Ethereum is a shared blockchain that many computers keep in sync. Every node runs the same rules, the Ethereum Virtual Machine, to process transactions and smart contracts. Users pay fees in ETH, measured in gas, and validators who lock up ETH take turns proposing a block in each 12-second slot, as of September 2026.
Ethereum works like one shared computer that many independent machines run together. They all keep the same copy of a blockchain that records accounts, balances and small programs called smart contracts. When you send a transaction, you pay a fee in ETH for the work, and validators check it and add it to the next block.
If you are new to Ethereum, start with What is Ethereum?, which covers its history and what people use it for. This guide is the next step. It walks through the moving parts one at a time, and facts about the network are as of September 2026.
It explains how the network works, not whether you should buy ETH. To check what ETH costs today, see the Ethereum price and payment options.
What are Ethereum accounts, and where does ETH live?
ETH lives in accounts recorded on the blockchain, not inside your wallet. Ethereum has two kinds of account, and both can hold ETH and tokens:
- User accounts (the technical name is “externally owned accounts”) are controlled by whoever holds the private key. Creating one costs nothing.
- Contract accounts are smart contracts. They have no private key. Their code decides what happens when a transaction reaches them.
Your address is worked out from your public key. It is 42 characters long: “0x” followed by 40 letters and numbers. Your wallet does not hold coins as such. It holds the private key that lets you move the ETH recorded against your address. For how the two keys fit together, see public keys vs private keys. If you have noticed that some addresses mix capital and small letters, are Ethereum addresses case-sensitive? explains why.
This is why your seed phrase, the backup of your keys, matters so much. Anyone who learns it can move your funds.
What is the Ethereum Virtual Machine?
The Ethereum Virtual Machine (EVM) is the shared set of rules that every Ethereum node uses to process transactions. Given the same starting point and the same transactions, every node gets exactly the same result.
Think of a spreadsheet copied onto many computers around the world. Each new block is a batch of edits. Every computer applies the edits with the same formulas, so every copy stays identical. The EVM is those formulas. The spreadsheet it updates is called the state: every account’s balance, plus every contract’s code and stored data.
This is the main difference from Bitcoin. Bitcoin’s blockchain is usually described as a shared ledger of who owns which coins. Ethereum.org calls Ethereum a “distributed state machine”, because it can also run programs. How does Bitcoin work? covers the Bitcoin side, and What is blockchain? explains the idea of a blockchain in general.
What does a smart contract actually do?
A smart contract is a program that lives at its own address on Ethereum. It waits until a transaction calls it, then runs exactly as written. Anyone with enough ETH to pay the gas can deploy one, without asking permission.
Ethereum.org compares a smart contract to a vending machine: put in the right inputs and you get a set output, with no shop assistant involved. Most “apps on Ethereum” are smart contracts. A token is a contract that keeps a list of who owns how much, and ERC-20 is the common standard for such tokens. A decentralized exchange is a set of contracts that swap one token for another by fixed rules. For more detail, read What is a smart contract?
Running exactly as written cuts both ways. If the code has a bug, the bug runs too. Contracts cannot be deleted by default, and interactions with them cannot be reversed (ethereum.org, as of September 2026).
How does an Ethereum transaction work, step by step?
A transaction goes from your wallet into a finalized block in six steps. Your wallet handles the first one, and the network does the rest.
- You sign it. Your wallet fills in the recipient, the amount and the most you are willing to pay in fees, then signs the transaction with your private key.
- It is broadcast. The signed transaction spreads across the network and waits with other pending transactions.
- A validator proposes a block. The network splits time into 12-second slots. In each slot, one validator is picked at random to propose a block. It usually favours transactions that offer higher tips.
- Nodes check it. Nodes run the block’s transactions through the EVM and confirm that the result follows the rules.
- Validators vote. A randomly chosen committee of validators votes (attests) that the block is valid.
- It becomes final. Once validators holding at least two-thirds of all staked ETH have voted for later checkpoints, the block is finalized. Reversing it would cost an attacker at least one-third of all staked ETH.
According to ethereum.org, as of September 2026, ETH transfers typically complete in under 30 seconds and reach finality after about 15 minutes. They can queue for longer when the network is busy. Once confirmed, they cannot be reversed. These are network times, not the time an order takes. For delays on an order, see blockchain delays and confirmations.
What is gas, and why do fees go up and down?
Gas measures how much computing work an action takes, and you pay for it in ETH. A standard ETH transfer uses 21,000 gas (as of September 2026). Using a smart contract takes more, because there is more work to do.
The fee is the gas used, multiplied by the base fee plus the priority fee. Fees are quoted in gwei. One gwei is one billionth of an ETH (0.000000001 ETH).
- Base fee: set by the network, not by you. Each block aims to be half full. If the last block was fuller than that, the base fee rises by up to 12.5%. If it was emptier, the fee falls. The base fee is burned, which means it is removed from circulation for good.
- Priority fee: a tip that goes to the validator, to encourage them to include your transaction.
- Max fee: the most you are willing to pay. If the actual fee is lower, you get the difference back.
Here is ethereum.org’s worked example. A transfer that uses 21,000 gas, with a base fee of 10 gwei and a tip of 2 gwei, costs 252,000 gwei, or 0.000252 ETH. Of that, 0.00021 ETH is burned and 0.000042 ETH goes to the validator. Most wallets set these numbers for you.
Gas also protects the network. Because every step of code costs gas, nobody can clog Ethereum with spam or endless loops for free. The flip side surprises many beginners: if a transaction fails or runs out of gas, its changes are undone, but the fee is still charged, because the network still did the work. For a short definition, see the glossary entry on gas.
How does proof of stake keep Ethereum secure?
Proof of stake secures Ethereum by making validators put up ETH as a deposit that they can lose if they cheat. Ethereum switched to it from mining (proof of work) on 15 September 2022, in an upgrade called The Merge.
Each validator must deposit at least 32 ETH. Since the Pectra upgrade of 7 May 2025, one validator can have up to 2,048 ETH counted toward its deposit, but the 32 ETH minimum did not change (ethereum.org, as of September 2026). Validators earn ETH for honest work and receive small penalties for being offline. If they break the rules, they can be slashed: part of their deposit is destroyed, and they are removed from the network.
Time runs in 12-second slots, and 32 slots make an epoch of about 6.4 minutes. Ethereum.org estimates that The Merge cut the network’s energy use by about 99.95%. It did not lower gas fees, and it was never meant to. Read What is proof of stake? for more, or What is proof of work? for the older model.
| Feature | Proof of work (until September 2022) | Proof of stake (since September 2022) |
|---|---|---|
| Who adds blocks | Miners | Validators |
| What they put in | Specialised hardware and electricity | A deposit of ETH |
| Block timing | Set by the mining difficulty | Fixed 12-second slots |
| Penalty for cheating | Wasted hardware and electricity costs | Slashing: part of the deposit is destroyed |
| Energy use | High | About 99.95% lower (estimate) |
What are layer 2 networks?
Layer 2 networks are separate blockchains that process transactions away from Ethereum and then post the data back to it, which can make each transaction cheaper. Ethereum itself is called layer 1.
Each Ethereum block has limited space, so fees rise when demand is high. The most common type of layer 2 is a rollup. It bundles hundreds of transactions into a single transaction on layer 1, so many users share one layer 1 cost. Optimistic rollups assume the transactions are valid unless someone challenges them. Zero-knowledge rollups post a mathematical proof that they are valid.
Ethereum’s upgrades have made this cheaper over time. Dencun (March 2024) added “blobs”, a lower-cost space for rollup data. Fusaka (December 2025) let the network carry more of that data without heavier work for each node (ethereum.org, as of September 2026).
- Check the network. Many layer 2 networks use the same style of 0x address as Ethereum, so it is easy to send funds on the wrong network. Always check which network a wallet or service expects before you send.
- Layer 2s are younger. Ethereum.org notes that many layer 2 projects are still young and somewhat experimental, and that none is as battle-tested as Ethereum Mainnet.
If you still need somewhere to keep ETH, see how to open an Ethereum wallet.
How does Ethereum get upgraded?
Ethereum changes through planned network upgrades, which the people who run nodes adopt at the same time. Each upgrade bundles proposals called Ethereum Improvement Proposals (EIPs). These upgrades changed how the network works for everyone:
- London, 5 August 2021: the base fee and the fee burn (EIP-1559).
- The Merge, 15 September 2022: the switch from mining to proof of stake.
- Dencun, 13 March 2024: cheaper data space for layer 2 networks.
- Pectra, 7 May 2025: larger validator balances, among other changes.
- Fusaka, 3 December 2025: more room for layer 2 data.
As of September 2026, Fusaka is the most recent upgrade, and the next one, called Glamsterdam, is still in development. Details in this guide can change after future upgrades, so check the date on any figure you rely on.
What is ETH used for inside the network?
ETH is both the fuel and the security deposit of the network. Every transaction and smart-contract call is paid for in ETH, validators lock up ETH to secure the chain, and many apps accept ETH for payments or as collateral.
ETH supply moves in two directions. New ETH is issued to validators as rewards, while part of every fee is burned. So the total supply can grow or shrink, depending on how busy the network is (ethereum.org, as of September 2026).
None of this sets ETH’s market price. Buyers and sellers do, and the price can swing sharply in either direction.
What are the main risks for everyday users?
The main risks are price swings, bugs in smart contracts, scams and mistakes that cannot be undone. Knowing how Ethereum works helps you spot each one.
- Volatility: ETH’s price can move a lot in a short time.
- Smart-contract bugs: a flaw in an app’s code can lock or lose funds, and there may be no one who can reverse it.
- Scams: fake websites, fake support agents and messages asking for your seed phrase are common. A genuine service does not need your seed phrase. See how to stay safe from phishing attacks and how to protect yourself from fraud.
- Mistakes you cannot undo: a wrong address or the wrong network can mean lost funds.
- Layer 2 and bridge risk: moving ETH between networks relies on extra software and operators, which adds risks of its own.
For a fuller checklist, read Is Ethereum safe to buy?
Frequently asked questions
Sources
- ethereum.org: Ethereum accounts (checked September 2026)
- ethereum.org: Ethereum Virtual Machine (EVM) (checked September 2026)
- ethereum.org: Introduction to smart contracts (checked September 2026)
- ethereum.org: Gas and fees (checked September 2026)
- ethereum.org: Proof-of-stake (PoS) (checked September 2026)
- ethereum.org: Proof-of-work (PoW) (checked September 2026)
- ethereum.org: The Merge (checked September 2026)
- ethereum.org: Pectra (checked September 2026)
- ethereum.org: What is layer 2? (checked September 2026)
- ethereum.org: Dencun (checked September 2026)
- ethereum.org: Fusaka (checked September 2026)
- ethereum.org: Timeline of all Ethereum forks (checked September 2026)
- ethereum.org: Ethereum roadmap (checked September 2026)
- ethereum.org: What is ether (ETH)? (checked September 2026)
