Ethereum 101: The World’s Supercomputer and Its Fuel

Before Ethereum, most people thought of blockchains as fancy databases for digital money. Bitcoin showed that a decentralised ledger could record transactions securely without a bank or government in charge.

Pretty quickly, early builders saw that the technology could do far more than track balances. They imagined a system that could run any program, open to anyone, and very hard to censor or shut down.

That vision became Ethereum. Launched in 2015, it took the idea of a public blockchain and added programmable logic, turning it into a shared “world computer” that no single company owns.

What is Ethereum?

is a public, permissionless blockchain. Anyone can use it, and anyone can run the software that keeps it running.

Like Bitcoin, Ethereum relies on a network of thousands of independent computers, known as nodes, to verify transactions and keep a shared history. Every node stores a copy of the ledger and helps check that new activity is valid.

The key difference is purpose. Bitcoin is mainly designed as a store of value and payment network. Ethereum is designed as a base layer for building applications.

The core innovation that makes this possible is the smart contract.

Think of a normal transaction as a simple instruction: “I send you money. You receive money.” A smart contract is more like a vending machine. It is a piece of code that automatically carries out actions when certain conditions are met.

For example: “If User A sends 5 ETH to this contract, the contract automatically transfers them a digital title to a house.”

Because these contracts live on a decentralised blockchain, they run exactly as they are written. No one can pause them, alter them behind the scenes, or block specific users from interacting with them. They have no downtime, no central switch and no single point of failure.

This has given rise to decentralised applications, or dApps. On the surface, many dApps look like normal websites or apps. Behind the scenes, key functions are handled by smart contracts rather than a central server owned by a company.

What is ETH?

Ether (ETH) is the native cryptocurrency of the Ethereum network. You can buy, sell and trade it like other digital assets, and some people hold it as an investment.

Its main role, though, is as a utility token. ETH is the fuel that keeps Ethereum running.

Paying for gas

Every action on Ethereum requires computing power. Sending a payment, minting an NFT, approving a token transfer or using a complex DeFi protocol all use resources.

Validators, the computers that process these actions, spend time, energy and hardware to keep the network secure. To pay them for this work, every transaction includes a fee known as gas.

Gas fees are paid in ETH. If you do not have any ETH in your wallet, you cannot use Ethereum’s apps or move tokens around the network.

This creates base demand for ETH. As long as people want to transact on Ethereum or use dApps that run on it, they need ETH to cover gas.

Gas prices change over time. When the network is busy, users compete to have their transactions processed quickly, which can push fees higher. When activity is low, gas fees tend to fall.

Securing the network

ETH is also used to protect Ethereum through a system called Proof of Stake (PoS).

In Proof of Stake, users can stake or lock up their ETH to become validators. Validators propose new blocks of transactions and check blocks proposed by others.

If they act honestly and follow the rules, they earn rewards in ETH. If they try to cheat, submit invalid transactions, or go offline too often, some of their staked ETH can be “slashed” (destroyed).

This creates a strong financial incentive to keep the network honest and running smoothly. Anyone trying to attack the network would need to control a large amount of ETH and risk losing it.

People who do not want to run their own validator can often stake through trusted services or pooled staking products, although these come with their own risks and trade-offs.

Ethereum tokenomics

Ethereum’s economics, often called tokenomics, are different to Bitcoin’s.

• No hard cap: Bitcoin has a fixed maximum supply of 21 million coins. Ethereum does not have a strict upper limit on how many ETH can exist in total.
• The burn mechanism: To help manage inflation, Ethereum introduced a fee change called EIP-1559. With this upgrade, a portion of each transaction fee is permanently destroyed, or “burned”, instead of going to validators.

When the network is busy and gas fees are high, the amount of ETH burned can exceed the amount of new ETH issued as rewards. In those periods, ETH becomes deflationary. The total supply falls slowly over time, which can make each remaining token more scarce.

Over the long term, how much ETH exists will depend on the balance between new issuance to validators and the amount burned in transaction fees.

Real-life examples

Ethereum is no longer just an experiment. It now supports a multi‑billion dollar ecosystem of applications and assets.

Here are some of the main ways it is used today.

Decentralised finance (DeFi)

DeFi projects recreate financial services on Ethereum using smart contracts instead of institutions.

You can:

• Lend your digital assets to other users and earn interest
• Borrow crypto against your existing holdings as collateral
• Trade tokens directly with other users on decentralised exchanges (DEXs) such as Uniswap or SushiSwap
• Provide liquidity to trading pools and earn a share of fees

These services run 24/7 and are open to anyone with an internet connection and a compatible wallet. There are no appointments, no paper forms and usually no identity checks at the protocol level.

However, this openness also means there is less recourse if something goes wrong, so extra caution is important.

Digital ownership (NFTs)

Non‑Fungible Tokens (NFTs) are unique digital tokens created on Ethereum and other blockchains. Each NFT has a unique identifier, which makes it possible to prove ownership of a specific item.

NFTs can represent:

• Digital art and illustrations
• Music, videos and other creative works
• Collectibles such as trading cards or in‑game items
• Claims on real‑world assets like property, tickets or merchandise

Ownership and transaction history are stored on the public blockchain. This record cannot easily be faked or edited, which makes it useful for tracking provenance and authenticity.

While NFT prices have been highly speculative, the underlying concept, verifiable digital ownership, continues to be explored in art, gaming, ticketing and brand loyalty programs.

Stablecoins

Stablecoins are tokens designed to track the value of a traditional currency, most commonly the US dollar.

Billions of dollars in stablecoins circulate on Ethereum. Each token typically aims to stay close to 1.00 unit of the underlying currency, for example 1 USDC ≈ 1 USD.

Stablecoins let users:

• Hold a relatively stable balance without leaving the blockchain
• Move money across borders quickly, often with lower fees than traditional options
• Trade in and out of more volatile cryptocurrencies without using a bank account

For Australians, this can mean sending value internationally or interacting with global crypto markets more easily. However, stablecoins rely on the issuer or collateral model staying solvent and well managed, so they are not risk‑free.

Risks and red flags

Ethereum brings powerful new tools, but it also comes with real and sometimes complex risks.

Some of the main ones to be aware of are:

• Smart contract bugs: dApps and DeFi protocols are controlled by code. If that code has a bug or design flaw, attackers can exploit it to drain funds or lock them permanently. Once a transaction is confirmed on the blockchain, it is usually irreversible, so there is rarely a way to “undo” a hack.
• High volatility: ETH and most tokens on Ethereum can rise and fall sharply in value. A sudden market move of 20–30% in a short time is not unusual. You should only risk money you can afford to lose and avoid using short‑term funds you need for essentials.
• Phishing and scams: Anyone can deploy a token or launch a website that looks legitimate. Scammers often create fake wallet interfaces, misleading DeFi apps or counterfeit NFT collections to trick you into signing malicious transactions or revealing your seed phrase.

To reduce your risk:

• Double‑check URLs and never click wallet links from random messages
• Only download wallet apps from official stores or verified links
• Treat any request for your seed phrase as an immediate red flag
• Start with small amounts when trying a new protocol or network

The future of Ethereum

Ethereum is going through a long series of upgrades aimed at making it more scalable and efficient.

In the past, when demand was high, the network often became congested. Transactions could slow down, and gas fees sometimes climbed to levels that made smaller transfers uneconomical.

The ecosystem is responding by shifting more activity to “Layer 2” networks. These are separate blockchains that sit on top of Ethereum and settle their final results back to the main chain.

Examples include Arbitrum, Optimism and Base.

Layer 2 networks:

• Process transactions faster and at much lower cost
• Bundle large numbers of transactions together
• Send compressed proof of that activity back to Ethereum for final settlement

This approach lets Ethereum focus on being a secure base layer, while Layer 2 networks handle most of the high‑volume, day‑to‑day activity.

For users, this should mean cheaper fees and smoother experiences over time, while still benefiting from Ethereum’s security and broad developer community.

Ethereum upgrades

Ethereum continues to evolve through a series of carefully planned upgrades, each building on the last to improve performance, security and usability.

The Pectra upgrade, activated on May 7, 2025, brought several practical enhancements to staking and data handling.

One of the biggest changes was to staking rules. Previously, each validator was capped at 32 ETH. Pectra raised this limit to 2,048 ETH, allowing stakers to consolidate multiple validators into one. This reduces overhead for large operators, makes it easier for everyday users to compound their rewards, and helps keep the network efficient without adding extra load.

Pectra also increased the network's capacity for "blobs" — the temporary data packets introduced earlier to support Layer 2 rollups. It doubled the target number of blobs per block from 3 to 6, with a maximum of 9, giving rollups more room to post their bundled transactions. This helped keep fees low even as activity grew.

Building directly on Pectra, the Fusaka upgrade went live on December 3, 2025. Its main feature is Peer Data Availability Sampling (PeerDAS), a smarter way for validators to check blob data.

Instead of every validator downloading and verifying entire blobs, they now sample small portions and share with peers. This dramatically lowers the bandwidth and hardware needed to run a node — cutting requirements by around 80-85% — while still maintaining strong security guarantees.

Fusaka also introduced a framework for gradually increasing blob capacity over time. Through smaller updates that don't require full network upgrades, the blob target can eventually reach 14 per block with a maximum of 21. This means Ethereum can scale its data capacity smoothly as Layer 2 networks grow, without the coordination burden of major hard forks each time.

Together, these changes have made Layer 2 networks even more efficient. Transactions on chains like Arbitrum, Optimism and Base are now faster and cheaper than ever, often costing just fractions of a cent. Users get a smoother experience for DeFi, NFTs and everyday apps, all while relying on Ethereum's proven security as the settlement layer.

These upgrades show Ethereum's ongoing commitment to scaling responsibly: prioritising decentralisation, keeping costs low for users, and making the network easier to participate in for stakers and node operators alike. As adoption grows, further improvements are already in planning to push capabilities even higher.