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Ethereum (ETH)

Ethereum Ethereum

Ethereum (ETH) was the second cryptocurrency to be created, and it is currently the second-most prominent cryptocurrency.

This guide provides a comprehensive overview of Ethereum’s journey, how it works, and key milestones, including forks that have shaped its evolution.

What is Ethereum?

Ethereum is a decentralized, open-source blockchain platform that enables the creation and execution of smart contracts and decentralized applications (dApps). Launched in 2015, it has become one of the most influential platforms in the blockchain space, second only to Bitcoin in market capitalization. Unlike Bitcoin, which primarily serves as a digital currency, Ethereum is a programmable blockchain, allowing developers to build a wide range of applications, from decentralized finance (DeFi) to non-fungible tokens (NFTs).

This guide explores Ethereum’s origins, how it works, its historical milestones, its evolution, significant forks, and its impact on the blockchain ecosystem.

Origins of Ethereum

The Vision

Ethereum was first conceptualized by Vitalik Buterin, a young programmer and cryptocurrency enthusiast, in late 2013. At the age of 19, Buterin published the Ethereum whitepaper, outlining a vision for a blockchain platform that could execute programmable scripts, known as smart contracts. His inspiration came from the limitations of Bitcoin, which, while revolutionary as a decentralized currency, lacked the flexibility to support general-purpose computing.

Buterin’s goal was to create a “world computer” — a decentralized platform where developers could build applications without relying on centralized intermediaries. This vision attracted a group of co-founders, including Gavin Wood, Charles Hoskinson, Anthony Di Iorio, and Joseph Lubin, who helped bring Ethereum to life.

Early Development

In 2014, Ethereum’s development was crowdfunded through one of the first initial coin offerings (ICOs). The team raised over $18 million by selling Ether (ETH), Ethereum’s native cryptocurrency, in exchange for Bitcoin. This funding supported the development of the Ethereum network, which officially launched on July 30, 2015.

How Ethereum Works

Core Components

Ethereum is a distributed network of computers (nodes) that maintain a shared ledger, secured by cryptographic mechanisms. Here are the key components:

  1. Blockchain: Ethereum’s blockchain is a decentralized ledger that records all transactions and smart contract executions. It operates on a proof-of-stake (PoS) consensus mechanism since the Merge in 2022 (more on this later).
  2. Ether (ETH): Ether is Ethereum’s native cryptocurrency, used to pay for transaction fees (known as “gas”) and incentivize network participants, such as validators.
  3. Smart Contracts: These are self-executing contracts with predefined rules written in code. They automatically execute when conditions are met, enabling trustless agreements without intermediaries.
  4. Ethereum Virtual Machine (EVM): The EVM is a Turing-complete virtual machine that executes smart contract code. It provides a sandboxed environment, ensuring that code runs consistently across all Ethereum nodes.
  5. Gas: Gas is a unit of computational effort required to execute transactions or smart contracts. Users pay gas fees in ETH to compensate validators for processing their transactions.
  6. Decentralized Applications (dApps): dApps are applications built on Ethereum’s blockchain, leveraging smart contracts to provide decentralized services, such as lending platforms, games, or marketplaces.

Consensus Mechanism

Ethereum originally used a proof-of-work (PoW) consensus mechanism, similar to Bitcoin, where miners competed to solve complex mathematical puzzles to validate transactions and earn rewards.

In September 2022, Ethereum transitioned to proof-of-stake (PoS) through an event known as “The Merge.” In PoS, validators stake ETH to secure the network, reducing energy consumption significantly compared to PoW.

Accounts

Ethereum has two types of accounts:

  • Externally Owned Accounts (EOAs): Controlled by private keys, these accounts are used by individuals to send ETH or interact with smart contracts.
  • Contract Accounts: Controlled by smart contract code, these accounts execute predefined logic when triggered by transactions.

Also Read: The safest way to store your cryptocurrency

History of Ethereum

Pre-Launch (2013–2015)

  • 2013: Vitalik Buterin publishes the Ethereum whitepaper.
  • 2014: Ethereum conducts its ICO, raising $18 million. The core team, including Gavin Wood (who later authored the Ethereum Yellow Paper), begins development.
  • July 30, 2015: Ethereum’s mainnet launches, marking the birth of the network.

Early Years (2015–2017)

  • 2016: The DAO Hack: A significant event in Ethereum’s history was the hack of “The DAO,” a decentralized autonomous organization built on Ethereum. A vulnerability in its smart contract allowed an attacker to siphon off $50 million worth of ETH. This led to a controversial hard fork, splitting Ethereum into two chains: Ethereum (ETH) and Ethereum Classic (ETC).
  • 2017: ICO Boom: Ethereum’s programmability fueled the ICO craze, where projects raised billions by issuing tokens on Ethereum. This period saw the rise of projects like EOS, Tron, and Binance Coin, but also many scams and failures.

Growth and Scalability Challenges (2018–2020)

  • 2018–2019: The crypto market entered a bear phase, but Ethereum’s ecosystem grew with the rise of DeFi and stablecoins like Tether (USDT) and USD Coin (USDC). However, network congestion and high gas fees highlighted scalability issues.
  • 2020: The DeFi summer exploded, with protocols like Uniswap, Aave, and Compound gaining prominence. Ethereum’s price surged, and the network processed record transaction volumes, further exposing its scalability limitations.

The Merge and Beyond (2021–2025)

  • 2021: Ethereum introduced EIP-1559 (London Hard Fork), which reformed the fee market by introducing a base fee that is burned, reducing ETH’s supply over time. This made ETH potentially deflationary.
  • September 15, 2022: The Merge transitioned Ethereum from PoW to PoS, reducing energy consumption by ~99.95%. This was a pivotal moment, aligning Ethereum with environmental sustainability goals.
  • 2023–2025: Ethereum continued to evolve with upgrades like the Shanghai/Capella Upgrade (2023), enabling staked ETH withdrawals, and ongoing work on sharding and layer-2 solutions to improve scalability.

Evolution of Ethereum

Ethereum has undergone significant evolution to address scalability, security, and usability. Key milestones include:

Ethereum 2.0 (Serenity)

The transition to Ethereum 2.0, fully realized with The Merge, was a multi-phase upgrade to improve scalability, security, and sustainability. Key components include:

  • Beacon Chain: Launched in December 2020, it introduced PoS and coordinates validators.
  • The Merge: Merged the PoW Ethereum mainnet with the PoS Beacon Chain.
  • Sharding: A future upgrade to split the blockchain into smaller “shards” to process transactions in parallel, increasing throughput.

Layer-2 Solutions

To address high gas fees and slow transaction times, Ethereum has embraced layer-2 scaling solutions, such as:

  • Rollups: Optimistic Rollups (e.g., Arbitrum, Optimism) and Zero-Knowledge Rollups (e.g., zkSync, StarkNet) process transactions off-chain while leveraging Ethereum’s security.
  • Sidechains: Chains like Polygon PoS operate alongside Ethereum, offering faster and cheaper transactions.

Ethereum Improvement Proposals (EIPs)

Ethereum’s development is driven by EIPs, community-driven proposals to upgrade the network. Notable EIPs include:

  • EIP-1559: Reformed the fee market, introducing base fees and burns.
  • EIP-3675: Formalized the transition to PoS.
  • EIP-4844 (Proto-Danksharding): A step toward full sharding, reducing costs for rollups.

Ethereum Forks

Forks are changes to Ethereum’s protocol, either soft forks (backward-compatible) or hard forks (non-backward-compatible). Notable forks include:

Hard Forks

  1. The DAO Fork (2016):
    • Context: After the DAO hack, the Ethereum community decided to hard fork to reverse the stolen funds, restoring them to a recovery contract.
    • Outcome: This fork created Ethereum (ETH), while those who opposed the fork continued on Ethereum Classic (ETC), preserving the original chain’s immutability.
    • Impact: The fork sparked debates about blockchain immutability and governance, highlighting Ethereum’s community-driven ethos.
  2. Metropolis (Byzantium and Constantinople, 2017–2019):
    • Improved smart contract functionality and reduced block times.
    • Constantinople introduced EIP-1283, lowering gas costs for certain operations.
  3. London Hard Fork (2021):
    • Introduced EIP-1559, making transaction fees more predictable and burning a portion of fees.
    • Paved the way for Ethereum’s deflationary economics.
  4. Shanghai/Capella (2023):
    • Enabled staked ETH withdrawals, making PoS more accessible.
    • Improved validator incentives and network stability.

Soft Forks

Soft forks are less common but include minor upgrades to improve security or efficiency without splitting the chain.

Ethereum’s Ecosystem and Use Cases

Ethereum’s versatility has led to a vibrant ecosystem with diverse applications:

Decentralized Finance (DeFi)

DeFi protocols like Uniswap, MakerDAO, and Aave use Ethereum to offer decentralized lending, borrowing, and trading. As of 2025, DeFi on Ethereum accounts for billions in total value locked (TVL).

Non-Fungible Tokens (NFTs)

Ethereum popularized NFTs, unique digital assets on the blockchain. Projects like CryptoPunks, Bored Ape Yacht Club, and OpenSea have driven NFT adoption for art, gaming, and collectibles.

Gaming and Metaverse

Ethereum hosts blockchain-based games (e.g., Axie Infinity) and metaverse platforms, where players own in-game assets as NFTs.

Enterprise Applications

Ethereum is used in enterprise solutions, such as supply chain tracking and identity verification, through private or permissioned networks like Hyperledger Besu.

Challenges and Criticisms

  1. Scalability: Despite layer-2 solutions, Ethereum’s base layer remains slower and more expensive than competitors like Solana or Avalanche.
  2. Gas Fees: High fees during network congestion can deter small transactions and new users.
  3. Complexity: Ethereum’s technical complexity can be a barrier for developers and users.
  4. Competition: Other blockchains (e.g., Binance Smart Chain, Cardano) offer similar functionality with lower costs, challenging Ethereum’s dominance.

Conclusion

Ethereum has transformed the blockchain landscape by introducing programmable smart contracts and enabling a vast ecosystem of dApps, DeFi, and NFTs. From its origins in Vitalik Buterin’s vision to its evolution into a PoS network, Ethereum has navigated challenges like the DAO hack, scalability issues, and competition while maintaining its position as a leading blockchain platform.

With ongoing upgrades like sharding and layer-2 solutions, Ethereum is poised to remain a cornerstone of decentralized technology for years to come.

FAQs

1. What is Ethereum, and how is it different from Bitcoin?

Ethereum is a decentralized, open-source blockchain platform that enables smart contracts and decentralized applications (dApps). While Bitcoin is primarily a digital currency focused on peer-to-peer transactions, Ethereum is a programmable blockchain that allows developers to build applications, such as decentralized finance (DeFi) platforms and non-fungible tokens (NFTs). Ethereum’s native cryptocurrency, Ether (ETH), is used to pay for transactions and computational services on the network.

2. What are smart contracts, and why are they important on Ethereum?

3. Why did Ethereum switch from Proof-of-Work to Proof-of-Stake?

4. What are gas fees, and why are they sometimes so high?

5. What is the Ethereum Virtual Machine (EVM), and what does it do?

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