What Is Ethereum? Smart Contracts, Gas and Proof of Stake

On 15 September 2022, Ethereum switched off mining. Mining was a race between computers to add new records, which used a lot of power. The change, called the Merge, cut Ethereum's energy use by about 99.95%, according to ethereum.org.

Ethereum is a blockchain, a shared public record of transactions, like Bitcoin. We cover those basics in What Is Bitcoin? This guide covers what Ethereum adds. Programs run on the chain. Fees are paid in its own coin. The network is secured by staking, where holders lock up ether as a deposit.

Ethereum went live on 30 July 2015. Its design was set out in a 2014 white paper by Vitalik Buterin.

Like Bitcoin, Ethereum keeps a shared record that computers around the world copy and check. New transactions are added to it in batches called blocks.

The difference is what the record can hold. Bitcoin's record is built to track one currency. Ethereum's record can also store programs and run them.

Any user can publish a program. Anyone can then use it by sending a transaction.

The network and its coin have different names. Ethereum is the network. Ether, or ETH, is its currency.

Source: bitcoin.org; ethereum.org; blockchain.com; ultrasound.money; SEC; YX Insights

The table sets the two side by side. The biggest gaps are in how blocks are added and in supply: Bitcoin has a cap, while ether does not.

Ethereum.org defines smart contracts as "computer programs stored on the blockchain that follow 'if this then that' logic". Their code "cannot be changed once created".

Ethereum.org compares a smart contract to a vending machine. You pick an item and pay. The machine checks the payment, then hands over the item. No shop assistant is needed.

The idea is older than Ethereum. The computer scientist Nick Szabo coined the term in 1994. Ethereum was built to run such programs on a public blockchain.

On Ethereum, smart contracts run digital tokens and lending. They also run trading without a bank in the middle. Stablecoins, tokens built to hold a steady value of one dollar, are smart contracts too.

Every action on Ethereum takes computing work. Gas is the unit that measures that work. A simple payment uses little gas, while a complex smart contract uses more.

The fee is the gas used times the price per unit of gas. Fees are paid in ether. Gas prices are quoted in gwei, one-billionth of an ether.

Since the London upgrade on 5 August 2021, part of each fee, the base fee, is burned. Burned ether is destroyed for good. That links the supply of ether to how busy the network is.

Until 15 September 2022, Ethereum used proof of work, like Bitcoin. Miners competed with computing power to add each block. The Merge switched that off.

Ethereum now uses proof of stake. Validators lock up, or stake, ether as a deposit. Running your own validator takes at least 32 ETH.

A new block is added every 12 seconds. One validator is picked to propose it. Others check its work.

Validators earn new ether for honest work. Those that go offline lose small amounts. Proven cheating, such as signing two conflicting blocks, gets part of the stake destroyed. This penalty is called slashing.

Staked ether could not be withdrawn until the Shapella upgrade on 12 April 2023.

The Merge also cut new supply. Before it, about 14,700 new ETH were issued a day: about 13,000 to miners and about 1,700 to stakers. Only the 1,700 remained, a fall of about 88%, according to ethereum.org.

The chart shows the total supply of ether since the Merge, from ultrasound.money, a site that tracks it. At the Merge, the supply was 120.52 million ETH.

Until April 2024, more ether was burned than created. The supply fell to 120.06 million on 5 April 2024. After that, it grew. The supply passed its Merge level on 6 February 2025.

By 6 October 2026, the supply stood at 122.11 million. That is 1.3% above the Merge level, or about 0.32% a year.

Ethereum.org gives a rule of thumb. When the mean gas price over a day is at least 16 gwei, the burn cancels out that day's new ether. Below that, the supply grows.

Over the same period, Bitcoin's supply grew 4.9%, or about 1.19% a year. So ether's supply has grown more slowly than Bitcoin's since the Merge, despite having no cap.

The chart uses a log scale, where equal distances on the axis show equal % changes. Each gridline is ten times the one below.

Ether cost $0.96 on 1 January 2016. It reached $1,385 in January 2018 and $4,809 in November 2021.

Ether's highest close was $4,831 on 22 August 2025. On 6 October 2026, it was $2,698. Since the Merge, ether has risen 83.2%.

A drawdown is how far a price stands below its previous high. We explain it in What Is a Drawdown?

The chart shows how far ether stood below its previous high on every day since January 2016. Its worst fall was 93.8%, from January 2018 to December 2018. Ether did not pass that high again until January 2021.

The next big fall was 79.3%, from November 2021 to June 2022. Ether did not pass that high until August 2025.

The latest fall began after the 22 August 2025 high. At its lowest, on 25 June 2026, ether was 67.6% below that high. On 6 October 2026, it was 44.1% below.

A few practical points:

Ethereum is a blockchain that runs smart contracts as well as payments. Its currency, ether, pays the gas fees, while staking has secured the network since the Merge in September 2022. Ether has no cap, so its supply rises or falls with the burn.

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Ethereum is used to run smart contracts, programs stored on its blockchain that carry out their rules automatically. On Ethereum, they run digital tokens, stablecoins, lending and trading without a bank in the middle. Every action is paid for with gas fees in ether, the network's own currency.

No. Ethereum is the network, while ether (ETH) is its currency. Ether pays the gas fees for every transaction and smart contract on Ethereum. Validators also stake ether to secure the network.

No. Ether has no cap, unlike Bitcoin's 21 million. New ether goes to validators, while part of every fee is burned. Ultrasound.money puts the supply at 120.52 million at the Merge on 15 September 2022, then 122.11 million on 6 October 2026.

No. Ethereum stopped mining on 15 September 2022, when the Merge switched it to proof of stake. Blocks are now added by validators, who lock up ether as a deposit, at least 32 ETH for your own validator. The switch cut energy use by about 99.95%, according to ethereum.org.

Staking means locking up ether to help run the Ethereum network. Stakers run validators, which propose and check a new block every 12 seconds. They earn new ether for honest work, but lose some of their stake if they go offline or cheat. Staked ether could be withdrawn from 12 April 2023.

DISCLAIMER: This article is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.