If Bitcoin showed that digital money could work without a bank, Ethereum asked a bigger question: what if a blockchain could run any program, not just record payments? The answer has become the base layer for most of what happens in crypto beyond Bitcoin — stablecoins, decentralised exchanges, lending markets, tokens and much more.
This guide explains what Ethereum is, how smart contracts work, what ether (ETH) is for, how the network is secured with proof of stake, why fees rise and fall, and what drives the ETH price. It ends with the risks to understand before you trade it.
Ethereum in one paragraph
Ethereum is a public blockchain that works like a shared, global computer. Anyone can deploy a program — a smart contract — to it, and anyone can interact with that program by sending a transaction. Every node on the network runs the same computation and agrees on the result, so the outcome cannot be quietly changed by any single party. Ether (ETH) is the network's native currency: it pays the fees ("gas") for computation and storage, and it is staked by validators to secure the network.
Where Ethereum came from
Ethereum was proposed in late 2013 by Vitalik Buterin, then a 19-year-old programmer and writer who had been covering Bitcoin. His white paper argued that Bitcoin's scripting language was deliberately limited, and that a blockchain with a full programming language could support a far wider range of applications.
Development was funded through a public sale of ether in 2014, and the network launched on 30 July 2015. Since then it has been through a series of major upgrades, some of them dramatic:
| Date | Event | What changed |
|---|---|---|
| July 2015 | Launch | Network goes live with proof of work |
| 2016 | The DAO hack and fork | A contract exploit led to a contested fork; the original chain continued as Ethereum Classic |
| August 2021 | London upgrade (EIP-1559) | New fee model; part of every fee is burned |
| September 2022 | The Merge | Switch from proof of work to proof of stake |
| April 2023 | Shapella | Staked ETH can be withdrawn |
| March 2024 | Dencun (EIP-4844) | Cheaper data for layer 2 networks via "blobs" |
| May 2025 | Pectra | Staking and wallet improvements |
Ethereum is maintained by independent client teams, researchers and the Ethereum Foundation, a non-profit. No single organisation can change the protocol alone.
How smart contracts work
A smart contract is code stored at an address on the blockchain. It holds its own balance and data, and it runs when someone sends it a transaction. Ethereum's execution environment, the Ethereum Virtual Machine (EVM), runs that code identically on every node.
A simple example: a contract can hold funds and release them only when two out of three named people approve. A more complex one can operate an entire exchange — holding pools of two tokens and letting anyone swap between them at a price set by a formula.
Three properties make smart contracts useful:
- Transparency. The code and its current state are public. Anyone can check what a contract will do.
- Predictability. A contract does exactly what its code says. No one can decide to treat you differently.
- Composability. Contracts can call other contracts, so applications can be built on top of each other like building blocks.
The flip side is that a contract also does exactly what its code says when the code is wrong. Bugs have been exploited to drain very large sums from individual applications, even though the Ethereum network itself kept running normally.
Tokens and standards
Much of Ethereum's activity involves tokens created by smart contracts. Common standards make them interoperable:
- ERC-20 for fungible tokens — every unit is the same. Most stablecoins, including USDT and USDC on Ethereum, use this standard (see what are stablecoins).
- ERC-721 for non-fungible tokens (NFTs) — each token is unique.
What ether (ETH) is for
ETH has several jobs on the network:
- Paying gas. Every transaction pays a fee in ETH for the computation and storage it uses — explained in full in Ethereum gas fees explained.
- Staking. Validators lock up ETH as collateral to secure the network and earn rewards — see Ethereum staking explained.
- Collateral and money in applications. ETH is widely used in lending, trading and other applications built on Ethereum.
ETH is divisible to 18 decimal places. The smallest unit is the wei; fees are usually quoted in gwei, which is one billionth of an ETH.
How Ethereum is secured: proof of stake
Since the Merge on 15 September 2022, Ethereum has used proof of stake. Instead of miners spending electricity, validators deposit ETH — 32 ETH for a standard validator — and run software that proposes and votes on (attests to) blocks.
- Time is divided into slots of 12 seconds; in each slot, one validator is chosen to propose a block and committees of others attest to it.
- Validators earn rewards for doing their job correctly.
- Validators that go offline lose small amounts; validators that act maliciously, for example by signing conflicting blocks, can be slashed — losing a portion of their stake and being removed.
According to ethereum.org, the switch reduced Ethereum's energy consumption by around 99.95%. It also changed ETH's economics: issuance to validators is much lower than the old mining rewards.
Ethereum's supply
ETH has no hard cap. Two forces act on supply:
- Issuance: new ETH is created as rewards for validators.
- Burning: since EIP-1559 in 2021, the base fee paid by every transaction is destroyed.
When the network is busy, more ETH is burned, and burning can exceed issuance — supply shrinks. When activity is low, supply grows modestly. This makes ETH's supply sensitive to how much the network is used, which is a key difference from Bitcoin's fixed schedule — compared in detail in Bitcoin vs Ethereum.
Scaling: layer 2 networks
Ethereum's main chain (layer 1) can only process a limited number of transactions per block. When demand is high, fees rise. The strategy for scaling is to move most activity onto layer 2 networks — rollups — that execute transactions off the main chain and post compressed data and proofs back to it.
- Optimistic rollups assume transactions are valid and allow a window for anyone to challenge fraud.
- Zero-knowledge rollups post cryptographic proofs that the transactions were executed correctly.
The Dencun upgrade in March 2024 introduced a cheaper form of data storage for rollups (blobs), which substantially lowered fees on many layer 2 networks. For users, the practical point is that the same token may exist on several networks, and moving between them takes care.
What moves the price of ETH
ETH shares many drivers with the wider crypto market — sentiment, global liquidity, regulation and leverage. It also has drivers of its own:
- Network activity. Demand for block space affects fees and how much ETH is burned.
- Staking. The share of ETH locked in staking and the yield it earns.
- Upgrades. Changes that affect fees, scaling or issuance can shift expectations.
- Investment products. Spot ether exchange-traded funds began trading in the United States in July 2024; flows into and out of them are watched closely — see Bitcoin ETFs explained.
- Competition. Other smart-contract platforms compete for developers, users and fees.
- The ETH/BTC relationship. ETH has historically been more volatile than BTC and often moves more in both directions during broad crypto moves.
Common misconceptions
- "Ethereum is a company." The network has no owner. The Ethereum Foundation supports development but does not control the protocol.
- "Smart contracts are legal contracts." They are programs. Whether a smart contract creates legal obligations is a separate question that depends on law, not code.
- "Proof of stake made ETH safer to hold." It changed how the network is secured, not ETH's price volatility.
- "Ethereum fees are always high." Fees on the main chain vary with demand; many everyday transactions now happen on layer 2 networks at much lower cost.
- "ETH supply is fixed like Bitcoin's." It isn't — it depends on issuance and burning.
The risks of Ethereum
- Price risk. ETH has had drawdowns of well over 70% from previous highs.
- Smart-contract risk. Applications built on Ethereum can be exploited; tokens held in them can be lost.
- Complexity risk. Multiple networks, token standards and bridges create more ways to make mistakes, such as sending tokens on the wrong network.
- Custody and scam risk. As with Bitcoin, transactions are irreversible, and phishing attacks often trick users into signing malicious approvals.
- Regulatory risk. How ETH, staking and tokens are treated varies by country and continues to evolve.
A worked example: a token transfer
Suppose you send 100 USDC (an ERC-20 token) to a friend on Ethereum's main network. Your wallet builds a transaction that calls the USDC contract's transfer function. The transaction uses roughly 45,000–65,000 units of gas. If the base fee is 10 gwei and you add a 1 gwei tip, the fee is about 60,000 × 11 gwei = 660,000 gwei, or 0.00066 ETH. You must hold ETH to pay it — a common surprise for new users who hold only the token.
If you sent the same token on a layer 2 network, the fee would usually be a small fraction of that — but your friend must be able to receive on that network, or the funds will arrive somewhere they don't expect.
Trading ETH on RumiEX
On RumiEX, Ethereum is listed as ETH/USDT and marked OTC. That means its price is quoted by RumiEX's own pricing engine rather than taken from an external exchange, and it is available around the clock. Because the quotes are RumiEX's, they will not exactly match ETH's price on any particular exchange. Trading on RumiEX is trading the price — you don't receive or send ETH on the blockchain, so gas fees and wallets don't apply to your trades.
You can follow the live ETH price on the markets page, test the chart on the trading charts page, and practise on a funded demo wallet before risking real money. For a structured approach, read crypto trading strategies.
Key takeaways
- Ethereum is a programmable blockchain; ether (ETH) is its native currency.
- Smart contracts are public programs that power tokens, stablecoins, exchanges and lending — and can contain bugs.
- Ethereum has used proof of stake since the Merge in September 2022, with 12-second slots.
- ETH has no supply cap: issuance goes to validators while base fees are burned.
- Layer 2 rollups carry much of the network's activity at lower cost.
- ETH has historically been more volatile than BTC; size positions accordingly.
Continue with Ethereum gas fees explained or compare the two largest networks in Bitcoin vs Ethereum.
Frequently asked questions
What is Ethereum in simple terms?
Ethereum is a public blockchain that can run programs, called smart contracts, as well as record payments. Developers use it to build applications such as tokens, stablecoins, exchanges and lending services that run without a company in the middle. Its native currency, ether (ETH), pays for using the network.
What is the difference between Ethereum and ether?
Ethereum is the network and its software. Ether, with the ticker ETH, is the currency native to that network. People often say 'Ethereum' when they mean the price of ETH, but strictly the network is Ethereum and the coin is ether.
What are smart contracts?
Smart contracts are programs stored on the Ethereum blockchain that run exactly as written when someone sends them a transaction. Because their code and state are public and they cannot be changed by one party once deployed (unless designed to be upgradable), they let people interact under shared rules without trusting an intermediary. They can also contain bugs, which have caused large losses.
Is Ethereum proof of stake?
Yes. Ethereum switched from proof of work to proof of stake in the Merge on 15 September 2022. Validators lock up ETH as collateral to propose and attest to blocks, which arrive in 12-second slots. The change cut the network's energy use by roughly 99.95%, according to ethereum.org.
Does ETH have a maximum supply?
No. Unlike Bitcoin's 21 million cap, ETH has no fixed maximum. New ETH is issued to validators, while a portion of every transaction fee (the base fee) is burned. Whether total supply grows or shrinks over a period depends on how busy the network is.
Sources and further reading
Written and reviewed by the RumiEX Editorial Team. This article is for education only and is not financial, investment or tax advice. Read our editorial standards.