What is Ethereum?.

While Bitcoin was primarily designed as digital money, Ethereum was built as a platform where developers can create applications. Ether is the fuel needed to run those applications.

Ethereum hosts decentralised exchanges, lending platforms, NFT marketplaces and stablecoins, among other things. These applications are collectively often called DeFi (decentralized finance).

A smart contract is code that executes automatically once certain conditions are met, without a middleman. Think of a loan agreement that automatically releases collateral once repayment is received.

Because the code sits publicly on the blockchain, anyone can, in theory, verify what a contract does. In practice this requires technical knowledge, and bugs in the code can lead to loss of funds.

Until September 2022, Ethereum ran on proof of work, like Bitcoin. With 'The Merge', the network switched to proof of stake, where validators lock up ether as collateral to verify transactions.

This switch reduced the network's energy consumption by an estimated more than 99 percent and opened the door to staking as a way to earn a yield on ether.

Ethereum's main network can only process a limited number of transactions per second, which leads to higher fees during busy periods. Layer-2 networks such as Arbitrum and Optimism process transactions off the main chain and periodically anchor the results back onto it.

This makes using Ethereum applications cheaper and faster, though it adds an extra layer of technology and risk that users need to consider.

Ether is available on most European crypto exchanges licensed under MiCA. After buying, you can use ether to pay transaction fees (gas fees), stake it, or move it to your own wallet.

Some exchanges offer staking services where they handle the technical management for a fee. Pay attention to the terms and to the counterparty risk of the platform.

Smart contracts can contain bugs that bad actors exploit, sometimes leading to large losses. Always research a project before putting money into it.

Ether's price is also volatile and often moves with the broader crypto market. Staking can also involve a fixed lock-up period, depending on the platform.