What Is Ethereum?

Ethereum maintains a shared state: account balances, smart-contract code, and contract data. Transactions can transfer ETH or call a contract. Every validating node independently checks the resulting state transition under the network's rules.

A smart contract is code stored at an Ethereum address. Once deployed, it can apply rules for tokens, exchanges, lending systems, games, identity tools, and other applications. Smart contracts are not automatically trustworthy; bugs, privileged controls, and misleading interfaces can still cause losses.

ETH is used to pay for computation and data storage on Ethereum. The network measures this work in gas. A transaction's final cost depends on the gas used and the fee paid per unit of gas, so a complex contract interaction usually costs more than a basic transfer.

Fees change with network demand. A failed contract transaction can still consume gas because validators performed the requested computation before the failure became known.

Developers can create tokens through smart-contract standards. These tokens are separate from ETH even though they use Ethereum for settlement. Their supply rules, permissions, and economic value are defined by their own contracts and communities.

Applications often combine multiple contracts and external interfaces. Users should distinguish the underlying Ethereum network from a particular application built on it. Ethereum continuing to operate does not guarantee that every token, bridge, or application will work safely.

Ethereum uses proof of stake. Validators lock ETH as stake, propose blocks, and attest to blocks proposed by others. Protocol rewards encourage correct participation, while penalties can apply to certain failures or dishonest behavior.

Proof of stake replaces competitive mining but does not remove every centralization concern. Stake distribution, validator infrastructure, client diversity, and reliance on service providers remain important subjects to evaluate.

Ethereum's base layer has limited block space. Layer-2 networks can execute activity separately and publish data or proofs back to Ethereum, often reducing user costs. Each layer-2 system has its own withdrawal process, operational assumptions, and smart-contract risks.

Other limitations include changing fees, contract exploits, phishing, irreversible transactions, and the complexity of managing approvals across applications. Programmability expands what the network can do, but it also expands the number of ways users can make mistakes.