$ 3,403.04
What is Ethereum (ETH)?
Ethereum, often called ETH, is akin to a colossal computer accessible to the entire globe, operating without a centralized control point. It harnesses blockchain technology to enable secure money exchanges (via the cryptocurrency ETH) and information. Beyond monetary transactions, Ethereum serves as a foundation for creating new decentralized applications and various cryptocurrencies.
The concept of Ethereum was initially introduced by Vitalik Buterin in 2013, and by 2014, the project secured funding through a coin sale, raising $18.3 million by selling 60 million coins at just over 30 cents each. Since then, Ethereum's value has surged, yielding significant returns for its investors.
Ethereum's network officially went live on July 30, 2015. Since its creation, many updates have been made to enhance its performance and introduce additional capabilities. That includes significant upgrades like "Constantinople," "Istanbul," and the more recent "London."
Ethereum aims to create an ecosystem where applications can be run freely by anyone worldwide, free from censorship and fraud. It opens up vast possibilities for everyone, from software developers to everyday users eager to explore new technologies.
The Founders of Ethereum
Ethereum was brought to life by a team of eight co-founders, which is quite large for projects of this nature. Their initial meeting occurred on June 7, 2014, in Zug, Switzerland.
Vitalik Buterin, a Russian-Canadian programmer, stands out as the project's most prominent figure and visionary, having first presented the idea of Ethereum in 2013. His contributions continue to be pivotal in the platform's development. Before Ethereum, Buterin was instrumental in founding and developing Bitcoin Magazine.
Another key figure is British programmer Gavin Wood, who was responsible for Ethereum's first technical implementation, created Solidity (a programming language specifically for Ethereum), and worked as the first CTO of the Ethereum Foundation. Wood's pre-Ethereum experiences include a stint at Microsoft, after which he moved on to develop Ethereum and later founded the Web3 Foundation.
Other co-founders include Anthony Di Iorio, who supported the project from its early stages; Charles Hoskinson, who helped establish the legal foundation for the Ethereum Foundation in Switzerland; Mihai Alisie, who contributed to the foundation's creation; Canadian entrepreneur Joseph Lubin, who financially backed Ethereum in its early days and later founded ConsenSys, a startup incubator based on Ethereum; and Amir Chetrit, who also laid the groundwork for Ethereum but departed from the project in its initial phase.
These individuals have made substantial contributions to the development and launch of Ethereum, creating a platform now globally utilized for developing decentralized applications and smart contracts. Their collaborative efforts and diverse skill sets have propelled Ethereum to become one of the most successful projects in the cryptocurrency world.
What Makes Ethereum Unique?
Ethereum has emerged as a blockchain leader by introducing the concept of a platform for smart contracts. Smart contracts are essentially computer programs that automatically execute specific actions for conducting transactions between parties over the Internet without intermediaries. It reduces transaction costs and enhances their security and reliability.
A key feature of Ethereum is the possibility of using smart contracts on the blockchain, significantly broadening the scope and reliability of these contracts and making them more resilient to fraud. Gavin Wood, a co-founder of Ethereum, described the blockchain as "one global computer" capable of running any program with a high degree of security and reliability on a globally distributed network.
Moreover, the Ethereum blockchain facilitates the creation and distribution of other cryptocurrencies, known as "tokens," thanks to the ERC-20 standard. This standard has positioned Ethereum as the primary platform for launching new cryptocurrencies. More than 280,000 different tokens have been created on Ethereum, including tokens that rank among the top hundred in market capitalization, such as USDT, LINK, and BNB. The advent of "play-to-earn" games has further increased interest in Ethereum and its value.
Ethereum offers vast opportunities for developers, investors, and ordinary users who can use the platform to create decentralized applications, games, and even launch their own cryptocurrencies. It has ushered in a new era in blockchain technology usage, with Ethereum playing a pivotal role in fostering innovation and developing the digital economy.
What is the Ethereum Name Service?
The Ethereum Name Service (ENS) functions as an address directory for the next-generation internet, Web3, built on the Ethereum blockchain. While traditional blockchain addresses consist of complex and lengthy character strings, ENS allows these to be replaced with names that are both understandable and easy to remember.
A crypto wallet address typically appears as a random sequence of numbers and letters, such as "0xDC25EF3F5B8A186998338A2ADA83795FBA2D695E." Not only is this format challenging to memorize, but it also increases the risk of errors during fund transfers. ENS addresses this issue by enabling the substitution of such addresses with more user-friendly names like "Alice.eth." This simplification makes sending and receiving cryptocurrency or NFTs through wallets much easier and safer.
ENS operates based on two smart contracts within the Ethereum network. The first contract, the ENS registry, stores information about domain ownership, configurations, and expiration. The second contract, known as the Resolver, converts human-readable names into machine-readable addresses and vice versa.
Furthermore, ENS is not limited to just .eth domains. It also supports many popular domain zones such as .com, .org, .io, and .app. That means you can use your existing domain name to receive cryptocurrency, making ENS an even more versatile tool.
ENS makes blockchain technology more accessible and comprehensible to the average user by simplifying interactions with cryptocurrencies and other digital assets. ENS enhances the user experience within the cryptocurrency and blockchain domain, making these technologies more appealing to a broader audience.
What is an "Ethereum Killer"?
Since its inception, Ethereum has maintained its position as the world's second-largest cryptocurrency by total market value. However, like any technology, Ethereum is not without its flaws. Ethereum’s drawbacks include high transaction fees, known as "gas," and a limited capacity to process transactions, ranging from 15 to 30 per second.
To address these issues, Ethereum developers have proposed a series of updates. However, these changes take time to implement, and many competitors have seized the opportunity to offer alternatives with lower fees and higher transaction speeds.
It gave rise to the notion of "Ethereum killers," blockchains that could potentially replace Ethereum. This concept first emerged around 2016-2017 with the introduction of blockchains such as Cardano. It was followed by other projects, including EOS, which raised a record $4.1 billion through an initial coin offering (ICO) in 2018. The list of potential competitors grew with projects like Tezos, Solana, Fantom, Avalanche, and Binance Smart Chain.
These alternative networks employ various consensus models that are different from Ethereum's Proof-of-Work (PoW) mechanism. For example, Solana uses a Proof-of-History (PoH) model, while Binance Smart Chain combines Proof-of-Authority (PoA) with Delegated Proof-of-Stake (DPoS).
Despite these challenges, Ethereum continues to hold a leading position among blockchains by market capitalization and remains the most popular platform for creating and trading NFTs. It highlights its significance and resilience in the cryptocurrency world, confirming that Ethereum is continuously adapting to fulfill the requirements of its users and developers..
What is EIP-1559?
The EIP-1559 update has revolutionized the transaction fee system within the Ethereum blockchain. Previously, users participated in a sort of auction to have their transactions processed faster by offering higher fees. This method was inconvenient and often led to overpaying for transaction speed.
With the introduction of EIP-1559, the system has become simpler and more predictable. A fixed "base fee" for transactions is now implemented, which adjusts automatically based on network congestion. If users desire quicker transaction processing, they can opt to pay a "priority fee," which goes directly to the miners.
A pivotal feature of EIP-1559 is burning a portion of transaction fees. The base fee for each transaction is now destroyed, reducing the overall supply of ETH in circulation and potentially leading to an increase in its value over time.
An interesting fact is that within just a few months following the implementation of the update, over 1 billion dollars worth of ETH was burned, highlighting the significant impact EIP-1559 has on Ethereum's economy.
The EIP-1559 update has greatly improved the user experience by making gas fees more transparent and predictable. Additionally, the fee-burning mechanism contributes to Ethereum's deflationary model, potentially increasing the value of the remaining tokens in circulation. This update represents a significant advancement in the development of the network and its economy, aiming to meet the needs of both users and investors.
How Many Ethereum (ETH) Coins Are There in Circulation?
As of February 2024, there were 120,162,905 ETH in circulation. Of these, 72 million were generated in the first block of Ethereum, known as the genesis block. A large portion of these coins, specifically 60 million, was distributed among participants of the initial crowdfunding in 2014 who invested in the project, with another 12 million allocated for the development of Ethereum itself.
All remaining coins have been created as rewards for miners who support the network's operation for every block mined. Initially, in 2015, miners received 5 ETH per block, but this amount has decreased over time to 3 ETH by the end of 2017 and to 2 ETH in early 2019. On average, it takes between 13 to 15 seconds to mine a single block.
London Hard Fork
August 2021 brought a significant update to Ethereum - the London hard fork, which introduced the EIP-1559 improvement. This update transformed the transaction fee system, moving away from the auction model where the highest bid wins. Instead, a fixed "base fee" was introduced, which varies according to network congestion, making gas costs more predictable. Users wishing to expedite their transaction processing can still pay a "tip" to miners.
Unlike Bitcoin, Ethereum's total supply is not capped, allowing the network to maintain security without a "fixed budget." This flexibility means developers can regulate the rate at which new coins are released to keep the network secure.
With the implementation of EIP-1559, the base fee for transactions is burned, reducing the ETH supply in circulation. The more the network is used, the more coins are destroyed, theoretically increasing Ethereum's value. Thus, although Ethereum was not designed as a deflationary currency, the introduction of EIP-1559 could lead to a decrease in the total coin supply and an increase in their value, which is positive news for ETH holders.
How Secure the Ethereum Network is?
As of August 2020, the Ethereum network was safeguarded by the Ethash Proof-of-Work algorithm, part of the Keccak family of hash functions. However, Ethereum had ambitious plans for the future: transitioning to a Proof-of-Stake algorithm as part of the comprehensive Ethereum 2.0 upgrade, which began rolling out at the end of 2020.
December 2020 saw the launch of Phase 0 of Ethereum 2.0 (Beacon Chain), paving the way for staking within the network. Staking in Ethereum 2.0 involves users depositing their ETH (a minimum of 32 coins to activate validator software) into a particular deposit contract. This process supports the network's security, contributing to data storage, transaction processing, and adding new blocks to the blockchain. By end February 2024, making a stake of 32 ETH would have required approximately $110 720. Validators could expect an annual yield of about 6%, which equates to roughly 1.91952 ETH or $6645 at the ether currency price.
The rewards for staking in Ethereum depend on the total number of stakers in the network and the average percentage yield. Early in the Ethereum 2.0 phase, some participants could earn up to 20% annually, but this figure is expected to decrease to 7-4.5% annually over time.
To participate in staking, one must possess at least 32 ETH. Investing in Ethereum 2.0 means being prepared to have your funds locked up for an extended period - from several months to several years - until the transition to the new network version is complete.
This shift to a Proof-of-Stake algorithm and the introduction of staking in Ethereum 2.0 open new opportunities for network participants, not only enhancing its security more efficiently but also allowing them to earn returns on their investments. It marks a move towards a more sustainable and environmentally friendly future for cryptocurrency, moving away from the energy-intensive mining process.
Where Can I Buy Ethereum?
Since Ethereum is the second-largest digital asset following Bitcoin, it is traded on all major cryptocurrency exchanges. Some of the largest markets include:
- Binance
- Coinbase Pro
- OKEx
- Kraken
- Huobi Global
- WhiteBIT
Popular Ethereum trading pairs include ETH/USD, ETH/GBP, ETH/AUD, and ETH/JPY.
London Hard Fork
The "London" hard fork for Ethereum emerged as a solution to the high transaction fees experienced, particularly during peak demand periods. In May 2021, the cost for a single transaction on the Ethereum network reached a record high of $71.72. Furthermore, Ethereum faced scalability issues, complicating the processing of a large number of transactions.
In efforts to improve the situation, Ethereum developers decided to transition to a Proof-of-Stake algorithm, which was expected to enhance the network's scalability and introduce new functionalities. The transition process to the updated version, Ethereum 2.0, had already begun, with the "London" update released in August 2021 being one of the critical steps towards this goal.
The "London" update introduced five Ethereum Improvement Proposals (EIPs), among which EIP-1559 was particularly notable. This proposal was key as it introduced an automatic transaction fee adjustment mechanism, making gas costs more predictable and fair for users. Additionally, the implementation of a fee-burning mechanism aimed to reduce the total supply of ETH, potentially influencing its value growth.
These changes represented a significant step towards improving the Ethereum ecosystem, making it more user-friendly and economically efficient for all network participants. The introduction of EIP-1559, in particular, sparked extensive discussion within the community and was perceived as the beginning of a new era in Ethereum's development aimed at creating a more balanced and sustainable network for dApps and smart contracts.
Ethereum 2.0
In the landscape of cryptocurrencies and blockchain technologies, development never ceases, and the transition to Ethereum 2.0 has been one of the most anticipated and discussed events. This major blockchain update promises to revolutionize the decentralized applications and smart contracts sector.
Phase 0: "Beacon Chain"
The launch of Phase 0 was preceded by a significant preparatory stage, requiring a green light from auditors. In late October 2020, the auditing firm Quantstamp announced that the Ethereum network was almost ready for the major update. The firm thoroughly examined the Teku client, developed by ConsenSys to meet the needs of large coin holders, and after an extensive review, declared it fully compliant with all security requirements.
Launched on December 1, 2020, the Beacon Chain was designed to operate in parallel with the main Ethereum blockchain. This launch marked the first component of Ethereum 2.0, also known as Phase 0.
The Beacon Chain was the coordinating mechanism for the new Ethereum ecosystem and played a crucial role in implementing Proof-of-Stake into the ecosystem. From the moment of the Beacon Chain's launch, Ethereum network users could stake ETH, although they couldn't withdraw their staked ETH until the completion of Phase 2.
It's important to note that the Beacon Chain did not change anything within the Ethereum network itself. Until the merging of the two chains in Phase 2, they operated in parallel and functioned separately. Project creator Vitalik Buterin stated that this update would not bring immediate scalability improvements to the network. The issue of low throughput is a key challenge not only for Ethereum but for the industry as a whole. Buterin believed that solving this problem would only be possible after completing the final phase of the update to version 2.0. At that time, the focus was on second-layer scalability solutions, as off-chain technologies (operating outside the blockchain) do not require immediate changes to the base protocol.
Phase 1: "The Shard Chains"
After the launch of the Beacon Chain in Phase 0, Phase 1 commenced, during which the Ethereum ecosystem gradually transitioned from using the entire main blockchain to distributing the load across 64 shard chains.
A shard is an individual blockchain within the ecosystem, linked to the main decentralized ledger and other shards within the network.
Shards operate according to a predetermined algorithm, interacting and transferring data among each other while ensuring the ecosystem's security. This solution significantly accelerated transaction verification, as validators now only need to focus on a single, relatively compact segment (one of 64) instead of dealing with a single vast blockchain. With this initial phase, the Ethereum network has already become faster and more scalable, as it can handle more transactions physically. Additionally, the hardware requirements for validators significantly decreased since each validator only stored data for their corresponding segment. In the future, these changes might even allow Ethereum to run on a smartphone or laptop.
Phase 2: "The Merge"
The network update, known as The Merge, transferred the consensus mechanism of the Beacon Chain network into the main network, which still relied on miners and the Proof-of-Work protocol until that point.
September 15, 2022, definitively made its mark in blockchain technology history. The so-called network merger combined the Beacon Chain, already operating with the Proof-of-Stake consensus mechanism for a year, with the main Ethereum network.
After the merge, Beacon Chain validators replaced Proof-of-Work miners and began producing blocks with Proof-of-Stake. The transition process was smooth. More than a year after this truly historic event, the Ethereum blockchain operates uninterrupted, and the currency has finally become deflationary.
Following this update, the main network allowed for the launch of smart contracts in the updated Ethereum ecosystem, so the network again began to operate seamlessly on a single blockchain. Although the merge led to a complete transition to Proof-of-Stake, only after the Shanghai update in April 2023 were Ethereum network participants able to withdraw their staked ETH coins. This mini-update was the final step towards completing the full transition to Proof-of-Stake.
Key Features of Ethereum 2.0:
- Scalability. Before Ethereum 2.0, the network relied on the main Ethereum blockchain, which could process a limited number of transactions (from 15 to 45 per second). Ethereum 2.0 introduces sharding, allowing for many transactions to be processed simultaneously. It enhances the network's throughput and allows more users to use the blockchain simultaneously.
- Energy efficiency. One of the biggest issues with Proof-of-Work is its unsustainable computational power. PoW consumes tremendous electricity to verify transactions and create new blocks. Proof-of-Stake eliminates the need for energy-intensive mining. The network is secured by validators who stake ETH to verify transactions, consuming far less energy compared to PoW. Ethereum's energy consumption is expected to decrease by approximately 99.95% thanks to PoS.
- Reliability and security. The PoS algorithm protects the network from coordinated attacks, which can occur if one entity controls 51% or more of the network's total computational power. With PoS, if a validator acts maliciously and attempts to attack a shard, the algorithm can automatically destroy their coins. Validators are assigned randomly and distributed among shards, significantly reducing the likelihood of a planned and concentrated attack on a single shard.
- Rewards for ETH holders. With the transition to PoS, Ethereum network users can lock their ETH and receive rewards for securing the network. The more ETH a user has, the higher their chances of being chosen for validation. By locking a sufficient amount of ETH, anyone can become a validator without purchasing high-performance equipment.
- Reduced fees. Thanks to increased scalability and network efficiency, fees are expected to decrease, making transactions on the platform more accessible to users.
The Scourge: Updated Ethereum Roadmap
After the network merge, Vitalik Buterin shared an updated version of the Ethereum roadmap. The goal of the update is to improve the network's decentralization and resistance to censorship. Following the upgrade known as The Merge, Ethereum entered the second phase of a series of updates, which was then announced as Ethereum 2.0 and dubbed "The Scourge." Buterin aims to achieve 100,000 transactions per second without compromising decentralization.