What Is Ethereum (ETH)? A Beginner's Guide for 2026
Ethereum is a decentralized open-source blockchain platform that allows users to create and operate applications known as smart contracts without the use of banks, corporations, or other types of intermediaries. Ether (ETH) is the coin that is used to pay transaction fees and protect the network. The idea for Ethereum was introduced by Vitalik Buterin in 2013 and released in 2015. In terms of size, Ethereum is the second largest cryptocurrency in the world, after Bitcoin, and is the basis of multiple decentralized finance (DeFi) projects, NFTs, and stablecoins.
This guide is meant for newcomers from the EEA region and explains all aspects of Ethereum, including its functioning, differences from Bitcoin, and the potential risks.
Who Created Ethereum and Why?
Ethereum was first proposed by Vitalik Buterin, the then 19-year-old programming talent and co-founder of Bitcoin Magazine, in a white paper in late 2013 that proposed the establishment of a blockchain capable of performing more than just monetary transfers. Ethereum was built by Buterin along with his co-founders, one of whom was Gavin Wood, the technical creator of Ethereum’s so-called “Yellow Paper”. The network was launched on July 30, 2015.
Buterin realized that blockchain technology could offer far more than Bitcoin’s primary use case as a payment system. While Bitcoin was making it possible to transfer crypto in a decentralized manner through the use of a universal network for money, Ethereum's narrative was to become a decentralized computer of the world - a shared machine that would allow developers to deploy applications that could not be censored or shut down by any person or authority.
How Does Ethereum Work?
Understanding Ethereum comes down to three concepts: smart contracts, Proof of Stake, and gas.
Smart Contracts and the EVM
A smart contract is a program that executes by itself on the blockchain. It activates itself once its conditions are satisfied, such as when a payment is made following completion of a delivery. Smart contracts are widely used in decentralized applications (dApps) built on the Ethereum Virtual Machine (EVM), including lending platforms, trading applications, and games. The EVM has become a widely adopted standard, with many other blockchain platforms developing EVM-compatible smart contracts.
Proof of Stake and Staking
On September 15, 2022, Ethereum underwent "The Merge", transitioning from the energy-intensive proof-of-work (PoW) consensus mechanism to proof-of-stake (PoS). As a result, network energy consumption decreased more than 99% in a single night. Instead of miners using computational power to produce and secure blocks, Ethereum is now secured by validators who stake ETH and participate in the network’s consensus process. To become a validator, users must stake at least 32 ETH. However, smaller ETH holders can also participate through staking pools and exchanges that offer staking services.
Gas Fees and Fee Burns
All transactions on Ethereum, whether transferring tokens, exchanging assets, or minting NFTs, require computational resources, which are paid for through gas fees. Gas fees are paid in ETH and typically quoted in gwei, a small denomination of ETH. Fees vary depending on network demand.
The London upgrade in August 2021 introduced EIP-1559, which burns the base fee portion of each transaction fee. Combined with lower ETH issuance under proof-of-stake, this mechanism can reduce the overall supply of ETH when the amount burned exceeds new issuance.
Ethereum vs. Bitcoin: What's the Difference?
Bitcoin and Ethereum are the two largest blockchain networks, but they were built for different purposes:
| Feature | Bitcoin (BTC) | Ethereum (ETH) |
| Primary purpose | Decentralized digital money / store of value | Programmable platform for decentralized applications |
| Launched | January 2009 | July 2015 |
| Creator(s) | Satoshi Nakamoto (pseudonym) | Vitalik Buterin and other co-founders |
| Supply | Capped at 21 million | No hard cap |
| Consensus | Proof-of-Work | Proof-of-Stake |
| Block time | ~10 minutes | ~12 seconds |
| Primary use case | "Digital gold" | Foundation for DeFi, stablecoins, NFTs, tokenization |
In short, Bitcoin aims to be the internet’s money, while Ethereum aims to provide the infrastructure for its financial services and applications.
What Is Ether (ETH) Used For?
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Paying for the network: ETH is the only currency accepted for gas fees, every transaction and smart contract interaction on Ethereum costs ETH.
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Staking: ETH holders can stake their coins to help secure the network and earn protocol rewards.
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DeFi collateral: ETH is widely used as collateral asset in decentralized lending, borrowing, and trading protocols.
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A settlement and reserve asset: Billions of dollars in stablecoins (like USDC), tokenized funds, and NFTs live on Ethereum, and a growing number of companies and funds hold ETH itself as a treasury asset. U.S. spot Ether exchange-traded funds (ETFs) have traded since July 2024, giving traditional investors regulated exposure.
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Layer 2 ecosystems: Scaling networks such as Arbitrum, Optimism, and Base settle back to Ethereum, extending its capacity while relying on its security.
What to Know Before Buying ETH
Ethereum is a high-risk asset. Before buying, understand the following:
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Price volatility: ETH has experienced drawdowns of 50% or more within months. Never invest money you cannot afford to lose.
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Smart contract risk: DeFi apps can contain bugs or be exploited. The 2016 "DAO hack," in which 3.6 million ETH was drained, even forced a controversial network rollback that split off Ethereum Classic.
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Competition: Ethereum competes with other smart contract platforms. Its long-term success depends on continued adoption of its ecosystem and Layer 2 networks.
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Self-custody responsibility: The saying “Not your keys, not your coins” highlights the importance of controlling your own crypto assets. If you hold ETH in a self-custodial wallet, losing your recovery phrase could mean permanently losing access to your funds. Blockchain transactions are also generally irreversible.
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Evolving regulatory environment & tax obligations: The EU's Markets in Crypto-Assets Regulation (MiCA) has brought clarity since December 2024, but tax treatment still varies by member state. Be sure to check your local obligations.
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Past performance is not an indication of future results. Ethereum's past growth does not guarantee future performance.
Ethereum: The Backbone of the Decentralized Internet
To sum up: Ethereum is the world's largest programmable blockchain, providing a global platform for smart contracts, DeFi, stablecoins, and tokenized assets. The network is supported by a vast community of participants, with ETH serving as its native cryptocurrency.
For new users in Europe, the key is to start with a solid understanding of the technology. Take time to learn how the network works, understand the risks associated with cryptocurrency volatility, and choose a platform that complies with the EU’s Markets in Crypto-Assets Regulation (MiCA).
FAQs
What is Ethereum in simple terms?
Ethereum is a global, decentralized computing platform. Developers use it to build applications for finance, gaming, decentralized digital identity, and more. These applications run on a public blockchain instead of a company's servers. Ethereum's native currency, ether (ETH), is used to pay transaction fees and interact with applications on the network.
What is the difference between Ethereum and Ether (ETH)?
Ethereum is the network, the blockchain and its global community of computers. Ether (ETH) is the network's native cryptocurrency, used to pay transaction fees (gas) and to secure the system through staking. In everyday usage, people often say "Ethereum" when they mean the coin, but technically ETH is the asset and Ethereum is the platform.
Can I buy less than one ETH?
Yes. ETH is divisible into 18 decimal places, meaning you can purchase a fraction of one ETH rather than a whole coin. Some platforms allow purchases starting from just a few euros, although minimum amounts vary. Similarly, pooled staking services allow users to participate in staking with smaller amounts of ETH, while running a solo validator requires 32 ETH.
What is Ethereum staking?
Staking involves committing ETH to help validate transactions and secure the Ethereum network. In return, participants may earn staking rewards in ETH, although reward rates vary over time. Validators that violate certain network rules may lose a portion of their staked ETH through a process known as “slashing.”
What is the difference between Ethereum and Ethereum Classic?
Ethereum Classic (ETC) is the original Ethereum chain that continued operating after the Ethereum community’s controversial 2016 hard fork to address The DAO exploit. Ethereum (ETH) is the forked blockchain that implemented the DAO-related state change and retained the Ethereum name. The two networks share the same history up to the 2016 fork but have since developed independently. Today, Ethereum generally refers to the ETH network, which has a much larger ecosystem, developer community, and market value than Ethereum Classic.
Disclaimer
This is a general marketing communication. Trading and investing in crypto-assets involve significant risks. Crypto-asset prices are highly volatile and may fluctuate rapidly, which can result in a partial or total loss of your investment. You should only invest funds you can afford to lose. Please make sure to familiarise yourself with the risks outlined in our Risk Disclosure Document available on our Platform.