What is Ethereum?

A smart contract is a program stored on the blockchain. Once deployed, it runs exactly as written whenever someone interacts with it, and anyone can check its code and history. Smart contracts power:

• tokens — including many stablecoins and project tokens (the ERC-20 standard);
• decentralised exchanges and lending — see What is DeFi?;
• NFTs — unique digital items;
• many other applications.

Every operation on Ethereum costs gas, paid in ETH. Gas prevents endless or abusive programs and pays validators for their work. When the network is busy, gas becomes more expensive. Read more in Gas and transaction fees.

Since September 2022 (an upgrade called The Merge), Ethereum uses proof of stake. Validators lock up ETH as a deposit and take turns proposing and confirming blocks. Validators who break the rules can lose part of their deposit.

Ethereum keeps balances in accounts. An account controlled by a private key (an externally owned account) can send transactions; a contract account holds code and runs only when called. Every transaction from your account carries a number (nonce), so transactions are processed in order and cannot be replayed.

Since an upgrade in 2021 (EIP-1559), each block has a base fee that is burned, plus an optional tip for the validator. Burning part of the fees removes ETH from circulation, while staking rewards create new ETH; whether the total grows or shrinks depends on network activity.

Many other blockchains are compatible with Ethereum's virtual machine (EVM), and layer 2 networks process transactions more cheaply and then post the results to Ethereum. Read Layer 1 and layer 2.