What is Ethereum? The World Computer

While Bitcoin introduced the world to decentralized digital money, Ethereum introduced the world to the concept of the "world computer." Launched in 2015 by a team including Vitalik Buterin, Ethereum is a decentralized, open-source blockchain that dramatically expanded on Bitcoin's functionality by introducing smart contracts. This single innovation transformed the blockchain from a simple ledger for transactions into a global, permissionless platform for running decentralized applications (dApps).

Ethereum is the undisputed backbone of the Web3 ecosystem. The vast majority of DeFi, NFTs, and DAOs are built on top of its secure and battle-tested infrastructure. Understanding Ethereum is fundamental to understanding Web3.

The Key Innovation: The Ethereum Virtual Machine (EVM)

At the heart of Ethereum is the EVM, a sandboxed virtual machine that executes smart contracts. The EVM is "Turing-complete," which means it can run any program of arbitrary complexity. This is what allows developers to write sophisticated dApps for lending, trading, gaming, and more. The code for these dApps is typically written in a high-level language called Solidity, which is then compiled down into bytecode for the EVM to execute.

From Proof-of-Work to Proof-of-Stake: The Merge

For most of its history, Ethereum was secured by a Proof-of-Work (PoW) consensus mechanism, similar to Bitcoin. In September 2022, in a landmark event known as "The Merge," Ethereum successfully transitioned to a Proof-of-Stake (PoS) system.

• Proof-of-Stake: Instead of miners using massive amounts of electricity to solve puzzles, "validators" lock up (or "stake") ETH to secure the network. If they act honestly, they are rewarded with more ETH. If they act maliciously, their staked ETH can be "slashed" or destroyed.
• The Benefits: The move to PoS reduced Ethereum's energy consumption by over 99.9%, making it a much more sustainable and environmentally friendly blockchain. It also paved the way for future scaling upgrades.

Scaling Ethereum: The Layer 2 Ecosystem

Ethereum's popularity has been its biggest challenge. High demand has led to network congestion and high transaction fees ("gas"). The long-term solution to this is a "rollup-centric" roadmap, where the bulk of user activity is moved to Layer 2 (L2) scaling solutions like Arbitrum, Optimism, and Base. These L2s process transactions quickly and cheaply and then post a compressed summary back to the secure Ethereum mainnet. The role of Ethereum L1 is evolving to become the ultimate settlement and security layer for a vast ecosystem of L2s.

Ether (ETH): The Fuel of the Network

Ether (ETH) is the native cryptocurrency of the Ethereum network. It serves several critical functions:

• Gas Fees: ETH is used to pay for all transaction fees on the network.
• Staking: It is the asset that validators stake to secure the network.
• DeFi Collateral: ETH is the most common and trusted form of collateral used in the DeFi ecosystem.

Ethereum's innovation of programmable smart contracts created the foundation for the entire Web3 movement. It remains the most active, secure, and valuable smart contract platform, and its ongoing development continues to push the boundaries of what is possible on the decentralized web.