What is Ethereum (ETH)?
Ether (ETH) is the native cryptocurrency coin of the Ethereum ecosystem. Ethereum is an open-source blockchain that offers its users a broad range of functionalities. The development of Ethereum has seen rise in new blockchain technologies, such as smart contracts, decentralized applications (dApps), and the Ethereum Virtual Machine (EVM).
Due to its functionality, Ethereum is sometimes referred to as the world computer. It’s highly programmable and aims for complete decentralization, allowing users full control over their blockchain-based projects without the need for intermediaries. At the time of writing, Ethereum is the second-biggest cryptocurrency in the world based on market capitalization.
Who Developed Ethereum?
Ethereum was co-founded by a team of eight programmers and entrepreneurs. Vitalik Buterin is known as the author of the Ethereum whitepaper and is perhaps the most recognizable member of the founders’ team. Buterin is a programmer who has been involved with crypto since 2011. He was 19 when he penned the ETH whitepaper in 2014.
Gavin Wood is a computer scientist and one of the developers of Solidity, the programming language used by Ethereum. Alongside co-founding Ethereum, Wood also created Polkadot, a decentralized network that enables cross-chain peer-to-peer transactions and blockchain interoperability.
Other co-founders include Anthony Di Iorio, an entrepreneur who has invested in a number of blockchain projects, Charles Hoskinson, former CEO and the co-founder of the Ethereum Foundation, Mihai Alisie, founder of the AKASHA Foundation, Joseph Lubin, entrepreneur and founder of ConsenSys, entrepreneur Amir Chetrit, and programmer Jeffrey Wilcke.
Of the initial co-founder team, Buterin is the only one still actively involved in the Ethereum project. While some members have left to work on competitive blockchains or have left the industry altogether, Alisie and Lubin have been involved in projects that provide layer 2 support for Ethereum.
Prior to the official launch, the Ethereum team held an Initial Coin Offering (ICO) in 2014 to attract investors and put the asset on the blockchain map. During the period, the Ethereum price was set at roughly $0.3. After the successful ICO campaign, Ethereum officially launched on 30 July, 2015.
According to Wood, Ethereum was set to serve as a single computer that can encompass the entire Earth. Throughout the years, it's introduced new technologies that had not been utilized on blockchains before.
In recent years, the asset has become increasingly volatile, with the Ethereum price experiencing more frequent swings. It saw a steady increase in its value throughout 2021.
October-December 2021 was one of the most significant periods for Ethereum's market performance. Similar to Bitcoin, ETH recorded its highest-ever worth to date. On November 16th, the ETH price peaked at $4,891.
As the second-biggest cryptocurrency in the world, Ethereum plays an important role in setting up market trends. Despite aiming for decentralization, it has been subject to financial regulations in different countries.
U.S. tax regulations have caused some Ethereum price fluctuations. ETH was also strongly affected by the crypto market crash in June 2022.
What Are the Unique Features of Ethereum?
Ether is the native coin of Ethereum. However, Ethereum can be used to develop tokens. Ethereum-based tokens can be used by other blockchain platforms as means of payment, staking, or to power dApps and DeFi services.
Ethereum is one of the biggest cryptocurrencies in the world by market capitalization, coming second only to Bitcoin (BTC). The supply of ETH crypto assets is not limited by a hard cap, making it an inflationary coin.
ETH can only be used on the Ethereum network. However, a designated ERC-20 token known as Wrapped Ether (wETH) is pegged to the value of Ethereum and can enable cross-chain transactions.
What Are Smart Contracts?
Smart contracts are self-executing programs on the blockchain. The technology was developed to enable anonymous peer-to-peer transactions and automate the process of verification. The smart contracts that contain transaction data are distributed through the network.
Smart contracts were introduced on Ethereum. They have since revolutionized blockchain technology and become a crucial part of decentralized finance (DeFi) by enabling simpler on-chain trading, lending, and investing procedures.
What is the Ethereum Virtual Machine (EVM)?
The Ethereum Virtual Machine (EVM) is a Turing-complete blockchain-based software that functions as a decentralized computer. It’s responsible for executing all tasks within Ethereum. Its code is entirely isolated from any external processes, and each network node runs on the EVM to ensure the consensus is maintained.
What are Tokens and NFTs?
Although blockchain-based tokens were not invented on Ethereum, this platform played a crucial role in the rising popularity of fungible and non-fungible tokens (NFTs). There are several different token standards on Ethereum, such as ERC-677, ERC-1155, and ERC-948. However, the two most popular Ethereum token standards are ERC-20 and ERC-721.
ERC-20 is the most commonly used token standard on the platform. While the Ethereum coin is native to the platform, ERC-20 tokens can be used on Ethereum-based decentralized platforms. Well-known examples of popular ERC-20 tokens include stablecoins such as DAI and USD Coin (USDC).
ERC-721 are known as non-fungible tokens, making them one-of-a-kind assets that cannot be duplicated or replicated. They often have special features that cannot be used with other token standards and offer unique use cases. NFTs are often used as digital collectibles and decentralized gaming assets.
What is EIP-1559?
In August 2021, the Ethereum network conducted a large-scale upgrade known as the London Hard Fork. One of the core changes implemented during this upgrade was EIP-1559.
EIP-1559 was developed to deal with the issues related to gas fees on the platform. The way gas, or transaction fees, are calculated on Ethereum has been an issue for most of the network’s run. Prior to the upgrade, all transactions would be manually chosen by the miners to validate, often leading to the higher transactions receiving priority.
The manual selection of transactions would often lead to network congestions, delaying the transaction validation time. The EIP-1559 upgrade was developed to reduce network bottlenecks and automatize the transaction processing.
The upgrade introduced automatic base fees. It’s a set amount of Gwei that the users pay for their transactions to be processed. The base fee depends on traffic congestion. Users that require faster transaction processing are able to pay a priority fee to move up in the queue.
In addition to the automatization of the fees distribution, EIP-1559 also added an inflation-management mechanism. With each transaction, the base fee is burned to reduce the amount of Ethereum in circulation. The long-term aim of this mechanism is to ensure that the ETH price stabilizes over time and the value increases.
Furthermore, the fee burning mechanism exists to regulate the price of the gas fees themselves to ensure that the users are paying a fair amount for their transactions. It’s possible that the issues related to Ethereum price including gas fees will be further mitigated with the launch of Ethereum 2.0.
What is Ethereum 2.0?
Ethereum uses the Proof-of-Work (PoW) consensus mechanism, which is also employed by many other blockchains, including Bitcoin. This means that in order to increase the asset’s supply, new Ethereum coins must be mined using special hardware.
This method of creating cryptocurrency requires high energy resources and can be expensive and inefficient. Furthermore, it can have a significant ecological impact due to the amount of heat generated by the hardware and the difficulty of acquiring materials required to produce the devices, like lithium and cobalt.
Since the launch of Ethereum, the Proof-of-Stake (PoS) method of creating cryptocurrency has become more prominent. For this reason, the Ethereum network is set to undergo the Merge in summer of 2022.
The Merge is the name of the project to switch Ethereum from the PoW to the PoS consensus algorithm. It is expected that the Merge will help solve some of Ethereum’s biggest problems related to scalability and transaction speed. It’ll make the network more sustainable overall and will significantly reduce Ethereum’s energy consumption.
Ethereum 2.0 will be a merger of the current Ethereum Mainnet and the Beacon Chain system which uses the PoS consensus algorithm. The total supply of Ethereum will be adjusted to account for the burned fees and the new ETH coin issuance system.
Under the PoS system, users must stake a minimum of 32 ETH to start acting as network validators. For participating in this role, users are eligible to earn 6% APR as an incentive to continue their contributions to the network. The amount of rewards is expected to be adjusted as the size of the network increases.