Ethereum 101: The World’s Supercomputer and Its Fuel

Before Ethereum, most people viewed blockchain technology mainly as a way to track digital money. Bitcoin showed that a decentralized ledger could record transactions securely without a bank.

Very quickly, early builders realized the tech could do much more than just move coins from A to B. They pictured a system that could run any program, was very hard to censor, and was open to anyone with an internet connection.

That idea became Ethereum. Launched in 2015, it took the basic idea of a public blockchain and added programmable code on top, creating a kind of shared “world computer” that no single company controls.

What is Ethereum?

Ethereum is a public, permissionless blockchain. Anyone can use it. Anyone can build on it.

Like Bitcoin, it relies on thousands of independent computers, called nodes, to verify transactions and keep a shared record of all activity.

The big difference is purpose. Bitcoin is mainly built to be a store of value and a payments network. Ethereum is built to be a base layer for applications.

The core innovation that makes this possible is the smart contract.

A normal blockchain transaction is like a digital handshake. “I send you money, you receive money.”

A smart contract is more like a vending machine. It is a piece of code that automatically carries out actions when certain conditions are met. For example:

“If User A sends 5 ETH to the contract, the contract sends them a digital deed to a house.”

Once deployed, smart contracts live on the Ethereum blockchain. They run exactly as written, without relying on a company, a server, or a customer support team.

No single person can pause them, rewrite them, or block specific users, as long as the underlying network is running.

This is what powers decentralized applications, or dApps. On the surface, a dApp can look like a normal website or app. Under the hood, the key logic runs on Ethereum instead of on a company’s private server.

What is ETH?

Ether (ETH) is the native cryptocurrency of the Ethereum network. You will see it traded on exchanges like any other crypto asset.

However, its most important role is as a utility token. ETH is the fuel that keeps the Ethereum network running.

Paying for gas

Every action on Ethereum uses computing resources. Sending a payment, minting an NFT, trading on a DEX, or running a complex smart contract all require work from validators and their hardware.

To pay for this work, the network charges a transaction fee called gas.

Gas fees are always paid in ETH. If you do not hold ETH in your wallet, you cannot send transactions or use dApps on Ethereum.

That basic requirement gives ETH real demand. As long as people want to use Ethereum, there will be people who need to buy ETH to pay gas.

Securing the network

ETH also secures the blockchain through a system called Proof of Stake (PoS).

In PoS, users can stake, or lock up, their ETH to become validators. Validators check transactions, propose new blocks, and help keep the chain running smoothly.

If they follow the rules, they earn rewards, which are paid in ETH. If they try to cheat or go offline for long periods, part of their staked ETH can be slashed, which means destroyed.

This reward and penalty system gives validators a strong financial reason to act honestly and protect the network.

Ethereum tokenomics

Ethereum’s tokenomics, or economic design, is different from Bitcoin.

• No hard cap: Bitcoin has a maximum supply of 21 million coins. No more can ever be created. Ethereum does not have a fixed maximum supply. More ETH can be issued over time as staking rewards.
• The burn mechanism: To help manage inflation, Ethereum introduced a system called EIP‑1559. Under this model, a base part of every transaction fee is burned, which means permanently removed from circulation. During times of heavy use, more ETH can be burned than is created as staking rewards. When that happens, ETH becomes deflationary, so the total supply goes down over time, which can make the remaining ETH more scarce.

Real-life examples

Ethereum is not just a concept. It already powers a large, global ecosystem that moves billions of dollars in value. Here are some practical ways it is used today.

Decentralized finance (DeFi)

Developers have built open financial protocols on Ethereum that work without traditional banks or brokers.

With DeFi, you can:

• Lend your crypto and earn interest
• Borrow against your holdings
• Trade tokens on decentralized exchanges (DEXs) such as Uniswap

All of this is handled by smart contracts, not by bank staff or middlemen. These services are available 24/7 to anyone with a compatible wallet and an internet connection.

Digital ownership (NFTs)

Non‑Fungible Tokens, or NFTs, are unique digital tokens created on Ethereum. Each NFT has a distinct identity that cannot be swapped one‑for‑one like normal coins.

NFTs are used to show ownership of digital art, music, in‑game items, collectibles, and even claims on real‑world assets.

Because ownership is recorded on the Ethereum blockchain, it is very hard to fake, copy, or erase. You can verify who owns an NFT, and where it has moved, just by checking the public ledger.

Stablecoins

A large share of the world’s stablecoins live on Ethereum. These are tokens designed to track the value of a traditional currency, most commonly the US dollar.

Popular examples include USDC and USDT.

Stablecoins let users send and receive dollar‑linked value across the world in minutes, often at a lower cost than traditional payment networks. They combine the speed and global reach of crypto with the relative price stability of fiat currency.

Risks and red flags

Ethereum offers powerful new tools, but it also comes with real risks. Anyone using it should understand these before getting involved.

• Smart contract bugs: dApps are controlled by code. If that code has a bug or design flaw, attackers may be able to exploit it. In many past cases, a single vulnerability has allowed hackers to drain all the funds locked in a contract. Blockchain transactions are usually final, so there is no easy “undo” button.
• High volatility: ETH is a highly volatile asset. Its price can rise or fall sharply in short time periods. You should be prepared for large swings in value, including the risk of losing most or all of your investment.
• Phishing and scams: Anyone can launch a token, a dApp, or a website that looks legitimate. Scammers often copy popular projects to trick users into sharing wallet seed phrases or granting harmful permissions. Always double‑check URLs, contract addresses, and social media links, and never share your private keys or recovery phrase with anyone.

The future of Ethereum

Ethereum is in the middle of a long series of upgrades aimed at improving speed and lowering costs. In the past, during busy periods, the network often became slow and expensive to use.

To address this, Ethereum is moving toward a layered system that relies heavily on Layer 2 networks. Layer 2s are separate blockchains built on top of Ethereum, such as Arbitrum, Optimism, or Base.

They process transactions quickly and cheaply, then bundle many of them together and send the final results back to Ethereum for settlement.

This modular approach lets Ethereum focus on being a secure, neutral base layer. At the same time, Layer 2 networks handle most of the high‑volume activity that mainstream users and apps need.

If this model succeeds, Ethereum could support many more users and use cases without sacrificing security or decentralization.

Ethereum upgrades

Ethereum continues to evolve through a series of carefully planned upgrades, each building on the last to improve performance, security and usability.

The Pectra upgrade, activated on May 7, 2025, brought several practical enhancements to staking and data handling.

One of the biggest changes was to staking rules. Previously, each validator was capped at 32 ETH. Pectra raised this limit to 2,048 ETH, allowing stakers to consolidate multiple validators into one.

This reduces overhead for large operators, makes it easier for everyday users to compound their rewards, and helps keep the network efficient without adding extra load.

Pectra also increased the network's capacity for "blobs", the temporary data packets introduced earlier to support Layer 2 rollups. It doubled the target number of blobs per block from 3 to 6, with a maximum of 9, giving rollups more room to post their bundled transactions. This helped keep fees low even as activity grew.

Building directly on Pectra, the Fusaka upgrade went live on December 3, 2025. Its main feature is Peer Data Availability Sampling (PeerDAS), a smarter way for validators to check blob data.

Instead of every validator downloading and verifying entire blobs, they now sample small portions and share with peers. This dramatically lowers the bandwidth and hardware needed to run a node — cutting requirements by around 80-85% — while still maintaining strong security guarantees.

Fusaka also introduced a framework for gradually increasing blob capacity over time. Through smaller updates that don't require full network upgrades, the blob target can eventually reach 14 per block with a maximum of 21. This means Ethereum can scale its data capacity smoothly as Layer 2 networks grow, without the coordination burden of major hard forks each time.

Together, these changes have made Layer 2 networks even more efficient. Transactions on chains like Arbitrum, Optimism and Base are now faster and cheaper than ever, often costing just fractions of a cent. Users get a smoother experience for DeFi, NFTs and everyday apps, all while relying on Ethereum's proven security as the settlement layer.

These upgrades show Ethereum's ongoing commitment to scaling responsibly: prioritising decentralization, keeping costs low for users, and making the network easier to participate in for stakers and node operators alike. As adoption grows, further improvements are already in planning to push capabilities even higher.