Ethereum

Overview

Ethereum is a programmable shared ledger

Ethereum is a blockchain network that supports digital-asset transfers and programs called smart contracts. A smart contract is code that executes under network rules when invoked by a transaction; it can manage token balances, exchanges and many other applications. Ethereum's native asset is ether, abbreviated ETH. It is distinct from tokens such as USDC that are implemented through contracts. This is why receiving a token payment on Ethereum involves both the base chain and a particular token contract.

How the underlying system works

Ethereum transactions are signed instructions submitted to the network. They can transfer ETH, call contracts or interact with token standards, with fees measured using gas. The network uses proof-of-stake consensus and distinguishes block inclusion from finalization. Applications can read account state and contract events to monitor transactions.

For payments, correct network selection is critical. A token with an Ethereum contract address cannot automatically be sent to an unrelated blockchain merely because the destination format resembles an Ethereum address. Merchants should identify supported tokens by chain and contract and set a confirmation or finality policy suited to the use case. Layer-two networks may lower costs but have their own bridging and settlement assumptions.

Follow an ETH and a token transfer

If Alice sends Bob ETH, her account initiates a transaction that moves the native asset and pays network gas. If she sends an ERC-20 token, her transaction usually calls the token contract. The contract updates token balances and emits an event that applications can inspect. The gas payment still generally requires ETH on Ethereum's main network. A merchant accepting the token must check the intended Ethereum network, contract address, recipient and event amount, not just the visible token symbol. An L2 network connected to Ethereum has its own transaction environment and support conditions; “Ethereum-compatible” is not a promise of automatic cross-chain interchangeability.

Consensus, fees and limits for payments

Ethereum uses proof of stake and has a protocol-specific finality process. Its transactions compete for network resources, so gas fees and confirmation experience vary with demand. Smart contracts introduce additional capabilities but also contract-security and allowance risks. A failed contract call may still consume gas. For commerce, separate the user payment from merchant settlement and use a clear policy for chain finality, token support and recovering unusual transfers. Ethereum's flexibility makes it useful for tokens, but not every application needs a complex smart contract to accept a payment.

Further reading and related concepts

Reference documents: Ethereum.org — Transactions, Ethereum.org — ERC-20 Token Standard.

Related glossary topics: ERC-20, Network Fee, Gas Fee.