Ethereum is the second-largest cryptocurrency network by market value, but it does more than send money. If you have wondered what is Ethereum and why people talk about smart contracts and gas fees, this guide explains the basics in plain English.
Ethereum in simple terms
Ethereum is a blockchain network that runs programs called smart contracts. Its native currency is ether (ETH). Developers build applications on Ethereum for payments, lending, trading, digital collectibles and more. ETH is used to pay transaction fees on the network.
Ethereum vs Bitcoin
| Bitcoin | Ethereum | |
|---|---|---|
| Main purpose | Digital money and store of value | Platform for applications |
| Supply | Capped at 21 million | No fixed cap, with mechanisms that can reduce supply |
| Consensus | Proof of work (mining) | Proof of stake (staking) |
| Programmability | Limited | Extensive smart contracts |
What are smart contracts?
A smart contract is code that runs automatically when conditions are met. For example, a lending app can release a loan when collateral is deposited, with no bank in the middle. Smart contracts are powerful, but bugs or poorly designed code can lead to losses.
Gas fees
Every action on Ethereum costs a fee, called gas, paid in ETH. Fees rise when the network is busy. Layer 2 networks built on top of Ethereum can make transactions much cheaper and faster.
Staking
Since Ethereum moved to proof of stake, validators lock up ETH to help secure the network and earn rewards. Some exchanges offer staking services. Staking carries risks, including platform risk, lock-up periods and price swings, and rewards may be taxable income.
Risks to understand
- ETH prices are highly volatile.
- Smart contract bugs and hacks.
- Scam tokens and fake apps.
- Changing regulation across countries.
- Losing access if you lose your keys.
How people buy ETH
- Choose a regulated exchange in your country.
- Secure your account with strong two-factor authentication.
- Buy a small amount you can afford to lose.
- Decide whether to keep it on the exchange or in your own wallet; see our guide to hot vs cold wallets.
- Record every transaction for tax.
Track gains, losses and fees with our Crypto Profit Calculator.
Risk warning: crypto assets can lose most or all of their value. Only invest money you can afford to lose.
Common Ethereum scams to avoid
Once you understand what is Ethereum, it is easier to spot scams that target its users:
- Fake giveaways promising to double any ETH you send.
- Phishing sites that copy wallet or exchange login pages.
- Malicious approvals: signing a transaction that lets a contract drain your tokens.
- Fake support agents asking for your recovery phrase.
- Rug pulls: new tokens whose creators disappear with investors’ money.
Bookmark official sites, double-check addresses and never share your recovery phrase. If something sounds too good to be true, it almost certainly is.
For official, up-to-date guidance, see ethereum.org.
Frequently asked questions
Is Ethereum a good investment?
It is highly speculative. Many investors keep crypto to a small share of their portfolio after building their financial foundations.
What is the difference between Ethereum and ETH?
Ethereum is the network; ETH is its native currency used to pay fees and stake.
Why are Ethereum fees so high sometimes?
Fees rise when many people use the network at once. Layer 2 networks can lower costs.
What is Ethereum: key takeaways
- Ethereum is a blockchain platform for smart contracts.
- ETH pays transaction fees and can be staked.
- It differs from Bitcoin in purpose and design.
- It is volatile and carries technical and scam risks.
Last reviewed: October 2026. This article is general education, not personal financial, tax or legal advice. Rules, rates and limits change, so check official sources or speak to a qualified professional before making decisions. See our Financial Disclaimer.