What Is Ethereum (ETH)? The Foundation of Smart Contracts and Web3

Ethereum is a decentralized, programmable blockchain designed to run smart contracts, enabling trust-minimized applications across finance, gaming, identity, social, and more. Since launch in 2015, Ethereum has become the backbone of Web3, with ETH serving both as the network’s native asset and economic security. If you want to understand why Ethereum matters, how it works, and where it’s headed in 2025, this guide is for you.

Ethereum in a Nutshell

At its core, Ethereum is a global, permissionless computer. Developers write smart contracts—code that executes exactly as programmed—and deploy them to a shared, tamper-resistant ledger. This architecture powers decentralized applications (dapps), tokens, and on-chain protocols that anyone can use without relying on centralized intermediaries.

For a concise overview of the platform’s mission and design, see the official explainer on what Ethereum is and how it differs from Bitcoin’s primarily monetary focus: What is Ethereum.

ETH: The Fuel and Security of the Network

ETH serves multiple roles:

• Transaction fees (gas): Users pay ETH to interact with contracts and move assets. Gas fees prioritize scarce block space and deter spam. Since the EIP‑1559 upgrade, a portion of fees is burned, introducing a dynamic supply component linked to network usage.
• Staking security: After the Merge, Ethereum transitioned to Proof of Stake, where validators lock ETH to secure the network and earn rewards. Staking aligns incentives, reduces energy consumption, and increases resilience. Learn more about staking and validator economics on Ethereum Staking and The Merge.

How Smart Contracts Work: EVM and Composability

Smart contracts run on the Ethereum Virtual Machine (EVM), a deterministic runtime executing bytecode across thousands of nodes. The EVM’s standardization and tooling make Ethereum the default launchpad for tokens (ERC‑20), NFTs (ERC‑721), and increasingly sophisticated protocols. Developers build reusable modules, so one contract can leverage another’s functionality—this composability underpins DeFi’s rapid innovation.

Dive deeper into execution semantics, opcodes, and gas accounting via the EVM documentation.

Scaling Ethereum: Layer 2s and the Dencun Upgrade

To meet global demand, Ethereum scales through Layer 2 (L2) rollups that batch many transactions off-chain and post minimized proofs on L1. This approach maintains security while dramatically lowering costs.

A major milestone landed in March 2024: the Dencun upgrade introduced EIP‑4844 (proto‑danksharding), enabling blob-carrying transactions specifically optimized for rollup data. As a result, L2 fees dropped substantially across leading networks, improving user experience and enabling more complex on-chain activity. Read the official release notes on the Dencun mainnet upgrade.

Curious which L2s are live and how they compare? Community reference dashboards track adoption, cost, and security models across scaling solutions: explore current metrics on L2Beat.

Wallets, Account Abstraction, and UX in 2025

Historically, externally owned accounts (EOAs) relied on private keys and had limited functionality. Account abstraction aims to make wallets programmable, safer, and more user-friendly—adding features like native multisig, social recovery, spending limits, and gas sponsorship.

Two important efforts are shaping wallet UX:

• EIP‑4337: A contract-based system for “smart accounts” without changing the base protocol. It has matured steadily, with broad ecosystem support and tooling. A developer-friendly overview is available in Ethereum’s account abstraction docs.
• EIP‑7702: A proposal by core contributors that lets EOAs temporarily act as smart contract wallets, simplifying migration paths and helping standardize security across different wallet designs.

In parallel, the roadmap colloquially known as “Pectra” (a combination of Prague + Electra upgrades) targets further UX improvements and protocol refinements. While timelines are subject to change, core developers have discussed a late‑2025 target window for Pectra, with an emphasis on safer key management and better transaction ergonomics. See reporting on the evolving schedule and scope: Ethereum developers target late 2025 for Pectra.

DeFi, NFTs, and Real-World Assets

Ethereum’s composability catalyzed DeFi—lending markets, AMMs, perpetuals, yield strategies—and the NFT economy, from digital art to gaming assets. Increasingly, tokenized real-world assets (RWAs) are bridging on-chain liquidity with traditional finance settlement. For data on usage and total value secured across Ethereum-based protocols, a widely cited resource is DeFiLlama’s Ethereum metrics.

Regulation and Market Structure: ETH ETFs and Access

Institutional access to ETH continues to broaden. In May 2024, the U.S. Securities and Exchange Commission approved applications to list spot Ether exchange-traded funds, and those ETFs began trading in July 2024, marking a milestone for regulated exposure in the U.S. For coverage, see SEC approves applications to list spot Ether ETFs and U.S. spot Ether ETFs begin trading.

While ETFs simplify access for some investors, owning ETH directly still offers self-custody and native utility—staking, governance, and open participation in protocols.

Risks, Security, and Best Practices

Ethereum’s open design empowers users but demands responsible security:

• Use hardware-backed signing to protect private keys.
• Verify contract addresses, chain IDs, and permissions before transacting.
• Beware of phishing and fake airdrops; never share seed phrases.
• Consider multisig or smart-account features for treasury or team funds.

A good starting point for operational hygiene is the community’s guidance on Ethereum security best practices.

How to Store ETH Safely

For long-term holders and active Web3 users alike, securing keys is non-negotiable. A hardware wallet keeps secrets offline and signs transactions in a controlled environment, reducing the attack surface compared to hot wallets on internet-connected devices.

If you interact with DeFi, NFTs, or L2s, a device with robust Ethereum support, human-readable transaction previews, and compatibility with account abstraction tooling can make a real difference. OneKey focuses on usability and security for multi-chain users, offering features like clear signing for smart contracts, broad EVM/L2 compatibility, and a transparent development approach—all designed to help you hold and use ETH with confidence. For users adopting smart accounts or managing multiple addresses, combining OneKey with best-practice wallet policies (e.g., spending limits and approval monitoring) provides a strong foundation for Web3 activity.

The Road Ahead

Ethereum has evolved from a smart contract platform into a global settlement and coordination layer for the internet. With L2s scaling throughput, account abstraction improving usability, and ongoing protocol upgrades aimed at safety and performance, ETH continues to anchor the Web3 economy.

Whether you’re a developer, investor, or end user, understanding Ethereum’s design and keeping pace with the roadmap will help you make informed decisions—and use the network as it was intended: open, programmable, and secure.