Ethereum Illustration by Øyvind Fjørtoft

What is Ethereum?

The purpose of this article is to give you a simple overview of the second largest cryptocurrency in the world, Ethereum.

In this article, we will go in depth on what Ethereum is, how it works and what plans lie ahead for Ethereum in the future. Launched in 2015, Ethereum is the world's second largest cryptocurrency based on market value. Ethereum's associated cryptocurrency is called Ether (ETH). You can easily both buy and sell ETH at Firi

Ethereum is a decentralized blockchain and computing framework that makes it easy for people to create their own decentralized applications and cryptocurrencies. Ethereum enables developers to create decentralized applications that can take advantage of the security and decentralization of Ethereum's blockchain. These apps "live" on the ethereum blockchain, and they can again have their own cryptocurrencies. In this way Ethereum's network becomes the "rails" and infrastructure for the "new Internet" built with blockchain technology.

Why is Ethereum important?

Ethereum is considered important because it introduced entirely new solutions and use cases for cryptocurrency and blockchain technology. It paved the way and set the standard for much of the blockchain innovation we see today. After Ethereum’s launch, development accelerated, leading to a “wave” of new projects in crypto. Examples include:

Decentralized Finance (DeFi) – loans, insurance, trading, etc.
NFTs – digital ownership certificates.
Digital Identity – blockchain-based alternatives to solutions like BankID.
Decentralized Autonomous Organizations (DAOs) – self-governing organizations that can function as alternatives to traditional companies.

Before Ethereum launched in 2015, developers often had to build their own blockchains to create new solutions. Ethereum removed this barrier by offering a platform for building dApps without designing a blockchain from scratch. Think of it like apps on your smartphone, but instead of App Store or Google Play, they run directly on Ethereum. This opened the door to entirely new blockchain use cases.

Why invest in Ethereum?

When you buy Ether (ETH), you’re not just investing in a cryptocurrency – you’re betting on the entire Ethereum network. That means you’re wagering that Ethereum will remain the most important platform for smart contracts, dApps, DeFi, NFTs, and tokenization.

Ethereum acts as a foundation of Web3, and the value of ETH is closely tied to how much the network is used. The more projects, apps, and transactions running on Ethereum, the higher the demand for ETH – since ETH is required to pay gas fees and participate in staking.

In short: Investing in ETH means believing that Ethereum will remain one of the most important building blocks of the future digital economy.

Will Ethereum’s price go up?

No one can guarantee that Ethereum will rise in price. However, millions of people worldwide – from hobbyists to professional investors – believe it will, and that’s why they invest in ETH. In the end, it’s your decision.

What is a smart contract?

A smart contract is a computer program that runs on a blockchain (like Ethereum) and automatically executes certain actions once predefined conditions are met.

Simply explained

A smart contract is like a digital agreement on autopilot.

“If X happens, then do Y.” Everything runs automatically – no banks, lawyers, or middlemen needed.

Example: You and a friend bet $10 on who will win Eurovision. Instead of trusting each other, you both lock your money in a “digital box” (the smart contract). When the result is announced, the box automatically pays out to the winner. No one can cheat, and no one needs to supervise.

That’s what a smart contract does – it follows the prewritten rules and executes the deal automatically.

More technical

Smart contracts are written in programming languages like Solidity.
They run in the Ethereum Virtual Machine (EVM).
They are deterministic – the same input always gives the same output.
They are immutable once deployed and execute without middlemen or trust requirements.
Complex dApps are often built by combining many smart contracts.

In short: A smart contract is self-executing code stored on the blockchain, secured by cryptography, and validated by the network.

Firi explains: What is a blockchain?

A blockchain is like a digital ledger or database that stores information. Instead of sitting in one place, it exists in many identical copies on computers all over the world.

Data is grouped into blocks, and when linked together they form a chain of blocks – a blockchain. The most common type of data stored is transactions (who sends what to whom).

What makes a blockchain special is that no single person or organization controls it. Instead, it’s secured by advanced mathematics (cryptography) and maintained by a decentralized network of participants who ensure the data is correct.

Unlike traditional databases, once something is written to the blockchain, it cannot be changed or tampered with.

Who created Ethereum and what is the story?

Ethereum was first described in 2013 in a white paper titled “A Next-Generation Smart Contract and Decentralized Application Platform”. It was written by Vitalik Buterin, then a 19-year-old Russian-Canadian developer known for his work at Bitcoin Magazine.

Buterin argued that blockchains could be used for much more than digital money. He proposed a platform where developers could build dApps using a more advanced programming language.

The founding team

Vitalik soon gathered a talented team. Ethereum’s eight co-founders were:

Vitalik Buterin
Gavin Wood (later founder of Polkadot and Kusama)
Charles Hoskinson (later founder of Cardano)
Anthony Di Lorio
Joseph Lubin (later founder of ConsenSys)
Amir Chetrit
Jeffrey Wilcke
Mihai Alisie

A key figure was Gavin Wood, who in 2014 wrote the Ethereum Yellow Paper, outlining the technical details of the Ethereum Virtual Machine (EVM) – the core system that makes smart contracts possible.

The ICO: Funding Ethereum

To fund development, Ethereum held an Initial Coin Offering (ICO) in August 2014.

An ICO is inspired by the concept of an IPO (Initial Public Offering) in traditional finance.
In an IPO, companies sell shares to raise money. In an ICO, crypto projects sell tokens to fund development.
Importantly, ETH is not a stock – it’s a cryptocurrency with its own uses.

Ethereum sold 50 million ETH at about $0.31 each, raising over $18 million. This became one of the most successful crowdfunding campaigns ever and paved the way for later ICOs in crypto.

Network launch

On July 30, 2015, the Ethereum network went live. What began as an idea in 2013 became a real blockchain where anyone could build and run dApps.

Did you know...

During Ethereum’s ICO in 2014, one ETH cost only $0.31. Over the first 10 years, its value grew by over one million percent.
50 million ETH were sold worldwide.
Several of the original founders went on to create other major projects – like Cardano (Charles Hoskinson) and Polkadot (Gavin Wood).

How does Ethereum work?

Ethereum is an open, global network built on blockchain technology. Just as Bitcoin lets you send and receive bitcoin, Ethereum allows you to send and receive ether (ETH). But while Bitcoin was created primarily as a digital currency, Ethereum was designed as a more flexible platform: a blockchain that makes it possible to build applications, systems, and contracts directly on the network.

From Mining to Staking

In its early years, new ETH was created through mining, where computers consumed large amounts of electricity to secure the network. After the upgrade known as The Merge (2022), Ethereum now uses Proof of Stake (PoS):

Participants (validators) lock up ETH as collateral (staking).
Validators are randomly chosen to confirm transactions and create new blocks.
They earn ETH rewards for acting honestly — but risk losing their stake if they try to cheat.

Today, there are about 120 million ETH in circulation. The supply grows more slowly than before, thanks to staking and the fee-burning mechanism introduced in the EIP-1559 upgrade.

Smart Contracts and dApps

What truly sets Ethereum apart is its support for smart contracts: small programs that run on the blockchain.

A smart contract is an agreement written in code that automatically executes once the conditions are met.
It follows simple logic: “If X happens, then do Y.”
Example: If you buy a ticket, the contract automatically sends it to you as soon as your payment is confirmed — without a third party involved.

By combining many smart contracts, developers can build decentralized applications (dApps). These range from games and art marketplaces to banking and insurance systems — all without intermediaries.

Other Cryptocurrencies Built on Ethereum

Ethereum is also famous as the platform where many other cryptocurrencies are created:

ERC-20 tokens: The standard for new cryptocurrencies on Ethereum. They can serve as voting rights in a project, a means of payment, rewards, or security. Some tokens are useful — while others exist mainly for speculation.
ERC-721 tokens: The standard for NFTs (Non-Fungible Tokens), unique digital assets like artwork, collectibles, or in-game items.

Because Ethereum provides a shared infrastructure, developers don’t need to build a new blockchain for every project. Instead, they can leverage Ethereum’s existing security and scale.

Comparison with Traditional IT

You can think of Ethereum like an operating system such as Windows or iOS:

Microsoft or Apple provide the base system.
Other companies build apps and programs on top of it.
The more apps that exist, the more valuable the base system becomes.

In the same way, Ethereum offers a common platform where developers can create their own apps and tokens, while still benefiting from the standards and security of the Ethereum network.

Summary

Ethereum is much more than just a cryptocurrency. It is a global network where:

Transactions and information are stored securely and in a decentralized way.
Smart contracts and dApps can run without banks or intermediaries.
New cryptocurrencies and NFTs can be created using shared technical standards.

This flexibility makes Ethereum one of the most important platforms in the entire crypto ecosystem — and one of the reasons it is still considered the “foundation of Web3.”

How is Ethereum's blockchain secured?

For Ethereum to function, all information about transactions, accounts, and smart contracts must be stored securely. This is done through the Ethereum Virtual Machine (EVM) – a system that ensures all code and contracts on the network are executed in exactly the same way, no matter where in the world you are.

Nodes and Validators

The information in the EVM is verified by a global, decentralized network of computers called nodes.

A node stores a full copy of the blockchain and checks that transactions and smart contracts are valid.
When many nodes compare their copies and agree, the data can be trusted as correct.

Before 2022, the network was secured by so-called miners, who used computing power and electricity to solve complex mathematical problems (Proof of Work). Today, security is provided instead by validators, chosen based on how much ether (ETH) they have locked as collateral (staking).

The Transition to Proof of Stake

In September 2022, Ethereum completed the historic upgrade known as The Merge, transitioning from Proof of Work (mining) to Proof of Stake (PoS).

Proof of Work (PoW): The network is secured by computers competing to solve cryptographic problems. The winner adds the block and earns ETH. This system consumed massive amounts of electricity.
Proof of Stake (PoS): Participants lock ETH as collateral. Validators are chosen to add new blocks based on the amount of ETH they’ve staked, and they are rewarded with transaction fees and newly issued ETH. If they attempt to cheat, they lose their stake.

Result: Ethereum’s energy use dropped by over 99%, making the network far more sustainable.

Incentives

To encourage participation, validators are rewarded in two ways:

New ETH (issued by the network).
Transaction fees (paid by users sending transactions or running smart contracts).

This ensures thousands of participants around the world have an economic incentive to keep the network stable, honest, and secure.

Summary

Before 2022, Ethereum used Proof of Work and mining – an energy-intensive system like Bitcoin.
After The Merge, Ethereum uses Proof of Stake: validators stake ETH and are rewarded for validating transactions.
The transition has made Ethereum far more energy efficient without compromising security.

How does Ethereum work for users?

Ethereum is an open protocol, meaning anyone can send, receive, and store ETH. To get started, you need an Ethereum wallet with a digital address.

When you use Ethereum – whether sending ETH or interacting with dApps – you pay a small fee in ETH called gas. Gas prices rise when the network is busy.

Because most dApps are built on Ethereum, you need ETH in your wallet to use them – for gaming, NFTs, DeFi, and more.

Staking – passive income

Since the 2022 Merge, users can secure Ethereum through staking:

Lock ETH as collateral.
Earn ETH rewards like interest.
Dishonest validators lose their stake.

Firi lets you stake Ethereum directly in its app – supporting the network while earning passive income.

How to stake ETH on Firi:

Log into the app and ensure you have ETH.
Go to Staking and select Ethereum.
Choose how much ETH to stake and confirm.
Earn automatic ETH rewards while securing the network.

How to buy and store Ethereum (ETH)?

There are two main ways:

Buy via a crypto exchange like Firi.
Buy directly from another person.

Either way, you need a wallet.

With an exchange (beginner-friendly):

Automatic Ethereum wallet.
Easy log-in (email/BankID).
Trade ETH/NOK instantly.
Withdraw to your bank in under a day.

With a decentralized wallet (full control):

Examples: MetaMask, Ledger.
Get a public key (address to receive ETH).
Keep your private key/seed phrase safe – lose it and your ETH is gone forever.
⚠️ Ethereum wallets only support ETH and Ethereum tokens (ERC-20/721). Sending ETH to a Bitcoin wallet = lost funds.

Which to choose?

Exchange (Firi) → simple, secure, good for beginners.
Decentralized wallet → full control, required for dApps/NFTs/DeFi.
Many use both: store ETH on Firi, move only what’s needed into a private wallet.

What is Ethereum 2.0 and why Proof of Stake?

Ethereum 2.0 was the upgrade that made Ethereum faster, cheaper, and greener. The core was shifting from PoW to PoS.

The reasons:

Over 99% energy reduction.
Lower, faster transactions.
Easier participation in securing the network.

This transition – the Merge – happened in September 2022 and is considered one of crypto’s most significant milestones

Proof of Work vs Proof of Stake

What is the difference?

PoW: Like a marathon for computers – thousands race to solve puzzles, one wins, the rest waste energy. Hard to cheat, but very costly.
PoS: Like a lottery – stake ETH as “tickets.” The more you stake, the better your odds. Cheat, and you lose your stake.

👉 Both systems are designed so cheating costs more than playing fair.

Ethereum after the Merge – 2023 to 2025

Since Ethereum transitioned from Proof of Work to Proof of Stake in 2022 (The Merge), development has progressed quickly. Here are some of the key changes:

A Greener Cryptocurrency

The move to Proof of Stake reduced energy consumption by about 99%.

Proof of Stake (PoS) means those who lock up ETH as collateral are the ones who get to validate transactions and create new blocks.

The more ETH you stake, the higher the chance of being chosen – and you earn rewards for doing so.

Fixing scaling issues

Scaling with other blockchains

To make Ethereum faster and cheaper, many use so-called Layer-2 solutions.

Layer-2s are additional networks built “on top of” Ethereum that take on much of the transaction load.
Transactions are processed quickly and cheaply on these layers, while security is still anchored in Ethereum itself.
Well-known Layer-2s include Arbitrum, Optimism, zkSync, and Polygon.

Sharding is on the way

Ethereum is also developing sharding, a solution designed to expand the main network’s capacity.

Sharding divides the blockchain into smaller “shards,” which can process transactions in parallel.
Think of it like opening more checkout lanes in a grocery store – more customers can be served at once, and the line moves faster.

What is Ethereum Used for Today?

The ecosystem has expanded. Ethereum is no longer just for digital money. The platform is now used for:

DeFi (Decentralized Finance): apps for lending, saving, and trading without banks.
NFTs (Non-Fungible Tokens): unique digital assets such as art or game collectibles.
DAOs (Decentralized Autonomous Organizations): organizations governed by code and community members.
Tokenization: converting real-world assets like stocks, real estate, or gold into digital tokens.

Regulation and Security

As Ethereum’s usage grows, governments in several countries have started introducing regulations for cryptocurrencies, DeFi, and NFTs.

At the same time, developers continue working to strengthen network security – preventing hacks, smart contract bugs, or attempts at manipulation.

Ethereum Spot ETF

In 2024, U.S. regulators approved the first spot Ethereum ETFs, launched by firms like BlackRock, Fidelity, and VanEck.

A spot ETF tracks ETH’s price directly, allowing investors to buy Ethereum exposure on regular stock exchanges without holding crypto themselves. This opened the door for large institutional investors previously hesitant to manage ETH wallets.

Within weeks, billions of dollars flowed into the ETFs – showing strong demand and increasing Ethereum’s credibility as an established asset class. While ETH’s price was still influenced by broader market conditions, these ETFs made Ethereum more accessible, regulated, and attractive to a much wider range of investors.

Milad Mirshahi18/06/2021

Should not be considered financial advice. Crypto may involve high risk.