What Is Ethereum? An Explainer

Ethereum is a popular cryptocurrency—the second-largest by market cap, in fact, behind Bitcoin.

The network’s co-founder Vitalik Buterin developed the idea for Ethereum in 2013 as a way to improve on the decentralized finance of bitcoin and create an even more functional blockchain. He has drawn the analogy of Bitcoin as a basic calculator and Ethereum as a smartphone with multiple applications.

By February 2021, Ethereum accounted for $12 billion in daily transactions according to a Grayscale report, making it a leading financial infrastructure. The blockchain and its currency/asset Ether (ETH) can be viewed in different ways: as a currency (digital money), a consumable commodity, or an interest-bearing asset.


  • Ethereum is a blockchain platform that houses Ether (ETH), the second-largest cryptocurrency after Bitcoin.
  • Russian-Canadian programmer Vitalik Buterin and other cryptocurrency entrepreneurs conceived Ethereum in 2013 before launching it in 2015.
  • Part of Ethereum’s surge in popularity may be attributed to the growth of non-fungible tokens, or NFTs, which run on the Ethereum network.
  • Like Bitcoin, Ethereum operates on a proof-of-work protocol, but it’s moving toward proof-of-stake, largely for the lowered environmental cost.
  • In May 2021, Buterin became the world’s first crypto billionaire through his Ether holdings.

What Ethereum is all about

Ethereum is a decentralized blockchain platform that operates similarly to Bitcoin but is designed to offer a wider variety of functions. It’s an open-source project, not owned by any single entity or individual, so anyone with an internet connection can run an Ethereum node or perform transactions on the network.

Ethereum offers smart contracts, which are collections of computer code and data housed on the Ethereum blockchain. These smart contracts are programmed to follow instructions, and they also provide power for dapps—decentralized applications that are similar to smartphone apps found on Google Android or Apple iOS systems. Dapps are unique from these systems because no governing authority runs them.

When did Ethereum start?

Vitalik Buterin was fascinated by Bitcoin and its potential in 2011, when he co-founded Bitcoin Magazine with Mihai Alisie. In 2013, after a couple of years of observing Bitcoin and learning how it worked, Buterin joined forces with other entrepreneurs who had previously worked in Bitcoin to develop a “better” blockchain with greater versatility and functionality.

How does trading work on Ethereum?

As we speak, Ether is undergoing a software adjustment called Ethereum Improvement Proposal (EIP) 1559 that will change how the network processes transactions.

The price will be more transparent in advance, with a base fee paid to miners with every transaction (think of how payment for order flow works in the stock market). Each transaction will burn a small amount of Ether, thus reducing the ETH token supply and increasing the price.

Ether will also double the amount of space available in each block (Ethereum and other blockchains settle transactions in blocks).

How Ether price is determined

Just as any security or stock can shift in price, Ether (ETH) may fluctuate due to news impacting the crypto market, fundamental changes in the system (such as the shift to Ethereum 2.0 as the network moves away from proof-of-work), or a perceived increase or decrease in the supply of Ether.

A managing partner at DARMA Capital, Andrew Keys, said that the August adjustment and another one to come in 2022 could “easily quintuple the price of Ether” by next year.

Matt Hougan, chief investment officer at Bitwise Asset Management, stated that EIP 1559 should increase the number of transactions on the Ethereum network. That shift, he said, would also likely draw more institutional investors into the Ether market.

Google recently revised its ad policy to be more inclusive of cryptocurrency platforms, reversing its March ban on advertising for nearly all crypto products. Just after the policy change took place, the price of Ether went up, along with Bitcoin (BTC) and Cardano (ADA).

Who accepts Ether as payment?

At this point, Ether is not a universally accepted currency. However, there are several retailers that do accept Ether as a form of payment for purchases. Overstock, Gipsybee, and Shopify are a few of the companies where shoppers have the option of buying with Ether holdings.

Online gift card platform eGifter enables users to buy gift cards to over 300 retailers using Ether on a desktop or mobile app. Through the platform, you can buy gift cards to popular retailers like Macy’s, Target, Home Depot, and Lowe’s.

Several travel companies accept ETH as currency to pay for products (like flights and hotels):

What is Ether mining and how is it changing?

Both Bitcoin and Ether are mined using a proof-of-work (PoW) model, which means that machines must solve complex equations in order to uncover new coins. Computers use an enormous amount of energy to power cryptocurrency mining using PoW.

Mining energy consumption is the key reason critics oppose Ethereum (plus Bitcoin and other PoW networks).

The Ethereum network has been testing a new proof-of-stake (PoS) protocol on a blockchain called Beacon since December 2020. PoS is considered to be a more eco-friendly consensus mechanism. It uses much less electricity than PoW because it doesn’t have to solve advanced cryptographic puzzles.

Every protocol needs security, and PoS has that covered. The PoS model requires owners to put up their tokens as collateral. The more coins a person has, the more mining power they possess. The existing collateral of Ether allows a person to mint new coins and verify transactions on the Ethereum blockchain. Ethereum’s switch to PoS will trigger Ethereum 2.0.

Is Ethereum a non-profit?

The Ethereum Foundation is a non-profit organization dedicated to supporting Ethereum and related technologies. It aims to provide decentralized financial technology that operates independently of any government or institution.

Will Ethereum overtake bitcoin?

Bitcoin and Ethereum have a lot in common, but they differ in crucial ways that would make it difficult for Ethereum to completely replace Bitcoin.

Bitcoin operates primarily as a payment and investment network, so people can use it to transfer funds to another party or invest it for gains.

Ethereum has a broader purpose. The way people can build dapps (decentralized applications) on Ethereum’s smart contracts means that Ethereum has the potential to create a new infrastructure for finance and the internet as a whole. The Ethereum network, unlike other web platforms, doesn’t answer to or run based on any governing authority.

Some believe that Ethereum, especially as it rolls out major changes to become Ethereum 2.0, could eventually overtake Bitcoin as the leading cryptocurrency on the market.

Bottom line

Total market cap of both Ethereum and Bitcoin combined equates to nearly two-thirds of the $2.3 trillion global cryptocurrency market. Clearly, this cryptocurrency is not something to ignore. Keep an eye on Ethereum and its potential as not only currency but an entire financial infrastructure.

Rachel Curry is Pennsylvania-based content writer and journalist talking all things finance. She likes to give meaning to numbers by humanizing them. You can connect with her on Twitter at @writingsofrach.

The above content provided and paid for by Public and is for general informational purposes only. It is not intended to constitute investment advice or any other kind of professional advice and should not be relied upon as such. Before taking action based on any such information, we encourage you to consult with the appropriate professionals. We do not endorse any third parties referenced within the article. Market and economic views are subject to change without notice and may be untimely when presented here. Do not infer or assume that any securities, sectors or markets described in this article were or will be profitable. Past performance is no guarantee of future results. There is a possibility of loss. Historical or hypothetical performance results are presented for illustrative purposes only.