<p>Ethereum is a decentralized blockchain platform that enables developers to build and run smart contracts and decentralized applications (dApps) without intermediaries.</p>

<h2>How It Works</h2>
<p>Ethereum operates on a peer‑to‑peer network of nodes that maintain a shared ledger. The platform’s native cryptocurrency, Ether (ETH), pays for computational work.</p>
<ul>
<li><strong>Smart contracts:</strong> Self‑executing code stored on the blockchain that runs when predefined conditions are met.</li>
<li><strong>Ethereum Virtual Machine (EVM):</strong> A runtime environment that executes <a href="/NewSite/encyclopedia/smart-contract/" class="ency-link">smart contract</a> code identically on every node.</li>
<li><strong>Consensus mechanism:</strong> After the Merge, Ethereum uses Proof‑of‑Stake, where validators stake ETH to propose and attest to blocks, securing the network with lower energy use.</li>
<li><strong>Gas fees:</strong> Users pay a small amount of ETH (gas) to compensate validators for processing transactions and contract execution.</li>
<li><strong>Decentralized applications (dApps):</strong> Front‑end interfaces interact with smart contracts via wallets, enabling services ranging from finance to gaming.</li>
</ul>

<h2>Why It Matters</h2>
<p>Ethereum’s programmability unlocked a new wave of financial innovation. By removing intermediaries, it allows anyone with an internet connection to access lending, borrowing, trading, and asset creation services.</p>
<p>For example, the lending protocol Aave lets users deposit cryptocurrency into a smart contract pool and earn interest automatically, while borrowers can take out over‑collateralized loans without a credit check. This composability—where dApps can call each other’s contracts—has fueled the rapid growth of decentralized finance (<a href="/NewSite/encyclopedia/defi/" class="ency-link">DeFi</a>), non‑fungible tokens (NFTs), and tokenized real‑world assets, making Ethereum a foundational layer for the emerging digital economy.</p>