How does Ethereum work?
Ethereum uses a technology known as blockchain. The Ethereum blockchain is a digital ledger where Ether can be securely stored and exchanged, and where DApps can be created and developed through a type of computer protocol known as smart contracts.
Smart contracts
While Bitcoin is primarily focused on digital currency, Ethereum aims to be a fully functional and open platform for developing applications – this is where smart contracts come into play.
The concept of smart contracts was first introduced in 1996 by computer scientist and cryptographer Nick Szabo. He wanted to create a secure and trustworthy way for strangers to enter into agreements online. His aim was to make traditional contracts cheaper and more secure at the same time. In Szabo’s vision, cryptocurrencies are based on decentralised, secure agreements in which all wallet holders are participants.
A smart contract, in its original sense, is a computer protocol that digitally verifies, enforces or facilitates the execution and negotiation of a contract, without third parties. This allows different participants to create applications and services on a decentralised platform without the need for a formal authority. It’s an efficient and secure way to collaborate.
Computers in the decentralised Ethereum network serve two functions: they record transactions and produce smart contracts. To implement tokens on the Ethereum blockchain, the technical standard used for smart contracts is ERC-20.
Mining and Proof-of-Work (PoW)
Until September 2022, transactions on the Ethereum network and the creation of new Ether coins were validated through a process called mining. A block is opened, information is entered, the block is closed and a hash number is created. Each new block contains information from the previous block, forming an unalterable chain.
In a Proof-of-Work (PoW) system, computers must prove the energy expended during mining in order to validate the process. With the Ethereum 2.0 update, Ethereum switched to a Proof-of-Stake (PoS) validation process.
Ethereum 2.0
Ethereum 2.0 refers to a series of updates to the Ethereum network that addressed some of the platform’s major challenges. Divided into three phases, the Ethereum 2.0 updates aimed to make the network faster, more scalable and more environmentally friendly – the latter due to Ethereum’s transition to the Proof-of-Stake algorithm.
Proof-of-Stake (PoS)
Proof of Stake (PoS) is the second most common consensus mechanism in blockchain technology. Unlike PoW, no mining takes place, which significantly reduces energy consumption.
To validate transactions and create new Ether, participants in the Ethereum network must commit a stake – such as by locking a certain amount of ETH in a wallet connected to the Ethereum blockchain. One of these “stakers” is then selected to create the next block in the chain and is rewarded with transaction fees.
How can you buy Ethereum?
To buy Ethereum, you need to use a crypto exchange like Bitpanda and purchase ETH using fiat currencies such as euros or US dollars. It’s a good idea to familiarise yourself with Ethereum’s price history and current exchange rate before making a purchase. Once you’ve bought ETH, your investment is stored in a digital wallet, similar to a banking app. You then have the option to hold your ETH or sell it again through the exchange.
How has the Ethereum price developed?
Like every cryptocurrency, Ethereum is considered a highly volatile asset. The price of ETH often reacts to developments in the wider market. In 2015, shortly after Ethereum launched, the average price for 1 Ether was around €0.88. From there, its value rose steadily, reaching its first all-time high of €1,039.27 in January 2018. The price then dropped and stayed between €146 and €195 for about a year and a half, before rising sharply again in 2020.
Ethereum’s most recent all-time high was in August 2025 at $4,954, almost four years after its previous record in November 2021.
Use cases of Ethereum
Most blockchains are designed for a single purpose, usually as a network for cryptocurrencies. Ethereum goes further: as a distributed operating system with smart contracts, the Ethereum blockchain opens up a wide range of potential use cases.
Some of the most important include:
The cryptocurrency Ether
The term “Ethereum” is often mistakenly used to refer to the cryptocurrency “Ether”, which runs on the Ethereum blockchain.
To clarify: Ether is the cryptocurrency of the network, while Ethereum is the network itself. “Ethereum Gas” refers to the unit of computational power required to carry out specific actions on the Ethereum network.
ICOs and tokens
Ethereum remains the most important platform for so-called Initial Coin Offerings (ICOs). In an ICO, projects issue their own tokens, usually based on the ERC-20 standard, and manage them via the Ethereum blockchain.
These tokens can have various uses, for example, as access to a service (utility tokens), as a digital form of company shares (security tokens), or to represent assets like real estate or artwork.
Because the Ethereum blockchain is highly programmable, it remains the leading infrastructure for new crypto projects and the issuance of custom tokens.
DApps and Uniswap
DApps are based on the Ethereum blockchain. Their key advantage is that computation is decentralised. Developers must pay fees in the form of Ether to use the Ethereum network. No single authority or institution controls the Ethereum network, meaning core functions are distributed.
One of the most significant recent additions is Uniswap – a decentralised, automated exchange (DEX) protocol. Uniswap is a DApp that runs on the Ethereum network and enables users to trade and swap ERC-20 tokens without a middleman, in a highly decentralised environment.
Digital identity
Anyone using the internet is at risk of identity theft and other issues related to data privacy and security. Unique identifiers and usage patterns make it possible to track individuals and their devices. Digital identities could help solve this issue. A digital identity consists of all online information linked to a person, organisation or electronic device – such as usernames, passwords, birth dates or browsing history.
One of the most groundbreaking use cases of the Ethereum network is the concept of a decentralised identity ecosystem. Decentralised identifiers (DIDs) are entirely independent of central registries, certification authorities or identity providers. They are controlled by the individual who creates the ID on the blockchain without intermediaries.
A blockchain identity is self-managed, runs on a data system based on the zero-trust model and is not bound by borders. Zero-trust systems, such as the Ethereum Claims Registry, are based on the principle that no system, actor or service is automatically trusted. Instead, every data unit and individual must be verified before they can access or control data. This helps to reduce the risk of identity theft.
Property rights
Another use case for the Ethereum blockchain is end-to-end property transactions. Using blockchain helps reduce the engineering effort and complexity involved in creating and executing legally binding contracts for the purchase and sale of real estate.
Buyers and sellers who negotiate, manage and execute their contracts via the Ethereum blockchain use smart contracts, without needing a third party.
Potential and updates
Today, more than 1,000 applications already run on the Ethereum network. But the real potential of Ethereum is still far from fully explored. In the future, industries like supply chains, logistics, gaming, data security and many more could benefit from using blockchain technology and tokenisation.
A key part of Ethereum’s evolution began in December 2020, when the Beacon Chain went live. This laid the groundwork for a series of major upgrades designed to make the network faster, more scalable and more sustainable.
In September 2022, Ethereum reached a major milestone with The Merge. This upgrade replaced the energy-intensive mining process (Proof-of-Work) with a much more efficient system called Proof-of-Stake. As a result, Ethereum’s energy use dropped by more than 99%, without changing how the network is used day to day.
Next came the Shanghai/Capella upgrade in April 2023, which allowed users who had staked ETH to finally withdraw their funds. Until then, ETH used for staking had been locked on the network.
The next big update is called Dencun. It combines two upgrades, Deneb and Cancu, and introduces a new technology called proto-danksharding. This helps Layer 2 networks (like Arbitrum or Optimism) to run more efficiently and cheaply by storing extra data called “blobs”. In short: it’s a big step toward making Ethereum faster and more affordable.
These upgrades are all part of Ethereum’s long-term plan to support thousands of transactions per second and make it easier and cheaper for anyone to use the network.
To help launch this vision, Ethereum founder Vitalik Buterin contributed $1.3 million worth of ETH to the initial Ethereum 2.0 contract.
