A different proposition from bitcoin
Bitcoin does one thing deliberately. Ethereum is a general-purpose computer: it runs programs — smart contracts — that execute exactly as written, and ether is the token you must spend to make them run. Every transaction pays a fee in ether, denominated in gas.
That gives ether something bitcoin lacks: a use case that generates demand independent of speculation. It also gives it something bitcoin avoided: enormous complexity, and therefore an enormous attack surface.
Staking and the yield
Since moving to proof of stake in 2022, ether can be staked — locked up to help validate the network — in exchange for a yield, typically low single digits. That makes ether the only major crypto asset with something resembling a native cash flow.
It also introduces new risks: slashing penalties for validator misbehaviour, lock-up periods, and, for those using liquid staking derivatives, another layer of smart contract and depeg risk.
Fee burn
Since 2021 a portion of every transaction fee is burned rather than paid to validators, meaning heavy network usage reduces ether supply. During busy periods net issuance can turn negative. It is an unusual monetary design and one of the more genuinely interesting experiments in the space.
What runs on it
Decentralised exchanges, lending protocols, stablecoins, NFT markets and a substantial amount of outright gambling. The technology is real and the applications are a mix of the genuinely novel and the straightforwardly extractive. Assessing ether means forming a view on how much durable economic activity the platform will actually host.
How you would actually trade it
Acquisition and custody work as they do for bitcoin, with the same rule about self-custody for meaningful holdings.
If you interact with contracts directly, each approval you sign grants a contract permission to move your tokens. Malicious approval requests are the most common way wallets are drained. Review and revoke approvals periodically, and use a separate wallet for experimental activity.
Gas fees vary enormously with network congestion. A simple transfer might cost pennies or many pounds depending on the hour.
What goes wrong
- Smart contract risk. Code with a flaw loses funds permanently; hundreds of millions have been taken through protocol exploits.
- Approval phishing is endemic and does not require your seed phrase.
- Volatility comparable to or above bitcoin, with the same absence of a valuation anchor.
- Competition from other smart contract platforms is real and ongoing.
- Staking lock-ups can prevent you exiting during a fall.
- Complexity risk. Most users cannot read the contracts they sign, which means trusting audits and reputation.
This entry describes how a market works. It is not a recommendation, a price forecast, or advice about whether this belongs anywhere near your money. How entries are written.