What is Ethereum?

Ethereum is a blockchain platform that enables developers to build and deploy smart contracts and decentralized applications (dApps). 

While Bitcoin was designed primarily as digital money — a way to store and transfer value — Ethereum was designed as a programmable blockchain where code runs automatically when conditions are met. 

ETH (Ether) is Ethereum’s native cryptocurrency, used to pay for transactions and computing power on the network. Ethereum is the second-largest cryptocurrency by market cap, behind Bitcoin.

Bitcoin vs. Ethereum: different purposes

The simplest way to understand Ethereum is by comparison with Bitcoin:

Think of it this way: Bitcoin is digital gold — a scarce, decentralized store of value. Ethereum is a decentralized computer — a platform where applications run without any central server or company controlling them.

How smart contracts work

A smart contract is a program stored on the Ethereum blockchain that executes automatically when predefined conditions are met. “Smart contract” is a somewhat misleading name — it is not a legal contract, and it is not inherently “smart.” It is simply code that runs exactly as programmed.

Example: A simple smart contract for a bet: “If ETH is above €3,000 on March 1, 2027, send 1 ETH to Alice. Otherwise, send 1 ETH to Bob.” You deposit 1ETH into the contract. On March 1, the contract checks the price and automatically pays the winner. No judge, no arbiter, no trust required.

Smart contracts enable complex financial instruments (lending, trading, insurance), decentralized organizations (DAOs), token creation (ERC-20 tokens, NFTs), and any logic that benefits from trustless, automated execution.

What is ETH (ether)?

ETH is the cryptocurrency that powers the Ethereum network. It serves two functions:

Gas fees: Every operation on Ethereum costs “gas” — paid in ETH. Sending a transaction, deploying a smart contract, or interacting with a dApp requires ETH to pay for the computing resources. Gas fees vary with network demand.

Staking: Since Ethereum’s transition to Proof of Stake (“The Merge” in September 2022), ETH holders can stake their ETH to help validate transactions and secure the network. Stakers earn approximately 3-5% annual yield.

Decentralized finance (DeFi)

DeFi is Ethereum’s largest use case. Decentralized protocols replicate traditional financial services — lending, borrowing, trading, insurance — without banks or intermediaries. Major DeFi protocols include Uniswap (decentralized trading), Aave (lending/borrowing), and MakerDAO (stablecoin creation). Total value locked in Ethereum DeFi exceeds $50 billion.

Stablecoins

Most major stablecoins (USDC, USDT, DAI) are issued on Ethereum as ERC-20 tokens. Ethereum is the primary settlement layer for the stablecoin ecosystem.

NFTs

Non-Fungible Tokens (NFTs) — unique digital assets representing art, collectibles, music, and more — are primarily built on Ethereum using the ERC-721 standard. While the NFT market has contracted from its 2021-2022 peak, the technology continues to evolve.

Layer 2 scaling

Ethereum processes approximately 15-30 transactions per second on its main chain — not enough for global-scale applications. Layer 2 solutions (Arbitrum, Optimism, Base, zkSync) process transactions off the main chain and settle the results on Ethereum, achieving thousands of transactions per second at lower cost.

Ethereum and European regulation

ETH is classified as a crypto-asset under MiCA and is available on all major regulated European platforms, including Bitwala. Buying, selling, holding, and using ETH is fully legal throughout the EU.

One regulatory nuance: since ETH transitioned to Proof of Stake, staking rewards have attracted attention from regulators regarding their classification (securities vs. crypto-assets). MiCA does not classify ETH itself as a security, but staking services may face additional regulatory requirements depending on how they are structured.

Should you hold ETH?

For European investors, the Bitcoin vs. Ethereum decision often comes down to investment thesis:

Hold Bitcoin if: You want a pure store of value with the strongest decentralization, longest track record, and simplest monetary properties (fixed supply, no governance changes). Bitcoin is “digital gold.”

Hold ETH if: You believe in the growth of decentralized applications, DeFi, and the smart contract economy. ETH is an investment in the “decentralized computing” thesis.

Hold both if: You want exposure to both the store-of-value thesis (Bitcoin) and the programmable blockchain thesis (Ethereum). Many investors allocate 60-80% Bitcoin and 20-40% ETH within their crypto allocation.

Bitwala supports both BTC and ETH, both in self-custody.