What Is Ethereum? How It Works and How It Differs From Bitcoin
Ethereum was built to run software that no company controls, but its token has lost ground even as activity across its network keeps climbing. Understanding why reveals a fundamental tension at the heart of how Ethereum actually works.
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Ethereum (CRYPTO:ETH) is a blockchain built to run programs, which is why people point to it when they say crypto can do more than move money. Developers deploy code to it, users call that code, and the network’s native token, ETH, pays for the computing power behind every transaction.
As of September 17, 2026, Ethereum trades near $2,431 while Bitcoin (CRYPTO:BTC) trades near $76,378, though both prices shift throughout the day. So what actually runs on Ethereum, and how does it differ from Bitcoin?
What Ethereum Is and What Runs On It
Bitcoin functions as a ledger for money, while Ethereum works more like a computer that anyone can run a program on. The network went live in July 2015, created by Vitalik Buterin alongside a handful of co-founders, and it was designed from the start to do more than simply record who owns what.
The programs that run on Ethereum are called smart contracts, which are pieces of code that execute automatically once their conditions are met, without a company in the middle deciding whether to honor the deal. A smart contract can swap one token for another, let a borrower post collateral against a loan, or mint a receipt representing a real-world asset that anyone can verify on the public record.
ETH itself fuels all this activity, since every transaction burns a small amount to pay the validators who process each block. Ethereum moved from mining to proof of stake in 2022, so holders now secure the network by locking up ETH as a bond rather than miners burning electricity to compete for blocks. More than a third of circulating ETH is currently staked this way, earning validators low single-digit yields.
Ethereum’s biggest activity shift is happening away from its own base layer, with layer-two networks now processing several times more daily transactions than Ethereum itself. These separate chains batch transactions and settle the results back to Ethereum, meaning much of the network’s usage now happens outside the main chain. That shift has increased overall activity across the Ethereum ecosystem, while ETH’s valuation has not moved in line with that growth.
How Ethereum Differs From Bitcoin
Bitcoin and Ethereum were built for different purposes: Bitcoin as money that cannot be controlled or debased by a central authority, and Ethereum as a platform for running software without permission from a central operator. That difference also shows up in their supply models: Bitcoin is capped at 21 million coins, while Ethereum has no hard cap and instead issues new ETH as staking rewards and burns ETH through transaction fees, with the two forces broadly offsetting each other since Ethereum switched to proof-of-stake in 2022.
Another key difference is how the two networks reach consensus. Bitcoin relies on mining, where computers compete to add blocks by solving computational puzzles, while Ethereum uses staking, where validators are selected based on how much ETH they lock up. This difference also shapes how the networks evolve: Bitcoin adopts protocol changes cautiously and rarely, while Ethereum follows a scheduled upgrade roadmap that has faced delays, including Glamsterdam, now pushed into the second half of 2026.
Those design differences have also produced very different long-term price performance. Ethereum is down roughly 47% over the past year and 18% year to date, compared with Bitcoin’s declines of about 34% and 13%, respectively. Over five years, Bitcoin is up more than 55%, while Ethereum is down nearly 30%.
How People Own Ethereum and What It Costs
The main ways to own ETH differ in what they give you beyond price exposure, starting with direct ownership through an exchange, where you can buy the coin and move it to a wallet you control to hold the private keys yourself. If you want price exposure without managing a wallet, a U.S. spot Ethereum ETF lets you hold ETH exposure through a regular brokerage account and can also be placed in a retirement account.
Staking adds another option by allowing you to earn rewards for helping secure the network, either through a staking service or by running your own validator with 32 ETH locked as a bond. Each route comes with trade-offs, particularly around the difference between getting exposure to ETH and actually holding or staking it.
Spot Ethereum ETFs do not currently pass staking yield to shareholders, so investors get price exposure without the additional return from staking, although BlackRock has filed for a staked Ethereum product that could change this if it receives regulatory approval. For investors who hold ETH directly, the picture is different, with exchange balances falling to multi-year lows as more coins move off exchanges and into longer-term storage, reducing the amount of ETH readily available for sale.
The uncertainty around staking also extends to taxes and securities rules in the United States. The IRS treats staking rewards as taxable income when they are received, while whether staking itself constitutes a securities offering remains a separate regulatory question. The CLARITY Act was expected to address that issue, but after failing in the Senate, the question remains unresolved, limiting the options for institutions seeking regulated ways to participate in Ethereum staking as of September 2026.
Bitcoin or Ethereum: What Are You Actually Betting On?
Bitcoin and Ethereum are built around different sources of value. Bitcoin’s design centers on scarcity, with a fixed supply of 21 million coins and a monetary policy that does not depend on network usage to create demand. Ethereum, by contrast, ties ETH more closely to activity on its network, where the token is used to pay for transactions and applications while part of those fees are burned.
That makes Ethereum’s long-term value more closely connected to whether network activity can translate into sustained demand for ETH and enough fee burn to offset new issuance. Layer-two networks now handle much of Ethereum’s activity, so how that growth affects fees, ETH demand, and the balance between issuance and burn will remain important to the asset’s long-term performance.
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Sam Daodu is a crypto analyst who's spent nearly a decade making blockchain understandable—no easy task when most whitepapers read like fever dreams. He writes for 24/7 Wall St., covering Bitcoin, altcoins, and crypto market analysis for investors. Before crypto, he was a tech writer (back when explaining "the cloud" was peak innovation). Since 2018, he's written for CoinTelegraph, Yahoo Finance, The Block, Cryptonews, Zypto, Rain, and more—basically anywhere people want crypto news without the headache. Sam runs MacLabs Marketing, a content agency for crypto brands tired of sounding like AI wrote their website. He also publishes free crypto education on his site for Web3 enthusiasts who think "gas fees" is a typo. When he's not writing or staring at charts, Sam's either: - Watching anime (currently convinced One Piece has better tokenomics than most altcoins) - At the gym sculpting himself into a Greek god - Listening to the music your mum warned you only bad boys listen to Connect: LinkedIn | Email | MacLabs Marketing
