What is Ethereum?

A comprehensive, fact-grounded guide to Ethereum and ETH covering history, technology, proof of stake, tokenomics, use cases, market structure, milestones, risks, and the future roadmap. Includes authoritative sources and links for deeper research.

Introduction

If you are asking what is ethereum, this long-form guide explains how the Ethereum blockchain and its native asset ETH work from first principles. Ethereum (ETH) is a general-purpose, Layer 1 blockchain designed for programmable smart contracts and decentralized applications. Launched in 2015, it introduced the idea that a blockchain could run arbitrary code via a virtual machine, enabling decentralized finance, non-fungible tokens, and many other Web3 use cases. The Ethereum network now operates using proof of stake consensus and secures a broad ecosystem of applications and Layer 2 rollups.

At a high level, Ethereum (ETH) offers:

  • A base or settlement layer for smart contracts and Transaction execution
  • An account-based model, not a UTXO Model
  • The Ethereum Virtual Machine, or EVM (Ethereum Virtual Machine), for deterministic execution
  • A native currency, Ethereum (ETH), used for fees, staking, and economic security

Authoritative resources to consult while reading include the official site at ethereum.org, the formal specification known as the Yellow Paper, accessible via ethereum.org/whitepaper, the project profile on Messari, market data at CoinGecko, and CoinMarketCap. Background and history are also well documented on Wikipedia and multiple research outlets such as Binance Research.

For those evaluating how to access the asset, you can explore ETH markets on Cube.Exchange: Trade ETH-USDT, Buy ETH, or Sell ETH. To learn broader fundamentals, see Cube's glossary entries on Blockchain, Proof of Stake, and Gas.

History and origin of the network and the ETH asset

Ethereum (ETH) was proposed by Vitalik Buterin in late 2013 as a generalized blockchain platform capable of running smart contracts. The founding group included Vitalik Buterin, Gavin Wood, Joseph Lubin, Anthony Di Iorio, Charles Hoskinson, Mihai Alisie, and others. Early development was funded by a 2014 crowd sale that exchanged ether for bitcoin, raising roughly 31,000 BTC, as documented by Wikipedia and ethereum.org. The mainnet genesis occurred on 30 July 2015.

In 2016, the DAO, an early investment collective built with smart contracts, was exploited due to a vulnerability. In response, the community performed a contentious hard fork to return funds to the DAO, creating two chains: the forked chain retained the Ethereum name, while the original chain continued as Ethereum Classic (ETC). This pivotal event is summarized in Wikipedia's DAO entry and in the Ethereum Foundation blog archives.

From 2015 onward, Ethereum (ETH) pursued a long-term roadmap known as Serenity, culminating in the transition from proof of work to proof of stake. The Beacon Chain, the proof of stake consensus layer, launched in December 2020. On 15 September 2022, Ethereum executed The Merge, unifying the execution layer with the proof of stake consensus layer. The event lowered energy usage dramatically and changed validator economics, as explained on ethereum.org and covered by outlets like Reuters.

Subsequent upgrades included Shanghai/Capella in April 2023, enabling validator withdrawals, and the Dencun upgrade in March 2024, which introduced EIP-4844 proto-danksharding to reduce data availability costs for rollups. See ethereum.org on withdrawals and EIP-4844 documentation.

Technology and consensus mechanism

Execution model and state

Ethereum (ETH) uses an account-based state model rather than UTXOs. Each account maintains balances and nonces; you can learn more via Cube's entries on the Account Model and Nonce. The blockchain is a global State Machine whose state transitions are applied deterministically. Client nodes verify blocks by executing transactions within the Virtual Machine and updating the state accordingly.

Smart contracts run on the EVM with deterministic behavior, a property formalized as Deterministic Execution. Popular languages include Solidity and Vyper. Contracts are addressable via 20-byte account identifiers derived from Address Derivation rules and protected by standard cryptographic signatures.

Consensus layers and fork choice

Since The Merge, Ethereum (ETH) runs a dual-layer architecture: the Execution Layer, which handles EVM computation, and the Consensus Layer, which handles proof of stake. Clients are diversified across implementations, supporting Client Diversity to reduce correlated failure risks. Execution clients include Geth, Nethermind, and Erigon, while consensus clients include Prysm, Lighthouse, Teku, and Nimbus. The fork choice rule used in proof of stake is part of the Gasper protocol, combining LMD-GHOST for chain selection with Casper FFG for finality. See the Merge documentation on ethereum.org and the consensus specs at ethereum.org developers portal.

Validators are chosen by Leader Election to propose blocks in time slots. Time is divided into Slot/epoch intervals, and validators provide Attestation votes for the canonical chain. When a supermajority of stake reaches Quorum on checkpoints, the chain achieves Finality, ensuring Safety (Consensus) as long as assumptions about honest majority and network conditions hold.

Proof of stake economics and validator operations

To become a validator, an entity stakes 32 ETH to a deposit contract. Validators propose and attest to blocks, earning staking rewards that depend on total active stake, participation, and network conditions. Misbehavior can lead to Slashing, a penalty mechanism that destroys a portion of stake to deter equivocation and other consensus faults. Withdrawals of staking rewards and principal became possible after the Shanghai/Capella upgrade in 2023, as explained on ethereum.org staking docs.

Proof of stake replaced proof of work to improve energy efficiency and enable a scaling roadmap based on rollups and data sharding. The transition was documented in the Yellow Paper and Ethereum Improvement Proposals and widely covered by mainstream media, including Bloomberg and Reuters.

Gas, fees, and EIP-1559

Transaction processing requires paying Gas, with fees dependent on computational complexity and data usage. EIP-1559, introduced in the London upgrade in August 2021, changed the fee market design by splitting fees into a base fee that is burned and an optional priority tip to incentivize inclusion. The burn reduces net ETH issuance and can make Ethereum (ETH) deflationary during high activity, as detailed on ethereum.org fee market docs and explained by CoinDesk.

Data availability and scaling with rollups

The long-term scaling strategy is rollup-centric. Rollups process transactions off-chain and post data to Ethereum for security. Optimistic rollups rely on Fraud Proof, while ZK-rollups rely on Validity Proof. See Cube's entries on Rollup, Optimistic Rollup, and ZK-Rollup.

EIP-4844, delivered in the Dencun upgrade, added proto-danksharding by introducing temporary data blobs, greatly lowering the cost for rollups to publish data, thus improving Data Availability. Full Danksharding is on the roadmap after Proto-Danksharding, with the goal of massively increasing throughput while maintaining Ethereum’s role as a Settlement Layer. See the roadmap at ethereum.org danksharding page.

Tokenomics of ETH

Supply and issuance

Ethereum (ETH) has no hard-capped maximum supply. Issuance has evolved across upgrades:

  • Pre-Merge proof of work issuance was higher, paid to miners
  • Post-Merge proof of stake issuance is significantly lower and goes to validators
  • EIP-1559 burns the base fee from every transaction, offsetting issuance

The net supply trajectory therefore depends on network activity. During periods of high usage, burned base fees can exceed issuance, causing net supply to decline; during low usage, supply can grow slightly. For authoritative figures and real-time supply, consult CoinGecko’s Ethereum page, CoinMarketCap, and Messari’s profile. Technical details are covered in the Yellow Paper and Ethereum protocol docs available via ethereum.org/whitepaper.

Utility and demand drivers

ETH is used for:

  • Paying for gas to execute smart contracts on the Execution Layer
  • Staking to secure the network and earn Staking Rewards
  • Collateral in DeFi lending, derivatives, and other financial primitives
  • Unit of account and settlement asset across rollups and bridges

As a core economic asset in Web3, Ethereum (ETH) underpins the security of the network and the broader application ecosystem. Demand is influenced by on-chain activity, DeFi usage, NFT minting and trading, and broader market cycles.

Fees and incentives

The EIP-1559 fee mechanism introduced a dynamically adjusting base fee to target block space utilization, reducing fee volatility and improving user experience. Users can set Gas Limit and Gas Price parameters to control cost and timing. Priority tips reward validators for inclusion, while the base fee is burned, aligning incentives between users and long-term holders of Ethereum (ETH).

Use cases and the wider ecosystem

Decentralized finance

Ethereum (ETH) is the dominant platform for Decentralized Finance (DeFi), hosting decentralized exchanges, lending markets, derivatives, asset management, and stablecoin systems. Examples include automated market makers that follow a Constant Product Market Maker (CPMM) curve, lending protocols governed by Interest Rate Model dynamics, and sophisticated Dex Aggregator routers that optimize trade execution. Risks in DeFi include Impermanent Loss, Slippage, Price Impact, and protocol-specific vulnerabilities.

Stablecoins like USDC and DAI circulate heavily on Ethereum, enabling on-chain settlement and composability across protocols. Oracles like Chainlink feed secure price data, a model described by Cube’s entries on Oracle Network, Price Oracle, and Oracle-Dependent Protocol. Users can supply Ethereum (ETH) as collateral in lending protocols, pursue Yield Farming, or provide liquidity in pools with Concentrated Liquidity.

NFTs and digital culture

Ethereum pioneered the NFT standard via ERC-721 and ERC-1155, enabling unique digital assets. See Cube on NFT (Non-Fungible Token), Token Standard (ERC-721/1155), and NFT Minting. NFTs power art, gaming items, domain names, and membership passes, with metadata standards documented on NFT Metadata. Ethereum (ETH) remains the most liquid venue for NFT trading, with an extensive creator ecosystem.

DAOs and governance

Decentralized autonomous organizations govern many Ethereum protocols, treasuries, and open-source projects using token-based voting, multi-sig wallets, and on-chain proposals. See Cube on On-chain Governance, Off-chain Governance, and Multi-Sig Wallet. Governance tokens may direct parameters such as fees, collateral factors, or incentive programs. Ethereum (ETH) can fund treasuries and serve as a reserve asset.

Layer 2 rollups and cross-chain interoperability

Layer 2s like Optimistic and ZK rollups extend Ethereum capacity and reduce fees. Rollups rely on Ethereum as a Settlement Layer and post proofs or data for security. Key concepts include Sequencer ordering, Aggregator roles, and bridging via Canonical Bridge or Light Client Bridge. For cross-chain flows, see Cross-chain Bridge, Interoperability Protocol, and Message Passing. Users should understand Bridge Risk before transferring Ethereum (ETH) across chains.

Advantages of the Ethereum approach

  • Network effects and liquidity: Ethereum (ETH) anchors the largest pool of liquidity and developer mindshare in smart contract platforms, as tracked by profiles on Messari and market aggregators like CoinGecko.
  • Programmability and composability: The EVM and standards like ERC-20 and ERC-721 enable contracts to build on each other, accelerating innovation.
  • Security model: Proof of stake with broad validator participation and a burn mechanism aligns incentives and reduces resource waste. Ethereum’s layered architecture and client diversity foster resilience. See Cube on Client Diversity.
  • Rollup-centric scaling: A credible path to high throughput through EIP-4844 and future danksharding while Ethereum (ETH) remains the neutral settlement layer.
  • Tooling and infrastructure: Rich developer suites, audits, formal verification efforts, and security best practices such as Bug Bounty, Formal Verification, and Transaction Simulation.

Limitations and risks to consider

  • Throughput and fees: Base layer throughput is constrained to preserve decentralization. During peak demand, gas fees can spike, affecting end-user costs. Understanding Throughput (TPS) and Latency is essential when transacting with Ethereum (ETH).
  • MEV and market fairness: Maximal extractable value can cause adverse ordering such as Sandwich Attack. Tooling for MEV Protection and designs like proposer-builder separation aim to mitigate these effects.
  • Smart contract risk: Bugs, economic exploits, and dependency risks can lead to losses. See Cube on Re-entrancy Attack, Flash Loan Attack, and Audit Trail.
  • Staking centralization: Liquid staking and large operators may concentrate voting power if not monitored. Community and protocol-level designs encourage distributed validators for Ethereum (ETH) security.
  • Bridge and cross-domain risk: Cross-chain systems introduce additional trust assumptions as described in Bridge Risk and Cross-domain MEV.
  • Regulatory and operational risk: Jurisdictional policies and compliance requirements evolve and can affect on-ramps, stablecoins, and protocol operations. Established financial media such as Investopedia and Reuters provide ongoing coverage of policy developments.

Notable milestones and upgrades

  • 2013: Vitalik Buterin publishes the Ethereum proposal introducing a general-purpose smart contract platform. See ethereum.org history.
  • 2014: Crowdsale funds development with approximately 31,000 BTC; the Ethereum Foundation is formed. Sources: Wikipedia and ethereum.org.
  • 30 July 2015: Ethereum mainnet genesis. See ethereum.org history timeline.
  • 2016: The DAO exploit and fork split the chain into Ethereum and Ethereum Classic. Summary on Wikipedia.
  • 2020: Beacon Chain goes live, beginning proof of stake parallel to proof of work. Documentation on ethereum.org.
  • August 2021: London upgrade implements EIP-1559 fee burn. Architectural overview on ethereum.org.
  • 15 September 2022: The Merge transitions Ethereum (ETH) to proof of stake. Covered by ethereum.org and Bloomberg.
  • April 2023: Shanghai/Capella enables validator withdrawals. See ethereum.org staking withdrawals.
  • March 2024: Dencun (Deneb + Cancun) upgrade delivers EIP-4844 proto-danksharding, cutting rollup data costs and advancing the scaling roadmap. See ethereum.org danksharding.

These milestones collectively shaped the security model, tokenomics, and user experience of Ethereum (ETH).

Market structure and performance indicators

Market metrics for Ethereum (ETH) are widely tracked:

  • Circulating supply and on-chain issuance: See CoinGecko and CoinMarketCap
  • Market capitalization and rank among cryptoassets: Tracked by CoinGecko and Messari
  • 24-hour trading volume and liquidity across venues: Aggregated by major market data providers
  • Historical price and all-time high: CMC and CoinGecko report the all-time high set during 2021’s bull cycle

Because these figures change constantly and can vary by data source or methodology, always cross-check current numbers on at least two sources such as CoinGecko and CoinMarketCap. Messari’s asset profile also provides methodology notes. For trading access to Ethereum (ETH), visit Trade ETH-USDT on Cube.Exchange and review liquidity and spreads before placing a Market Order or Limit Order.

How Ethereum achieves security and liveness

Ethereum’s proof of stake aims to provide robust Liveness and finality under partial network faults. The Gasper protocol aligns incentives so that rational validators attest to the head of the chain and finalize checkpoints. The design resists common network issues like Chain Reorganization, though short reorgs can still occur under certain conditions. Blocks that fail to make it into the canonical chain are sometimes called Orphan Block or uncle blocks; Ethereum historically included Uncle Block rewards under proof of work to reduce selfish mining, a policy that changed with the move to proof of stake.

Security is enhanced by a map-reduce style network of Blockchain Node operators, including Full Node validators that verify all state transitions and Light Client software that can authenticate with less resource usage. The healthy mix of implementations bolsters resilience; client diversity reduces the risk of a single bug causing a network-wide failure.

Developer experience and standards

Ethereum (ETH) maintains a thriving developer ecosystem. Standards like ERC-20 for fungible tokens and ERC-721 for NFTs codify common interfaces and promote composability. The testing and deployment stack includes common frameworks, plus tooling for formal audits and fuzzing. For security hygiene, teams often implement allowlists, bug bounties, and multi-sig treasury policies; see Cube’s entries on Allowlist/Blocklist, Bug Bounty, and Multi-Sig Wallet.

Account abstraction, spearheaded by ERC-4337, expands wallet capabilities with features like batched transactions and sponsored gas. While not a consensus change, it is a major UX improvement on Ethereum. Documentation is available at ethereum.org.

Practical tips for using Ethereum and ETH

  • Gas budgeting: Monitor base fee levels and set tips appropriate to market conditions. Consider L2s for lower fees when moving or trading Ethereum (ETH).
  • Wallet security: Use a Hardware Wallet for long-term storage, secure your Seed Phrase, and enable 2FA (Two-Factor Authentication) where relevant. Beware of Phishing and Social Engineering.
  • Smart contract hygiene: Prefer audited code and cautious position sizing. Watch for protocol announcements and potential upgrades that could affect liquidity or risk parameters for Ethereum (ETH) positions.
  • Bridges and rollups: Understand withdrawal periods on optimistic rollups and security assumptions for ZK-rollups. Assess bridge security and the role of trusted operators if any.

The role of ETH in trading and portfolio construction

Ethereum (ETH) is among the most liquid cryptoassets, making it a common base pair for spot and derivatives markets. Exchange microstructure topics like Order Book, Spread, Depth of Market, and Best Bid and Offer (BBO) matter for execution quality. Traders may use Stop-Loss, Take-Profit, and advanced order types such as Post-Only Order or IOC/FOK Orders to control slippage and exposure.

In derivatives, Perpetual Futures track the underlying price using a Funding Rate, with risk managed by exchange Risk Engine systems to mitigate Liquidation cascades. Traders sometimes construct hedged or Delta Neutral Strategy positions with Ethereum (ETH) as the core asset.

The roadmap and future outlook

Ethereum’s roadmap prioritizes scalability, security, and decentralization. Key initiatives include:

  • Danksharding: A multi-phase path from EIP-4844 proto-danksharding to full sharding, increasing data throughput and lowering costs for rollups. See ethereum.org danksharding, and Cube on Danksharding and Data Sharding.
  • Verkle trees and state growth: Moving to Verkle trees could enable smaller proofs and facilitate stateless clients, reducing the burden on nodes. Follow updates on ethereum.org developers portal.
  • Proposer-builder separation and MEV: Ongoing research explores enshrining PBS to reduce trust in off-chain relays and improve fairness. See coverage in the Ethereum Foundation blog.
  • Single-slot finality: Research aims to reduce time to finality and improve UX. See Cube on Time to Finality.
  • Cross-rollup interoperability: Shared sequencing, Shared Sequencer designs, and robust Interoperability Protocol standards could reduce fragmentation and improve user experience across L2s.

These upgrades are iterative, peer-reviewed, and implemented via Ethereum Improvement Proposals. Ethereum (ETH) is expected to remain a settlement layer with a broad rollup ecosystem, rather than scaling through monolithic block size increases.

How to evaluate Ethereum among Layer 1 blockchains

When comparing Ethereum (ETH) to other Layer 1 Blockchain networks, consider:

  • Security budget and validator decentralization under proof of stake
  • Client diversity, code quality, and formal specification rigor
  • Ecosystem maturity, liquidity, and on-chain activity
  • Rollup-centric scaling versus alternative designs
  • Developer tooling, standards, and cross-chain compatibility

Independent research sources such as Messari, Binance Research, and Investopedia offer comparative analysis and primers that can help frame an assessment.

Getting started with ETH on Cube.Exchange

References and authoritative resources

Conclusion

Ethereum (ETH) is a programmable, proof of stake Layer 1 blockchain that serves as a neutral settlement layer for a vast smart contract economy. Its core innovations include the EVM for general-purpose computation, a fee burn mechanism that ties protocol economics to network usage, and a rollup-centric roadmap that scales capacity while preserving decentralization. The platform’s history spans the 2015 launch, the 2016 DAO fork, EIP-1559, The Merge in 2022, withdrawals in 2023, and proto-danksharding in 2024.

For users and builders, the strengths of Ethereum (ETH) lie in network effects, security, tooling, and an unmatched ecosystem of DeFi, NFTs, DAOs, and Layer 2s. Its limitations are well understood and actively addressed through research and iterative upgrades. Whether you seek to run applications, manage on-chain portfolios, or participate in staking, Ethereum provides the foundational infrastructure for Web3. Always consult authoritative sources such as ethereum.org, Messari, CoinGecko, and CoinMarketCap for current protocol and market data, and consider your risk tolerance and security practices when acquiring or using Ethereum (ETH).

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