it and use it, following the rules it sets.

Practical examples:

• Escrow: funds sit in a contract, then are released to the seller after a condition is met.
• Subscriptions: a contract charges a wallet on a schedule, based on prior approval.
• Payout splits: one payment triggers multiple transfers to partners or affiliates.

Smart contracts also define token behavior. Most tokens use standards:

• ERC-20 for fungible tokens such as stablecoins and loyalty tokens.
• ERC-721 for unique assets, often called NFTs.
• ERC-1155 for mixed collections, used in gaming and ticketing.

Example:

A contract locks a payment and releases it after the buyer confirms delivery through an on-chain action.

Ethereum Virtual Machine (EVM)

The Ethereum Virtual Machine runs smart contract code and produces the same result on every node. This shared execution makes contract outcomes verifiable. Many other networks also support the EVM, so developers often reuse the same tooling and code patterns across applications.

Example:

A decentralized exchange executes swaps in the EVM, and nodes compute the trade result the same way.

Gas Fees and Transaction Costs

Every Ethereum action uses gas. Gas measures the computing work needed to process a transaction or run a contract call. Users pay fees in ETH. A simple transfer costs less gas than a complex contract interaction.

Fees also change with network demand. Wallets often show a base fee and a priority tip, then suggest a total fee that fits the current load. Many payments run on Layer 2 networks that settle on Ethereum but batch activity to cut fees. Recent upgrades also targeted fee pressure. Dencun added cheaper data storage for many rollups, and Pectra added account and validator improvements.

Example: Sending ETH to a wallet would incur a smaller gas fee than minting an NFT or interacting with a DeFi protocol.

What Is Ethereum Used For?

Ethereum supports many real-world crypto and blockchain scenarios:

• Crypto transactions: Users transfer ETH between wallets for payments and settlements.
• Stablecoin transfers: Many stablecoins like USDC run as tokens on Ethereum, so teams move value in a fiat-pegged unit on-chain.
• Smart contracts: Code-based agreements that hold funds and release them based on on-chain actions.
• Decentralized finance (DeFi): Protocols for swaps, lending, and on-chain liquidity.
• NFTs (non-fungible tokens): Unique digital assets recorded on-chain.
• Business payments: Merchants accept ETH or Ethereum-based tokens, then convert or withdraw funds based on their needs.

How Ethereum Transactions Work (Step by Step)

• Step 1. A user or automation creates the transaction, including the recipient address, amount, and fee settings.
• Step 2. The wallet signs the transaction with the sender’s private key and broadcasts it to the network.
• Step 3. Validators include valid transactions in a block, and nodes execute them to update balances and contract state.
• Step 4. The transaction is recorded on-chain and gains confirmations as new blocks follow.

Example:

A merchant sends an invoice via CoinsPaid, and the user pays in ERC-20 USDC. They get a link to track the payment in a blockchain explorer and see its status, fee paid, gas used, and confirmation count. Ethereum divides time into 12-second slots, so confirmations often arrive in mere seconds or minutes, and finality follows after more confirmations.

Ethereum vs Bitcoin

Bitcoin centers on value transfer. Ethereum also supports programmable logic through smart contracts and token standards. However, both BTC and ETH can be used as digital currencies and held as assets.

Is Ethereum Used by Businesses?

Yes. Businesses use Ethereum for:

• Cross-border payments and crypto settlements;
• Stablecoin invoicing and on-chain receipts;
• Tokenized access, loyalty points, and digital collectibles.
• Automation through smart contracts, such as escrow and timed releases.

Companies often accept ETH at checkout, then convert it to fiat or stablecoins to keep as treasury assets, based on payment policy.

Risks and Limitations of Ethereum

Digital assets have a different risk profile from traditional payments, and Ethereum is no exception:

• Fee swings: Gas fees can rise fast during peak demand, which affects checkout totals.
• Network choice errors: Sending assets on the wrong network or to the wrong address can lead to permanent loss.
• Smart contract risk: Bugs, exploits, or unsafe approvals can lead to cyberattacks.
• Operational risk: Private keys control funds. Lost keys mean lost access.
• Regulatory change: Rules vary by country, and the regulatory landscape is

Many teams manage risks with stablecoins, layered approval flows, test payments, and clear internal controls for keys and access.

Conclusion

Ethereum is a public blockchain that supports payments and programmable on-chain actions. Its native currency, ETH, pays for transaction fees, and smart contracts power a wide set of on-chain products, from stablecoin transfers to automated payouts.

Ethereum is among the most widely used Blockchain networks in the world, next to Bitcoin, and most merchants interested in accepting crypto usually take ETH, even if they have no intention of actually holding it. ETH is a liquid asset that can be automatically exchanged for stablecoins like USDC and EURC at checkout without any extra hassle for you or your users.

Compliance Disclaimer

This article is for informational purposes only and does not constitute financial, investment, or legal advice. Nothing in this article should be interpreted as a recommendation to buy or sell digital assets. Cryptocurrencies and blockchain technologies are subject to regulatory requirements that vary by jurisdiction. Businesses and individuals should consult qualified legal and financial professionals before engaging in cryptocurrency-related activities.