What is Ethereum? ETH, smart contracts and layer 2s explained
A plain-language explainer of Ethereum — how it differs from Bitcoin, what ether (ETH) is used for, how staking works and why layer-2 networks exist.
CryptoGroup Newsroom · · 3 min read
Ethereum is a public blockchain that runs programs called smart contracts. Where Bitcoin was designed mainly as digital money, Ethereum was designed as a shared computer that anyone can build applications on — from stablecoins and lending markets to NFTs and on-chain games.
Ether (ETH)
Ether is Ethereum's native currency. You need it to pay gas fees — the cost of having the network process your transaction or run a contract. ETH is also used as collateral in DeFi and as the stake that secures the network. Unlike bitcoin, ether has no fixed maximum supply; new ETH is issued to validators and part of every fee is burned.
Smart contracts
A smart contract is code deployed on the blockchain that runs exactly as written when someone calls it. Because it is public and can't be quietly changed, people can use it without trusting a company. Examples:
- Stablecoins such as USDC and USDT exist as smart contracts on Ethereum.
- Decentralized exchanges like Uniswap let people swap tokens directly from their wallets.
- Lending protocols like Aave let users borrow against crypto collateral.
The flip side: bugs in a contract can be exploited, and transactions usually can't be reversed.
Proof of stake
Since "The Merge" in September 2022, Ethereum has been secured by proof of stake instead of mining. Validators lock up (stake) 32 ETH to propose and check blocks and earn rewards; misbehaving validators can lose part of their stake. Ordinary holders can take part through staking services or liquid-staking tokens, each with its own risks.
Key moments
2015
Mainnet launch
Ethereum goes live with smart contracts.
2016
The DAO fork
A hack leads to a chain split into Ethereum and Ethereum Classic.
Sep 2022
The Merge
Switch from proof of work to proof of stake.
Apr 2023
Shapella
Staked ETH can be withdrawn.
Mar 2024
Dencun
“Blobs” cut data costs for layer 2s.
May 2025
Pectra
Smart-account features and staking changes.
Layer 2 networks
Ethereum's main chain processes a limited number of transactions, so fees can rise when it's busy. Layer-2 networks — Arbitrum, Optimism, Base, Starknet, zkSync and others — bundle many transactions together and post the results to Ethereum, inheriting much of its security while charging far lower fees.
How Ethereum differs from Bitcoin
| Bitcoin | Ethereum | |
|---|---|---|
| Main purpose | Digital money / store of value | Platform for applications |
| Consensus | Proof of work (mining) | Proof of stake |
| Supply | Capped at 21 million | No hard cap; issuance offset by fee burning |
| Programmability | Limited by design | General-purpose smart contracts |
Risks to know
ETH is volatile, smart contracts can fail, and many tokens built on Ethereum are speculative. Learn how a product works before you deposit money into it — and read our stablecoin explainer and DeFi explainer.
This article is for information only and is not financial advice. Crypto assets are volatile; do your own research. Read our disclaimer
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