Ethereum: Definition, How It Works, Ether (ETH), Proof of Stake and Upgrade History

What is Ethereum?

Ethereum is a public, open-source blockchain network built to host smart contracts and decentralized applications (dapps). Thousands of independent computers called nodes run the network, and ethereum.org describes it as having no CEO, board or central authority [1]. A smart contract is a program made of code (its functions) and data (its state) that lives at a specific address on the Ethereum blockchain. Anyone can write and deploy one without permission [2]. Ethereum's native asset is ether (ETH). It pays transaction fees, secures the network through staking, and is used to deploy smart contracts to mainnet [3].

The introductory whitepaper was published in 2013 by Vitalik Buterin [4]. Ethereum.org names Gavin Wood and Joseph Lubin among the co-founders and says the network officially launched in July 2015 [1]. The Ethereum Foundation still funds research and development, but the ecosystem runs on open participation [1].

How Ethereum works

The Ethereum Virtual Machine (EVM)

Bitcoin works mainly as a ledger. Ethereum instead works as a distributed state machine: a state transition function takes the current state plus valid transactions and produces a new valid state. The Ethereum Virtual Machine (EVM) runs this function in the same way on every node. It is a stack machine with a maximum stack depth of 1,024 items and 256-bit words. Contract storage persists in a Merkle Patricia trie [5]. Contracts are usually written in Solidity or Vyper and compiled to EVM bytecode before deployment. Each deployed contract can be at most 24 KB. Contracts cannot read off-chain data on their own, so they rely on external services called oracles [2]. Contracts can call other contracts, a property known as composability. By default a deployed contract cannot be deleted, and interactions cannot be reversed [2].

Gas and transaction fees

Gas measures how much computation an operation needs. Fees are quoted in gwei, and one gwei equals 10-9 ETH [6]. Since the London upgrade on August 5, 2021, which introduced EIP-1559 [4], each transaction pays a protocol-set base fee plus an optional priority fee (tip) to the validator. The base fee is burned, meaning it is permanently removed from circulation. It can change by up to 12.5% per block, depending on whether blocks are above or below the target size, which is half the gas limit [6].

Proof of stake and validators

To become a validator, a user deposits 32 ETH into the deposit contract and runs execution, consensus and validator software. Time is divided into 12-second slots, and 32 slots make one epoch. In each slot, one validator is chosen at random to propose a block, while a randomly selected committee attests to whether it is valid. A block becomes final once validators holding two-thirds of the total staked ETH agree on checkpoints (Casper-FFG). Validators who act dishonestly, for example by proposing two blocks in one slot, are "slashed": part or all of their stake is destroyed [7]. The Pectra upgrade raised the maximum effective balance per validator from 32 ETH to 2,048 ETH [8].

Ether (ETH) supply and issuance

The protocol issues new ETH to reward validators at a rate it calculates itself. Part of every transaction fee is burned. Unlike Bitcoin, ETH has no fixed supply cap. Depending on how busy the network is, the supply can go through periods of net inflation and net deflation [3].

The Merge: from proof of work to proof of stake

The Beacon Chain, a separate proof-of-stake chain, launched on December 1, 2020. On September 15, 2022, the original mainnet merged with it in the Paris upgrade, known as the Merge. After that, mining no longer produced blocks [9][4]. Ethereum.org says the Merge cut Ethereum's energy use by about 99.95%. It also states that the Merge changed the consensus mechanism, did not add network capacity, and was never meant to lower gas fees [9]. Holders did not need to do anything: there is no "ETH1" or "ETH2" token, and the chain's history stayed intact [9]. Staking withdrawals became possible later, with the Shanghai-Capella ("Shapella") upgrade on April 12, 2023 [4].

Ethereum upgrade timeline

Ethereum changes through coordinated network upgrades (hard forks), each defined by Ethereum Improvement Proposals (EIPs). The table shows selected milestones.

Date	Upgrade / event	Main change
Nov 27, 2013	Whitepaper	Vitalik Buterin publishes the introductory paper [4]
Jul 30, 2015	Frontier	First live, minimal version of the network [4]
Jul 20, 2016	DAO fork	Response to the DAO attack; moved 3.6 million ETH to a recovery contract; led to the Ethereum Classic split [4]
Aug 5, 2021	London	EIP-1559 fee market reform [4]
Sep 15, 2022	Paris (the Merge)	Proof-of-work mining switched off; proof of stake switched on [4]
Apr 12, 2023	Shapella	Staking withdrawals enabled [4]
Mar 13, 2024	Dencun	EIP-4844 (proto-danksharding) lowers data costs for layer 2 [4]
May 7, 2025	Pectra	Validator balance cap raised to 2,048 ETH; EIP-7702 lets ordinary accounts use smart-contract features; blob target raised from 3 to 6 and maximum from 6 to 9 per block [8]
Dec 3, 2025	Fusaka	PeerDAS data-availability sampling; default block gas limit raised to 60 million [10]

Fusaka included 13 EIPs. Its main feature, PeerDAS, lets validators check small pieces of blob data instead of downloading every blob in full. The goal is to lower costs for validators and layer-2 networks [10].

Layer 2 and scaling

To stay secure and decentralized, Ethereum scales mostly through layer-2 networks built on top of mainnet instead of by enlarging its base chain. Rollups post their data to Ethereum mainnet, and ethereum.org treats this as the main difference between rollups and other networks. Optimistic rollups (for example, Base) and zero-knowledge rollups (for example, Starknet) are the two main types [11]. Dencun, Pectra and Fusaka each expanded or reduced the cost of the "blob" data space that rollups use [4][8][10].

Clients and decentralization

Independent teams write Ethereum node software in several languages. Execution clients include Geth, Nethermind, Besu, Erigon and Reth. Consensus clients include Lighthouse, Prysm, Teku, Nimbus, Lodestar and Grandine. Ethereum.org explains that if one consensus client ran more than one-third of the network, a bug in it could stop finality. If one client ran two-thirds, a bug could finalize an incorrect chain and trigger heavy slashing. The page's October 2025 figures showed Geth at 41% of execution clients and Lighthouse at 42.7% of consensus clients [12]. It also cites the 2016 denial-of-service attack: the attack targeted Geth, but other clients without the same flaw kept the network running [12].

Regulation, markets and risks

In the United States, on July 22, 2024, the Securities and Exchange Commission declared nine registration statements for spot ether exchange-traded funds effective. The funds began trading on July 23, 2024 . ETH's market price can swing sharply. Weigh this before holding it, and follow the rules in your own jurisdiction.

Security risks mostly come from applications, bridges and custodians rather than from the base protocol. On February 26, 2025, the FBI attributed the theft of about US$1.5 billion in virtual assets from the Bybit exchange to North Korean actors. It published 50 Ethereum addresses tied to laundering the funds . Smart-contract transactions cannot be reversed [2], so review contract code and wallet permissions before signing. Ethereum.org also notes that heavy demand can push transaction fees higher [1].

Key facts

Native asset: ether (ETH) [3]
Consensus mechanism: proof of stake since September 15, 2022 [9]
Mainnet launch: July 30, 2015 (Frontier) [4]
Minimum stake to run a validator: 32 ETH [7]
Slot time: 12 seconds; 32 slots per epoch [7]
Official website: https://ethereum.org