Ethereum: Explained
Why It Exists, What It Solves and Why It Still Matters
Ethereum is the second-largest crypto network and the home of the most activity in all of Web3. The network runs on its native token ETH, which is used to pay for transactions, power applications and reward validators who secure the blockchain.
But to understand why Ethereum became so important, you need to understand why it had to be created in the first place.
How Ethereum Was Founded
Ethereum was created by Vitalik Buterin, a young programmer who was active in the early Bitcoin community. In 2013, he proposed an idea that Bitcoin could not achieve at the time: a blockchain that allowed developers to build applications directly on-chain.
Bitcoin was revolutionary, but it was designed only to store and transfer value. It was not designed to be programmable or host thousands of apps.
Ethereum launched in 2015 to unlock the next evolution of blockchain technology.
Why Ethereum Had To Be Created
Bitcoin was built for one purpose: digital money that cannot be controlled by any central authority.
It did that perfectly, but it could not:
automate agreements
run applications
create tokens
build entire ecosystems on-chain
Vitalik believed this limited the potential of blockchain. Ethereum solved those gaps.
1. Smart Contracts
Ethereum introduced programmable agreements called smart contracts.
Think of a smart contract like a vending machine:
when the correct conditions are met, it automatically executes the outcome.
A simple real-world example of how it executes an agreement:
If you upload a project for me and it is verified, the smart contract automatically sends you 2 dollars. No middleman. No trust required.
This is the foundation for everything built on Ethereum.
2. Token Creation
Ethereum made it possible for anyone to create their own token using standard templates like ERC-20 or ERC-721. This opened the door for stablecoins, governance tokens, NFTs and all the digital assets we use today.
Token creation turned Ethereum into the base layer for thousands of crypto projects.
3. Decentralized Applications
Developers could now build applications directly on the blockchain. These apps do not rely on banks, servers or central companies. Instead, smart contracts power everything behind the scenes.
This led to decentralized finance platforms, NFT marketplaces, blockchain games, DAO governance systems and more. Ethereum became the foundation of an entirely new digital economy.
What Ethereum Is Used For Today
Ethereum is the busiest and most developed ecosystem in crypto. Here are the major uses and the projects that represent them:
1. Decentralized Finance (DeFi)
Apps that let you lend, borrow, trade and earn without banks.
Examples: Uniswap (DEX), Aave (lending), MakerDAO (stablecoin creation)
2. NFTs and Digital Ownership
Unique digital items such as art, collectibles and gaming assets.
Examples: OpenSea, Blur, Yuga Labs assets
3. Stablecoins
Billions of dollars of stablecoins move daily on Ethereum.
Examples: USDC, USDT, DAI
4. Gaming and Identity
On-chain games and digital identity systems.
Examples: Axie Infinity, Immutable, Lens Protocol
5. Layer 2 Networks (Scaling Ethereum)
These make Ethereum faster and cheaper while settling back to Ethereum for security.
Examples: Arbitrum, Optimism, Base, Polygon, zkSync
Layer 2s now handle a massive share of Ethereum’s total activity.
Ethereum’s Growth: From Startup to ETF
Ethereum went from an idea in Vitalik’s head to a global network that secures billions of dollars.
A major milestone:
Ethereum now has an approved U.S. ETF, placing it alongside Bitcoin as one of the few crypto assets trusted at an institutional level.
This makes ETH accessible to retirement accounts, investment funds and mainstream finance.
Why Ethereum Is Still So Big Despite Being Slower and More Expensive
New chains are faster and cheaper, but Ethereum remains number one for a reason.
The secret is simple: network effect and real activity.
Here is what makes Ethereum unstoppable:
The most developers
More developers build on Ethereum than any other smart contract platform. This creates constant innovation.
The most liquidity
DeFi on Ethereum holds billions of dollars, attracting traders, institutions and long-term builders.
The strongest security
Billions rely on Ethereum’s proof-of-stake network and battle-tested smart contract standards.
Layer 2 success
Ethereum does not compete with fast chains.
It extends itself through L2 networks like Arbitrum, Base and Optimism, giving users low fees and high speed without leaving the Ethereum ecosystem.
Real usage everywhere
Ethereum leads crypto in:
total fees paid
stablecoin volume
number of active developers
app ecosystem
number of Layer 2 users
value secured
Ethereum is expensive because people actually use it heavily.
Chains with very low fees often have very low activity.
TLDR
Ethereum was created because the world needed more than digital money. It needed a programmable blockchain where agreements, apps, tokens and full digital economies could exist. Ethereum introduced smart contracts, enabled token creation and allowed developers to build decentralized applications.
Today it powers DeFi, NFTs, stablecoins, gaming, identity and a large network of Layer 2s. Despite being slower and more expensive than some competitors, Ethereum dominates because it has the most developers, the most activity, the most liquidity and the highest trust.
Its growth has been so strong that it now has a U.S. ETF and remains the foundation of Web3.
Not Financial Advice.