Ethereum launched in 2015 with a premise that went beyond digital money. Where Bitcoin functions primarily as a store of value and medium of exchange, Ethereum was designed as a programmable platform. Developers can build applications on top of Ethereum that execute automatically, handle financial transactions, and operate without any central authority managing them.

The native currency of the Ethereum network is ETH, which is the second-largest cryptocurrency by market cap.

What smart contracts are

A smart contract is a program that runs on the Ethereum blockchain. It executes automatically when predefined conditions are met, with no middleman required. Think of it as a vending machine: you put in the required input, and the machine delivers the output. No cashier, no approval process, no waiting.

In practice, smart contracts power financial applications. A lending smart contract lets you deposit collateral and borrow funds instantly, with the contract automatically managing interest rates and liquidation thresholds. A trading smart contract lets you swap one token for another directly, with the contract handling pricing and settlement. An insurance smart contract can process claims and distribute payouts based on verifiable data inputs.

The key property of smart contracts is that once deployed, they run exactly as programmed. No person or company can alter the terms after the fact. This creates a system where participants can transact with each other based on code they can inspect and verify, without needing to trust a specific institution.

How Ethereum differs from Bitcoin

Bitcoin and Ethereum serve different purposes. Bitcoin is focused on being a scarce, decentralized digital asset. Its blockchain is intentionally simple, optimized for security and reliability in recording transactions.

Ethereum sacrifices some of that simplicity to enable programmability. Its blockchain can run complex applications, which opens up a much wider range of use cases but also introduces more complexity and a larger attack surface for potential vulnerabilities.

From a trading perspective, the two assets also behave differently. Bitcoin's price tends to be driven by macro factors, institutional adoption, and supply dynamics. Ethereum's price is influenced by those same forces plus the activity happening on its network. When more applications are built on Ethereum and more users interact with those applications, demand for ETH increases because every operation on the network requires ETH as a processing fee (called "gas").

The Ethereum ecosystem

Ethereum hosts the largest ecosystem of decentralized applications in crypto. The major categories include decentralized exchanges (DEXs) where you can trade tokens without an intermediary, lending and borrowing platforms where you can earn yield or access collateralized loans, and NFT marketplaces.

Many of the yield opportunities, prediction markets, and derivative products available in crypto are built on Ethereum or on networks that connect back to Ethereum. When you interact with protocols like Aave for lending or Uniswap for trading, you're using smart contracts deployed on Ethereum's blockchain.

This ecosystem is what gives Ethereum its network effect. The more applications and users on the platform, the more valuable the network becomes, which in turn attracts more developers and users.

Ethereum's supply model

Unlike Bitcoin's hard cap of 21 million coins, Ethereum does not have a fixed maximum supply. However, a mechanism called EIP-1559 (implemented in 2021) burns a portion of the ETH paid in transaction fees, effectively removing it from circulation. During periods of high network activity, more ETH gets burned than created, making ETH deflationary. During quieter periods, supply grows slowly.

This dynamic creates a direct link between network usage and ETH's supply. The busier the network, the more ETH gets burned, which reduces supply and can support price appreciation.

Why Ethereum matters for traders

Ethereum is the infrastructure layer for most of decentralized finance. Understanding how it works gives you context for the yield products, trading protocols, and financial applications built on top of it. Even if you never directly interact with a smart contract, the performance of ETH as an asset is directly tied to the health and growth of this ecosystem.

For traders on L7, Ethereum is both a tradeable asset and the underlying technology powering several of the platform's yield and DeFi market integrations.