What is Ethereum and how does it work?

Ethereum is one of the biggest innovations in the blockchain world — second only to Bitcoin in popularity and market cap. It’s more than just digital money, Ethereum is a decentralised computing network that enables anyone to build applications, transfer value, and interact directly without relying on a central authority like a bank or company.

This guide explains what Ethereum is, how it works, why it matters, and what sets it apart from Bitcoin.

What is Ethereum?

Ethereum is the second-largest cryptocurrency by market cap, but it’s more than just digital money. It’s a decentralised, open-source blockchain that lets people build and use apps ‌ — ‌ without needing banks or third parties.

You can think of Ethereum as a global network for digital money and apps. It’s powered by computers (called nodes) around the world, so anyone can build on it and everyone has open, equal access — no permission needed.

Launched in 2015 by Vitalik Buterin, Ethereum gives developers tools to build and run a variety of applications. These apps are called decentralised applications, or dApps.

Ethereum, Ether and ETH: what's the difference?

Think of Ethereum like an operating system and ETH as the power source that keeps it running.

• Ethereum is the decentralised blockchain network
• Ether is the cryptocurrency used to power that network
• ETH is the abbreviation for Ether on crypto exchanges

How does Ethereum work?

Ethereum is powered by a decentralised network of computers (called nodes) that maintain a shared database — the blockchain. Every time something happens on Ethereum, every node updates its copy of the ledger to match. Imagine a shared notebook that lives online — everyone can write in it, but no one can erase or change what’s already there. That’s how the Ethereum blockchain works. It’s a global system of computers that all stay in sync, verifying every transaction to keep things secure and transparent.

Blockchain explained

Ethereum’s blockchain is a decentralised database that records every transaction made on the network. Each new transaction is grouped into a 'block' and linked to the one before it, creating a continuous chain of data. Once added, these records can’t be changed or deleted.

This structure means you don’t need a third party to verify a payment or ownership. The blockchain acts as a permanent and transparent source of truth, accessible to anyone.

Because it’s decentralised, no single entity controls the data — making Ethereum both resilient and reliable/trustworthy.

Nodes and the Ethereum Virtual Machine (EVM)

Nodes are individual computers connected to the Ethereum network. They keep full copies of the blockchain and help validate new transactions. This redundancy ensures the network stays operational even if some nodes go offline.

These nodes run the Ethereum Virtual Machine (EVM), a powerful, decentralised computing engine. The EVM is what enables Ethereum to process smart contracts consistently across all nodes, making it possible to run apps securely without a central server.

Smart contracts explained

Smart contracts are code-based agreements that automatically execute when their conditions are met. For example:

• Automatically sending funds when an event happens (like a crowdfunding goal being met)
• In a game, it can ensure you own your digital assets and can trade them securely

These contracts live on the blockchain and are designed to execute as programmed, without relying on a central authority.

Gas fees and transactions

Everything you do on Ethereum, like sending ETH, using apps, or buying NFTs, requires a small transaction fee called a gas fee.

Gas is like fuel. The more complex the action, the more gas it needs. When the network is busy, gas prices go up.

You pay gas in ETH, and part of the fee goes to the validators who help run the network. Gas helps prevent spam and ensures Ethereum runs smoothly.

Ethereum wallets

To interact with the Ethereum network, you’ll need a wallet to store your ETH and other tokens. A wallet has:

• A public key: like an address people can send ETH to
• A private key: like a password that lets you send or use your ETH

There are two types of wallets:

• Custodial wallets (like in the Revolut app): we keep your keys secure, so you don’t have to worry about set-up
• Non-custodial wallets (like MetaMask): you manage your own keys and take full control of your assets

Ethereum 2.0 — from proof of work to proof of stake

Ethereum 2.0, also known as The Merge, was a major upgrade. It switched Ethereum from an older system called proof of work to a new model: proof of stake.

Why did Ethereum need an upgrade?

Proof of work uses huge amounts of electricity. Ethereum needed to become more energy-efficient, scalable, and ready for the future. Switching to proof of stake helped by:

• Cutting energy usage by over 99%
• Enabling the move toward higher transaction capacity
• Laying the foundation for more upgrades

What changed after the merge?

With proof of stake, Ethereum is now secured by people who stake their ETH — instead of by people who solve complex puzzles using lots of electricity.

Validators are randomly chosen to confirm transactions and earn rewards. This new system is cheaper, greener and more scalable.

What is staking and how does it work?

Staking means locking up some of your ETH to help run the Ethereum network and earn rewards in return. It’s one of the key innovations behind Ethereum 2.0 and allows you to participate in maintaining the blockchain. When you stake ETH, you're contributing to transaction validation and the creation of new blocks. In return, you can earn rewards, similar to earning interest — though rewards vary based on network conditions and validator performance.

It’s a bit like earning interest on a savings account — except you’re helping to run a decentralised global network.

How to buy Ethereum

Getting started with Ethereum is easy using the Revolut app. You don’t need to worry about managing wallets or navigating complex exchanges.

Here’s how it works:

1. From your Revolut app, go to Crypto → Ethereum
2. Choose the amount you want to buy and confirm the transaction

That’s it — your ETH will appear in your crypto balance instantly. You can track its value in real time and sell or convert it at any point.

To learn more, check our how to buy crypto on Revolut.

What are the fees to invest in Ethereum? Whenever you make a cryptocurrency exchange using Revolut, you'll pay the current rate plus a fee. Our fees are competitive, and you'll always see them in-app before you buy. The total amount depends on your Revolut plan.

Learn more about crypto trading fees in our Help Centre.

Ethereum price

The Ethereum price is how much one unit of Ether (ETH) is worth right now. Just like stocks or currencies, the price changes constantly based on what people are willing to pay. It goes up when more people want to buy ETH and down when more people are selling.

You can track the live Ethereum price in the Revolut app or check out our cryptocurrency page for updates.

Understanding price movements helps you decide the best time to buy, sell, or stake your ETH.

What affects Ethereum price?

ETH price moves constantly, but it’s not random. It’s shaped by a mix of technical, social and economic factors.

• Market sentiment: news, investor behaviour and trends influence how people buy and sell ETH
• Regulation: legal decisions or government policies, such as crypto bans or approvals, can have a big impact
• Network usage: the more activity on Ethereum (think DeFi, NFTs or games), the greater the demand for ETH
• Gas fees: when demand spikes, so do transaction costs. High gas fees can affect usage and price
• Wider markets: global economic shifts, like inflation, interest rates or major events, also move the crypto market

Why Ethereum has value

ETH has real-world value because it powers a huge range of services on the Ethereum network. It’s not just a currency — it’s a tool for interacting with a decentralised digital ecosystem.

Here’s why that matters:

• Utility: every transaction, app and smart contract on Ethereum requires ETH to function. It’s the fuel that runs the network
• Scarcity: Ethereum has a built-in 'burn' mechanism, which destroys a small amount of ETH during every transaction. This reduces the total supply over time
• Demand: ETH is in demand because it powers everything from DeFi platforms to NFT marketplaces and blockchain games

Together, these factors make ETH both useful and sought-after, and that’s what gives it value.

What can you do with Ethereum?

Ethereum isn’t just for investing. Here’s how people use this blockchain every day:

• DeFi (decentralised finance): use apps that let you borrow, lend, and trade without a bank. Examples: Aave, Uniswap, Compound
• NFTs (non-fungible tokens): own digital items that can’t be copied — like art, music, or in-game assets
• DAOs and Web3: join decentralised communities where members vote on decisions using smart contracts
• Gaming and the metaverse: play games like Axie Infinity and own characters, lands or items as NFTs

Get started with Ethereum

Now that you have a better understanding of the Ethereum network, you can take the next step on your crypto journey — it’s easy to start with Revolut.

• Buy ETH in-app
• Track value in real-time
• Stay secure with built-in tools

To get started, sign up for Revolut and buy Ethereum.

Check the Revolut app for live price details and fees. Crypto is not regulated or protected and is volatile - value can go down.

The information provided is accurate as of 14 June 2025.

Not all cryptoassets carry the same risks. Before investing, read our cryptoasset specific risk summaries to make sure you understand the different risks associated with different types of cryptoassets.

Information is provided by Revolut Ltd Registration No. 08804411 UK but is not liable for any of the claims, offerings, or services described here in, nor are the representations made or opinions expressed in this topic the views and opinions of Revolut Ltd or Revolut subsidiary companies registered and licenced to provide Revolut products in local countries. For more information about Revolut and current product offerings in your local country please visit https://www.revolut.com/.