What Is Ethereum (ETH)? A Comprehensive Guide

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Ethereum is an open-source, decentralized blockchain computing platform. It empowers developers to build, publish, and run smart contracts and decentralized applications (DApps) without interference or control from any central authority.

To learn more about the core components, see our guides on “What Are Smart Contracts?” and “What Are DApps?”.

Like Bitcoin, Ethereum is open-source. Anyone with an internet connection can run an Ethereum node or interact with the network. Today, Ethereum is widely used in decentralized finance (DeFi), non-fungible tokens (NFTs), and many other fields. It serves as a foundational platform for token issuance (via the ERC-20 standard) and contract execution for countless decentralized projects.

For deeper dives into these applications, read “What Is DeFi?” and “What Are NFTs?”.

Ethereum was proposed by programmer Vitalik Buterin in 2013, the same year he published its whitepaper. The project was funded through a public crowdfunding campaign in 2014. In 2015, the first live version of the Ethereum network, called “Frontier,” was launched. The native asset of the Ethereum network is Ether (ETH).

To learn more about the founder, see “Who Is Vitalik Buterin?”.

How Is Ethereum Different From Bitcoin?

While both Ethereum and Bitcoin allow you to use cryptocurrency without intermediaries like banks, their core purposes differ significantly. Bitcoin is primarily a peer-to-peer payment network. Ethereum, on the other hand, is designed to enable the building and deployment of smart contracts and DApps.

Ethereum is Turing-complete. Its programmability allows developers to create specific applications that use the blockchain to store data or control functionality—free from downtime, censorship, fraud, or third-party interference. This is made possible by the Ethereum Virtual Machine (EVM), a software-based computer that executes programs instead of relying on physical hardware.

For a detailed explanation, see “What Is the EVM?”.

In essence, Bitcoin is a payment network, while Ethereum is more like a marketplace for financial services, games, social networks, and other applications. It prioritizes user privacy, resists censorship, and imposes no arbitrary limits, enabling a world of infinite possibilities.

What Is Ether (ETH)?

Ether (ETH) is the native cryptocurrency of the Ethereum network. When users send ETH or interact with applications on Ethereum, they must pay a small fee in ETH known as a “Gas fee.” This fee incentivizes miners (or validators, post-Merge) to process and validate transactions. Miners play a crucial role in securing the network by recording data and creating new blocks. They are rewarded with newly issued ETH for their work.

Learn more about these concepts in “What Are Gas Fees?” and “What Is Mining?”.

A key difference from Bitcoin (BTC) is that ETH has no maximum supply cap. When Ethereum launched in 2015, the initial supply was 72 million ETH. As of early 2023, the supply has grown to approximately 120 million ETH.

What Was The Ethereum Merge?

The Ethereum Merge was a major upgrade to the Ethereum network. Originally, Ethereum used a Proof-of-Work (PoW) consensus mechanism to validate transactions—just like Bitcoin. However, as network activity grew, the limitations of PoW became apparent, including high energy consumption and scalability issues.

The Ethereum Foundation proposed an upgrade often referred to as Ethereum 2.0 (now more accurately called the “consensus layer”). This new layer uses a Proof-of-Stake (PoS) consensus mechanism, which is faster, less resource-intensive, and theoretically more secure.

For comparative details, read “What Is PoW?” and “What Is PoS?”.

Source: Ethereum Foundation Blog

The introduction of the consensus layer was a landmark upgrade aimed at enhancing the network’s security, speed, and efficiency as it continued to grow. Due to the complexity of moving assets from one consensus mechanism to another, Ethereum 2.0 (the consensus layer) and Ethereum 1.0 (the execution layer) coexisted for a significant period. The transition began in late 2020 and culminated in the Merge in September 2022, also known as the Paris upgrade.

A Brief History of Ethereum

Ethereum was conceived by Vitalik Buterin in his introductory paper and developed by a group of co-founders. The five original founders—Vitalik Buterin, Anthony Di Iorio, Charles Hoskinson, Mihai Alisie, and Amir Chetrit—joined the project in 2013.

In 2014, during a meeting in Zug, Switzerland, Buterin proposed that Ethereum should develop as a non-profit project. Formal software development began that year under Ethereum Switzerland GmbH. Gavin Wood later published the Yellow Paper, which provided a technical definition of the Ethereum protocol.

July 2015 saw the launch of Ethereum’s first version, Frontier, marking the official start of the network and the introduction of smart contract functionality. In November of the same year, Fabian Vogelsteller proposed ERC-20, a technical standard for token implementation on Ethereum. This standard made it significantly easier for developers to create compatible applications.

In 2016, a decentralized autonomous organization called The DAO raised $150 million through a crowdfunding event on Ethereum. Several months later, it was hacked, resulting in the loss of 3.6 million ETH. This incident led to a hard fork of Ethereum, splitting it into two separate blockchains: Ethereum Classic (the original chain) and Ethereum (the chain we use today).

From 2017 to 2021, Ethereum underwent multiple upgrades, including Byzantium, Constantinople, Istanbul, Berlin, and London. The London hard fork was particularly notable because it included proposal EIP-1559, which reformed the transaction fee market and changed how Gas fees are estimated on the blockchain.

In September 2022, the Merge (Paris upgrade) was completed, transitioning Ethereum from PoW to PoS.

The Shanghai upgrade was expected to occur in March 2023. A key feature of this upgrade was enabling the withdrawal of ETH that had been staked on the Beacon Chain since December 2020, marking another major milestone in Ethereum’s evolution.

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Frequently Asked Questions

What is the main purpose of Ethereum?
Ethereum is a decentralized platform that enables developers to build and run smart contracts and DApps without any central control. It serves as the foundation for a wide range of applications, including DeFi, NFTs, and more.

How does Ethereum differ from Bitcoin?
While both are cryptocurrencies, Bitcoin is primarily a digital currency for payments. Ethereum is a programmable blockchain that supports smart contracts and complex applications, making it more versatile.

What is Ether (ETH) used for?
ETH is used to pay for transaction fees (Gas) and computational services on the Ethereum network. It also serves as a store of value and a medium of exchange within the ecosystem.

What was the Ethereum Merge?
The Merge was Ethereum’s transition from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus mechanism. This upgrade aimed to make the network more scalable, secure, and energy-efficient.

Can Ethereum be used for purposes other than finance?
Yes, Ethereum’s programmability allows it to be used in gaming, supply chain management, digital identity, voting systems, and many other fields beyond finance.

Is Ethereum a good investment?
Like any cryptocurrency, investing in Ethereum involves risk. Its value can be volatile, and potential investors should conduct thorough research and consider their risk tolerance before investing.