Ethereum 101: The World’s Supercomputer and Its Fuel

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

Some early developers, however, saw further potential. They imagined a system that could run many different types of programs, with rules enforced by code and access available to anyone with an internet connection.

This idea became Ethereum. Launched in 2015, it took the concept of a public blockchain and added a flexible programming layer. The result is often described as a shared "world computer" that no single company or government controls.

What is Ethereum?

Ethereum is a public, permissionless blockchain. Anyone can use it, and anyone can run the software to help secure the network. Like Bitcoin, it relies on a network of thousands of independent computers, called nodes, that work together to verify transactions and keep a shared record of activity.

Bitcoin was designed mainly as digital money and a potential store of value. Ethereum, by contrast, was designed as a base layer for applications. Developers can write and deploy programs that interact with digital assets directly on the blockchain.

The core innovation that enables this is the smart contract.

You can think of a basic blockchain transaction as a simple instruction: "I send you money, you receive money." A smart contract is more advanced. It is a piece of software that lives on the blockchain and runs automatically when certain conditions are met.

For example: "If User A sends 5 ETH to this contract, then the contract sends User A a digital deed that represents legal rights to a house, according to the contract terms."

Smart contracts execute according to their code. Once deployed, they are difficult to change and do not depend on a single server or company. When they are written correctly, they can run without downtime and with reduced need for intermediaries.

Applications that rely on smart contracts are called decentralised applications, or dApps. They may look like regular websites or mobile apps, but much of their core logic and asset handling is processed on the blockchain instead of on a central server.

What is ETH?

Ether (ETH) is the native crypto-asset of the Ethereum network. It is widely traded on exchanges and its price can be highly volatile.

From a functional point of view, ETH is best understood as a utility token that powers the network. It is required to pay for activity on Ethereum and is also used in its security model.

Paying for gas

Every operation on Ethereum uses computing resources. Sending ETH, transferring a token, minting an NFT, or running a complex smart contract all require work from the network's validators.

To compensate validators for this work, users pay transaction fees. On Ethereum, these fees are known as "gas". Gas measures how much computation an action needs.

Gas fees are paid in ETH. If you do not hold any ETH in your wallet, you generally cannot use most Ethereum-based applications. This functional requirement creates ongoing demand for ETH from anyone who wants to use the network.

The actual fee you pay in euro terms can vary a lot. It depends on how busy the network is, how complex your transaction is, and the market price of ETH at the time.

Securing the network

Ethereum currently uses a system called Proof of Stake (PoS) to secure the blockchain. Under PoS, users can stake, or lock, their ETH to take part in validating the network.

Validators check transactions and propose new blocks of data. If they follow the rules, they earn rewards in ETH. If they try to cheat or behave dishonestly, part of their staked ETH can be taken away. This is known as "slashing".

This design creates a financial incentive to act honestly, because validators have something to lose if they attack the network. It also helps align the interests of long-term ETH holders with the health of the system.

Ethereum tokenomics

"Tokenomics" refers to the economic design of a crypto-asset. Ethereum's tokenomics are different from Bitcoin's in a few important ways.

• No fixed maximum supply
  Bitcoin has a hard cap of 21 million coins. New bitcoins are issued at a decreasing rate until that limit is reached.
  Ethereum does not have a strict maximum number of ETH that can ever exist. Instead, its supply is influenced by protocol rules, staking rewards, and a burn mechanism.

• The burn mechanism (EIP‑1559)
  In 2021, Ethereum implemented an upgrade known as EIP‑1559. This changed how transaction fees work.
  Each transaction now includes a "base fee" that is removed from circulation. In other words, this part of the fee is burned, which permanently reduces the total supply of ETH.

  During periods of high network activity, the amount of ETH burned can be greater than the amount of new ETH issued as staking rewards. When that happens, the total supply of ETH can decrease over time.

This does not guarantee that ETH will rise in price or that it will always be "deflationary". It simply describes the rules that affect how much ETH exists in circulation.

Real-life examples

Ethereum is no longer experimental technology used only by enthusiasts. It now supports a wide range of services and assets, with activity measured in billions of euro equivalent. Here are some common uses.

Decentralised finance (DeFi)

Decentralised finance, often shortened to DeFi, refers to financial services built with smart contracts instead of traditional intermediaries.

On Ethereum, you can:

• lend crypto-assets to a protocol and earn interest
• borrow against your existing holdings, if you provide enough collateral
• trade tokens on decentralised exchanges (DEXs) such as Uniswap

In these systems, smart contracts hold the funds and enforce the rules. They operate according to open, transparent code rather than the policies of a single company.

DeFi can offer new options, but it also carries significant risk. Smart contract bugs, rapid price changes, and design errors can all lead to loss of funds.

Digital ownership (NFTs)

Non-fungible tokens, or NFTs, are unique digital tokens that usually represent ownership of a specific item or entry. On Ethereum, NFTs can be linked to digital art, music, game items, collectibles, or even claims connected to real-world assets, depending on the legal and technical setup.

The key feature is that the ownership record of the NFT is stored on the Ethereum blockchain. This record is easy to verify and hard to alter.

Owning an NFT does not always mean you own the underlying artwork or intellectual property rights. What you actually get depends on the terms set by the creator, the marketplace, and the law in your country. Always read the conditions carefully.

Stablecoins

Stablecoins are crypto-assets that aim to track the value of a specific currency, such as the euro (EUR) or US dollar (USD). On Ethereum, stablecoins are usually issued as tokens that move on the blockchain like any other asset.

There are several types of stablecoin designs. Some are backed by reserves held by a central issuer, while others are supported by crypto collateral held in smart contracts. Each model has different risks, such as issuer default, reserve quality, or smart contract failure.

Stablecoins allow users to hold and transfer value with less price volatility than assets like ETH or BTC, while still using blockchain infrastructure.

Risks and red flags

Using Ethereum and ETH involves significant risks. It is important to understand these before you start.

• Smart contract bugs
  dApps run on code. If there is a mistake in that code, attackers can exploit it. This has happened many times and has led to large losses.
  If funds are stolen due to a bug, transactions are usually irreversible. There may be no central party who can restore your assets.

• High volatility
  The price of ETH, measured in EUR or any other currency, can rise and fall quickly. Double-digit percentage moves in a single day are not rare.
  You should be prepared for the possibility that the value of your holdings could fall sharply, including to a level that is much lower than your purchase price.

• Phishing and scams
  Anyone can create a token, website, or dApp on top of Ethereum. This openness encourages innovation, but it also allows scammers to operate.
  Common tactics include fake websites that copy popular services, misleading tokens with similar names, and prompts asking you to sign harmful wallet transactions.

  To reduce risk, always:

  • check URLs carefully
  • verify contract addresses from trusted sources
  • be cautious about granting permissions from your wallet
  • avoid investing more than you can afford to lose in unverified projects

• Regulatory and legal uncertainty
  Rules for crypto-assets are evolving, including within the European Union under MiCA and related regulations.
  Future changes to regulation, taxation, or enforcement practices could affect how you can use Ethereum-based services, or whether certain tokens are available in your country.

The future of Ethereum

Ethereum is in the middle of a long-term upgrade process that focuses on speed, cost, and scalability. In the past, heavy use of the network often led to slow confirmation times and high fees, especially during popular NFT drops or DeFi activity spikes.

To address this, the ecosystem is moving toward a structure that relies more on "Layer 2" networks.

Layer 2s are separate blockchains that sit on top of Ethereum. Examples include Arbitrum, Optimism, and Base. They process many transactions quickly and at lower cost, then periodically send bundled summaries back to the main Ethereum blockchain.

This approach allows Ethereum to act as a secure base layer for settlement and data availability, while Layer 2 networks handle most of the day-to-day traffic. In theory, this can support many more users without compromising security as much as simply increasing block sizes on the main chain.

However, this design introduces new trade-offs, such as added technical complexity and different trust assumptions for each Layer 2 solution.

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.