What is Ethereum (ETH)?
Ethereum (ETH) is a decentralized network that runs smart contracts — programs that execute automatically when their conditions are met. Unlike a simple payment ledger, the network lets anyone build and deploy applications, from lending protocols to digital art registries. ETH, the network’s native asset, fuels every operation and anchors the security system through staking.
What functions does ETH serve in the ecosystem?
Every action on Ethereum costs a fee called gas, paid exclusively in ETH. A portion of each gas payment is permanently burned — removed from circulation — which ties the asset’s supply behavior to actual network usage.
ETH is also the economic backbone of the network’s security. Validators lock 32 ETH to participate in block production and transaction confirmation; honest participation earns rewards, while dishonest behavior leads to slashing of the staked funds. This design aligns the validators’ financial interest with the network’s health.
Beyond staking and fees, ETH serves as the primary collateral in decentralized lending, borrowing, and stablecoin protocols. Its deep liquidity across the ecosystem makes it the default settlement asset for much of on-chain finance.
The energy transition and the layer-two scaling approach
Ethereum launched with proof-of-work mining in 2015. The Merge upgrade in September 2022 replaced mining entirely with proof-of-stake, cutting the network’s energy use by roughly 99.95%. It was effectively an engine swap performed on a live system handling billions of dollars in value.
Since then, the roadmap has focused on layer-two rollups for scaling. Networks like Arbitrum, Base, and Optimism bundle transactions, execute them cheaply, and post compressed data back to Ethereum’s mainnet for final settlement. This structure keeps the base layer’s block space uncongested while letting the broader ecosystem grow through dozens of interconnected rollups.