What Ethereum actually is

Ethereum is a public blockchain that does more than move money. Its key feature is smart contracts, small programs that run on the network and carry out agreements automatically, without a company in the middle. Developers use them to build financial services, games, marketplaces and tokens.

The idea was proposed by programmer Vitalik Buterin and several co-founders, and the network launched in 2015. Its native currency is ether (ETH).

What ETH is used for

  • Fees. Every action on the network costs a small fee, paid in ETH.
  • Staking. Holders can lock ETH to help secure the network and earn rewards.
  • Collateral. Many financial apps accept ETH as security for loans.

Much of what is built on Ethereum, including stablecoins and other tokens, relies on the network and uses ETH to function.

How it works

Ethereum originally used proof of work, like Bitcoin. In September 2022 it switched to proof of stake in an upgrade called the Merge. Validators now put up ETH as a deposit and are chosen to confirm transactions. The change cut the network’s energy use dramatically.

Unlike Bitcoin, Ethereum has no fixed maximum supply. New ETH is issued as staking rewards, while part of the fees paid is permanently destroyed, which can offset new issuance when the network is busy.

In the United States, spot Ethereum ETFs began trading in July 2024.

The dividend question

ETH does not pay a dividend. Staking can generate rewards, but they are not dividends: they depend on how many people stake, they are paid in more ETH whose price moves, and staking carries risks such as locked funds and technical failures. Do not treat them as a stable income stream.

What to keep in mind

  • High volatility. Large drops are common.
  • Competition. Other blockchains compete for developers and users.
  • Technical and contract risk. Bugs in smart contracts can cause large losses.
  • Regulation. Treatment of tokens and staking varies and is evolving.
  • Complexity. It is harder to understand than a simple company share.

Quick take

Ethereum is a technology platform with its own currency, not a business that pays out profits. It can be a speculative growth holding, but it does not replace a dividend portfolio.