What Is Ethereum?
Ethereum is a decentralised blockchain platform created by Vitalik Buterin in 2015. Unlike Bitcoin, which focuses on value transfers, Ethereum is a programmable world computer: it allows programs called smart contracts to be executed directly on the blockchain, without any intermediary.
Ether (ETH) is the native cryptocurrency of Ethereum. It is used to pay transaction fees (gas fees) and to participate in securing the network through staking.
In 2026, Ethereum is the second-largest cryptocurrency by market capitalisation (approximately 500 billion dollars) and the most widely used blockchain for decentralised finance (DeFi), NFTs, and decentralised applications.
Smart Contracts: The Ethereum Revolution
A smart contract is a computer program stored on the blockchain that executes automatically when certain conditions are met. No party can modify or cancel the contract once deployed.
Practical Application Examples
- Decentralised lending (DeFi): lend your ETH and earn interest without a bank (Aave, Compound)
- Decentralised exchanges (DEX): swap tokens without a centralised platform (Uniswap, Curve)
- Algorithmic stablecoins: digital currencies pegged to the dollar (DAI, FRAX)
- Decentralised insurance: automatic insurance contracts without an insurer (Nexus Mutual)
- NFTs: unique digital ownership certificates (art, tokenised real estate)
The Transition to Proof of Stake (The Merge)
In September 2022, Ethereum completed The Merge, a historic upgrade replacing Proof of Work (energy-intensive mining) with Proof of Stake (validation through staking).
Major Consequences
- 99.95 % reduction in network energy consumption
- Reduced ETH issuance: from ~4.3 % to ~0.5 % per year
- Deflationary ETH: thanks to the burn mechanism (EIP-1559), more ETH is destroyed than created during periods of high activity
ETH Becomes Deflationary
Since The Merge, the total supply of ETH decreases slightly during periods of heavy network usage:
- Issuance: approximately 800 ETH/day (staker rewards)
- Burn: approximately 1 000 to 3 000 ETH/day (transaction fees burned)
- Net result: the total supply of ETH decreases by 0.2 to 1.5 % per year
This is what's known as ultrasound money: an asset whose supply contracts with usage.
Ethereum Staking
Staking involves locking up your ETH to participate in network validation and receiving rewards in return.
Different Staking Methods
| Method | Annual Yield | Minimum | Complexity |
|---|---|---|---|
| Solo staking (personal node) | 4-5 % | 32 ETH (~80 000 €) | High |
| Pooled staking (Lido, Rocket Pool) | 3.5-4.5 % | 0.01 ETH | Low |
| Platform staking (Coinbase, Binance) | 2.5-3.5 % | Varies | Very low |
Staking Income Example
Sophie holds 10 ETH (value: approximately 25 000 €) and stakes via Lido:
- Annual yield: 4 % = 0.4 ETH per year
- Reward value: approximately 1 000 €/year at current prices
- No lock-up: stETH (Lido staking tokens) remain liquid and usable in DeFi
DeFi on Ethereum
Decentralised Finance (DeFi) represents an ecosystem of over 100 billion dollars in total value locked (TVL) on Ethereum. It replicates traditional financial services in a decentralised manner:
Major Protocols
- Aave: decentralised lending and borrowing. Typical yield: 2 to 8 % on stablecoin deposits.
- Uniswap: decentralised token exchange. Daily volume: 1 to 5 billion dollars.
- Lido: liquid staking protocol. Over 30 % of all staked ETH goes through Lido.
- MakerDAO: issuer of the DAI stablecoin, backed by crypto collateral.
DeFi Risks
- Smart contract risk: a bug in the code can lead to total loss of funds
- Liquidation risk: when borrowing, if collateral drops, funds are liquidated
- Governance risk: protocol decisions are made by token holders
- Regulatory risk: regulators could impose restrictions
Ethereum vs Bitcoin: Two Different Visions
| Criterion | Bitcoin | Ethereum |
|---|---|---|
| Primary function | Store of value | Application platform |
| Maximum supply | 21 million (fixed) | No fixed limit (but deflationary) |
| Consensus | Proof of Work | Proof of Stake |
| Programmability | Limited (Script) | Full (Solidity, EVM) |
| Use cases | Digital gold, payments | DeFi, NFTs, applications |
| Passive income | No | Yes (staking 3-5 %) |
| Energy usage | High | Very low |
The two assets are complementary in a crypto portfolio: Bitcoin for store of value, Ethereum for exposure to blockchain innovation.
Layer 2s: Ethereum's Scalability
Layer 2s are networks built on top of Ethereum that process transactions faster and more cheaply, while inheriting Ethereum's security:
- Arbitrum: the most widely used L2, fees of 0.01 to 0.10 $
- Optimism: optimistic rollup with a growing ecosystem
- Base: Coinbase's L2, aimed at mainstream users
- zkSync: cutting-edge technology using zero-knowledge proofs
With L2s, Ethereum transaction fees drop from 5-50 $ on the main network to 0.01-0.50 $, making the blockchain accessible to everyone.
How to Invest in Ethereum
Recommended Allocation (within your crypto allocation)
- Bitcoin: 50-60 %
- Ethereum: 30-40 %
- Other: 0-20 %
Combined Strategy
An investor putting 300 €/month into crypto could allocate:
- 180 €/month in Bitcoin (60 %)
- 120 €/month in Ethereum (40 %)
Over 5 years, with a hypothetical return of 20 %/year for ETH:
- Capital invested: 7 200 € (120 x 60 months)
- Estimated value: approximately 14 900 €
- Staking adds approximately 4 %/year on top
Conclusion
Ethereum is much more than a cryptocurrency: it is the infrastructure of decentralised finance and blockchain applications. Its transition to Proof of Stake has made it deflationary and eco-friendly, while staking offers a passive yield of 3 to 5 %. For investors, ETH combines capital appreciation potential with staking income, making it a natural complement to Bitcoin in any diversified crypto portfolio.