Ethereum (ETH) Explained: Proof of Stake, Upgrades and Gas Fees

Ethereum is a public blockchain that runs programs, called smart contracts, as well as payments. Its native coin is ether (ETH), which pays the fees for every transaction and secures the network through staking. Since 15 September 2022, Ethereum has used proof of stake instead of mining, and later upgrades such as Dencun (March 2024) and Pectra (May 2025) have cut costs for the layer-2 networks built on top of it.

This page explains what makes Ethereum different from Bitcoin, how its fees are worked out, what each major upgrade changed, how staking works, and how Ethereum Classic split off. Prices and forecasts are deliberately left out.

Ethereum at a glance

How Ethereum differs from Bitcoin

Bitcoin was designed to do one thing well: move a scarce digital currency. Ethereum set out to be a shared computer. Developers write programs in languages such as Solidity, deploy them to the chain, and anyone can then interact with those programs by sending transactions. The code and its state live on every node, so the same inputs always produce the same results for everyone.

That design is what made tokens, decentralised exchanges, lending protocols, NFTs and most stablecoins possible. A token on Ethereum is not a separate blockchain but an entry in a smart contract, which is why the ERC-20 token standard became the template copied by many other networks. It is also why Ethereum transactions vary so much in cost: a plain ETH transfer is cheap to process, while a complex trade that touches several contracts uses far more computation.

For the Bitcoin side of this comparison in more depth, read our Bitcoin guide.

Ether units

Ether divides far more finely than bitcoin, and wallets switch between units depending on context.

Smart contracts handle amounts in wei as whole numbers, which avoids rounding errors. Tokens choose their own number of decimals; many use 18 like ETH, while the main dollar stablecoins use 6. A wallet showing a strange balance for a new token is often reading the decimals wrongly, not reporting a real gain or loss.

Who builds and runs Ethereum

No company owns Ethereum. The Ethereum Foundation, a Swiss non-profit, funds research and coordination, but the software that nodes actually run comes from several independent teams. A full node pairs an execution client (such as Geth, Nethermind, Besu, Erigon or Reth) with a consensus client (such as Prysm, Lighthouse, Teku, Nimbus or Lodestar).

That split is deliberate. If one client has a bug, nodes running other clients keep the chain going, provided no single client dominates. Developers call this client diversity and regularly urge large staking providers to avoid concentrating on one implementation. Upgrades are agreed on public developer calls, tested on public testnets and only then scheduled for mainnet, which is why dates shift when testing finds problems.

A history in upgrades

Ethereum changes through scheduled hard forks that every node operator must adopt. Each upgrade gets a name, often combining the names of the execution-layer and consensus-layer changes. The ones that matter most to ordinary users are listed below.

The next planned upgrade, Glamsterdam, had not reached mainnet at the start of October 2026; developers were targeting the fourth quarter of the year. Dates for future upgrades move often, so check the roadmap on ethereum.org rather than relying on headlines.

The Merge and the end of mining

Before September 2022, Ethereum used proof of work like Bitcoin. The Merge joined the original chain to the Beacon Chain, a proof of stake chain that had been running in parallel since December 2020. Mining stopped at that moment. According to ethereum.org, the switch cut Ethereum’s energy consumption by about 99.95%. Graphics cards that had mined ETH moved to other coins or were sold, which is one reason several smaller proof of work coins saw a surge in hash rate that autumn.

Dencun and Pectra: why layer 2 got cheap

Most Ethereum activity now happens on rollups, separate networks that bundle many transactions and post the results back to Ethereum. Before Dencun, rollups had to store that data in expensive regular transaction space. EIP-4844 created blobs, a temporary data type priced in its own fee market and pruned after about 18 days. Rollup fees fell sharply after March 2024. Pectra then raised the number of blobs per block, and Fusaka laid the groundwork for raising it much further.

Layer 2 networks in plain terms

A layer 2, or rollup, runs transactions on its own network and regularly posts compressed results to Ethereum, which acts as the final record and the place where disputes are settled. Fees are lower because thousands of transactions share the cost of one posting to mainnet.

Rollups differ in how decentralised they are today. Many still rely on a single operator to order transactions and on security councils that can upgrade contracts. Independent trackers such as L2BEAT rate each one on these points. Treat a rollup as a separate network when you send funds: an exchange withdrawal to Base will not show up in a wallet set to Ethereum mainnet until you switch networks, even though the address is the same.

Smart accounts and account abstraction

Ordinary Ethereum accounts are controlled by a single private key, which makes recovery hard and every signature dangerous. Smart contract wallets add features such as spending limits, multiple signers and social recovery. EIP-7702, introduced with Pectra, lets a normal account borrow these features for a transaction, so users can batch an approval and a swap into one step or let an app pay gas on their behalf. The same feature has been abused in phishing, so only authorise delegation to code from wallets and apps you trust.

How gas fees work

Every operation on Ethereum has a fixed cost in “gas”. A plain ETH transfer from one ordinary account to another always uses 21,000 gas. A token swap might use 100,000 to 200,000 or more, depending on the contracts involved. What changes from minute to minute is the price of each unit of gas, measured in gwei.

Since the London upgrade, the price has two parts. The base fee is set by the protocol and rises when blocks are more than half full and falls when they are less than half full; it is burned, so no validator receives it and it leaves the supply for good. The priority fee, or tip, goes to the validator and nudges your transaction ahead of others. Your wallet also sets a maximum fee, and any difference between that maximum and what you actually pay is never charged.

Worked examples

The base fee and tip below are examples chosen for easy maths, not current figures. One gwei is 0.000000001 ETH.

Two practical points follow. First, a failed transaction still costs gas, because validators did the work of running it until it failed. Second, you always need some ETH in a wallet to move tokens on Ethereum, even if all you want to send is a stablecoin; without ETH for gas, the token cannot move.

On rollups the same logic applies, but fees are paid in ETH on that rollup and are usually a small fraction of mainnet costs. Before using a rollup, check how its withdrawals back to mainnet work: some take minutes through a third-party bridge, while the official route on optimistic rollups can take about a week.

Staking: how ether secures the network

Under proof of stake, validators lock ETH as a security deposit. In every 12-second slot, one validator is chosen to propose a block and committees of others vote, or “attest”, that it is valid. Validators earn new ETH and tips for doing this honestly. If they go offline they lose small amounts, and if they sign conflicting messages they can be “slashed”, losing part of their stake and being forced out.

Users have four broad ways to take part:

• Solo staking: deposit 32 ETH and run your own validator software on a machine that stays online. Highest independence, highest technical responsibility.
• Staking as a service: keep your keys for withdrawals but pay a company to run the validator.
• Pooled or liquid staking: deposit any amount into a protocol that runs validators and gives you a token representing your stake. Adds smart contract risk.
• Exchange staking: the exchange stakes on your behalf. Simplest, but you rely on the exchange and its terms, and the service may not be offered in every country.

Staking rewards are not fixed. They fall as more ETH is staked and depend on network activity. Withdrawals pass through a protocol queue, so unstaking can take anywhere from a day to several weeks when many validators exit at once. Tax treatment of staking rewards differs by country; many tax authorities treat them as income when received.

Ether supply: no cap, but a burn

Unlike Bitcoin, Ethereum has no maximum supply. New ETH is issued to validators, and the amount issued depends on how much ETH is staked. At the same time, the base fee of every transaction is burned. When the network is busy, more ETH can be burned than issued, and the supply shrinks; when it is quiet, issuance wins and the supply grows. Moving activity to rollups after Dencun reduced mainnet fees and therefore reduced the burn, so supply has grown again since 2024. Public dashboards track this in real time if you want current figures.

Ethereum Classic: the chain that did not fork

In June 2016 an attacker drained a large share of the ether held by The DAO, an early investment contract. The community voted to hard fork at block 1,920,000 on 20 July 2016, moving the drained funds to a contract from which original investors could withdraw. A minority rejected the change on the principle that code should not be overridden, and kept running the original chain. That chain became Ethereum Classic (ETC).

Ethereum Classic still uses proof of work and kept the original history unchanged. Its smaller mining base made it vulnerable: it suffered 51% attacks in January 2019 and several in August 2020, in which attackers reorganised blocks to double-spend coins at exchanges. Anyone holding ETH before the split also held ETC, but the two are separate coins with separate addresses, markets and development teams today. Our old ETC page now points here.

Buying, storing and moving ETH

1. Choose a licensed platform. Our exchange guide lists the licences held by the major venues, including Kraken and Binance.
2. Check the withdrawal network. Exchanges let you withdraw ETH on Ethereum mainnet and often on rollups such as Arbitrum, Optimism or Base, or on other chains entirely. Your receiving wallet must support the exact network chosen.
3. Use a wallet you control for larger amounts. Ethereum wallets use one address format (starting with 0x) across Ethereum and compatible networks, which is convenient but also why funds sent on the wrong network are easy to misplace. See our wallet guide.
4. Review every approval. When you use a decentralised app, you often grant a contract permission to move your tokens. Unlimited approvals to a malicious or later-hacked contract are a common way wallets are drained. Revoke approvals you no longer need.

In the United States, spot ether exchange-traded products began trading on 23 July 2024 after the SEC approved the exchanges’ rule changes in May 2024. They give price exposure without holding ETH yourself.

Risks specific to Ethereum

• Smart contract bugs. Code can be exploited, and transactions on a blockchain cannot be reversed. Audits reduce, but do not remove, this risk.
• Phishing signatures. Some scams do not ask for your seed phrase at all; they ask you to sign a message or approval that hands over your tokens. Read what you are signing.
• Bridge failures. Bridges that move assets between chains have been among the largest hacks in crypto history.
• Staking concentration. A large share of staked ETH runs through a small number of providers, which the community watches as a decentralisation risk.
• Regulatory uncertainty. Rules for staking services, tokens and decentralised finance are still developing in many countries.

For how Ethereum fits among other major coins, see our coin directory, or compare it with the cheaper-transfer designs of Litecoin and XRP.