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Second in popularity only to Bitcoin, Ethereum is one of the most promising blockchain projects out there. It has the potential to scale far beyond expectations and become the backbone of our future financial system.
In 2021, Ethereum still plays second fiddle to Bitcoin but not for long. This blockchain spurred groundbreaking innovations in its six years of existence, such as decentralized finance and non-fungible tokens. Furthermore, it attracted the backing of major corporations and brands, from Microsoft to Tesla and from JP Morgan to Samsung, MasterCard, and VISA.
You might be wondering what is Ethereum or how Ethereum works?
Wonder no more! In this ultimate beginner’s guide to Ethereum, we unveil one of the most exciting crypto projects of our era. Read on to discover where Ethereum comes from, how to buy Ethereum, and whether there’s any money in it!
Market data
Eth
2Rank
Ethereum
$3.065,38 price
3.20744% price change
24 hours+3.21%
7 days-12.52%
14 days-8.01%
30 days-3.34%
1 year+45.74%
$367.8 B marketcap
$14.1 B 24h trading volume
$2 959,81 / $3 089,88 24h low / 24h high
Introduction
What is Ethereum?
Ethereum is a decentralized open-source blockchain platform that provides its own cryptocurrency, called Ether (ETH). Additionally, it features its own programming language, called Solidity.
Ethereum is second only to Bitcoin in the cryptocurrency space when it comes to popularity and market cap. However, it offers much more features than its main rival. For instance, you can transfer digital assets across both blockchains separately. But on Ethereum, you can also create applications and launch projects all by using your own code.
In other words, Ethereum is a developer-friendly chain where code can run across a distributed ledger instead of on a centralized server. As a result, applications cannot be terminated or censored with a simple push of the button.
What is ether (ETH)?
Contrary to Bitcoin, on the Ethereum blockchain, the transferable unit of value is not an ethereum. Instead, it is called ether (ETH).
According to its developers, ether is “scarce digital money that you can use on the internet.” It is secured by proven cryptography and almost impossible to be stolen during transactions. Opposite to fiat currencies, ether is available only in digital form. You can store it safely in cryptocurrency wallets and use it in peer-to-peer (P2P) transactions across the Ethereum network.
ETH is a fundamental piece of the Ethereum puzzle. It works in monetization, taxing, and as an incentive for the miners on the blockchain. Additionally, you can use it in staking and decentralized finance (DeFi) to help secure and earn rewards.
What is the Ethereum blockchain?
The Bitcoin blockchain served as an inspiration for the Ethereum blockchain. However, the latter’s developers decided to take things a step further.
A blockchain is a collection of financial immutable records, also known as a ledger. Every new piece of information (data block) added to this collection is almost impossible to modify. As a result, the security and veracity of every piece of information are valid from the most recent block down to the very first block on the chain.
The Ethereum blockchain is similar to a numbered notebook where every page represents a block. If you want to contribute to the chain, you can add a page as well. You do so through hashing, a process that ensures the pages are added in chronological order.
Also, every computer (node) connected to the network contains a copy of the entire “notebook” from the first transaction to the latest. With every new block added to Ethereum, the nodes update their memory of the chain as well.
Hashing takes a piece of information, which could be everything on our page, and returns a unique identifier, which will be our hash. Now, on the Ethereum blockchain, new pages (blocks) are added every second. Nevertheless, the possibility of two identical hashes is infinitesimally slight. As a result, you can bring a unique contribution to the chain every single time.
What is the purpose of Ethereum?
Since its release in 2015, Ethereum has developed into an established, open-source, decentralized software platform. Its purpose is to enable the deployment of smart contracts and decentralized applications (dapps). More so, it aims to ensure coding and project development free from downtime, fraud, control, or interference from a third party.
What makes Ethereum so popular?
Ethereum enables anyone, anywhere, to develop and execute applications in a secure environment. For instance, every piece of code added to the blockchain cannot be edited. This means that third parties cannot attack or hack an application’s functioning principles.
Furthermore, the code for every app on the Ethereum blockchain is visible to everyone. This means that other users would want to engage with its audit and test the code’s performance beforehand.
Lastly, every app on the Ethereum network can store ether, which can have real-world value when exchanged for fiat currencies. Therefore, developers can decide how that value is transferred, thus programming “money.” This concept has already captured the interest and imagination of developers and businesses worldwide.
What is the difference between Ethereum and Bitcoin?
If you are new to cryptocurrencies, you are surely wondering, “how is Ethereum any different from Bitcoin?”
Bitcoin is the first and major breakthrough in blockchain technology. In fact, many refer to it as a “first-generation blockchain.” Its main innovation is creating a decentralized, P2P community that can collaborate in a trustless and permissionless fashion. But, above all, it opened the gates wide open to digital cash and financial independence from traditional banking institutions.
On the other hand, Ethereum is a second-generation blockchain. It spurred as inspiration from Bitcoin but aimed to provide many more features. For instance, it doesn’t limit itself to P2P financial transactions. Instead, it allows developers to experiment with their code to create new, self-standing projects, called Decentralized Applications (DApps). As a result, it delivers more than just financial freedom.
The Bitcoin and Ethereum blockchains can perform many similar functions. However, they are different in terms of features, advantages, performance, and long-term scalability options.
Is Ethereum Legal?
As of 2021, Ethereum is legal in over 110 countries across the globe. In addition, most developed states, such as the US, the UK, Australia, Japan, South Korea, and members of the EU, consider it legal to purchase, mine, trade, and make payments with ether.
Before investing in Ethereum, you should consult the laws of your country. This way, you avoid the risk of legal penalties and asset confiscation.
Is Ethereum safe?
Ethereum, as a blockchain, is a highly reliable and safe network. However, it is essential to understand that Ethereum is more than just a blockchain. Over the years, it has evolved into a complex ecosystem of smart contracts, applications, organizations, and layer-2 networks. More so, it will continue to expand and enhance its intricacy in the years to come.
At its base, Ethereum remains safe regardless of how large it gets. As the Bitcoin blockchain, this network is an immutable ledger supported by thousands of computers from a perseverant mining community. As a result, its security is doubtful to fail.
Nevertheless, the smart contracts, organizations, and DApps built on top of Ethereum can be faulty. Some of them may have vulnerabilities and errors in their codes. Hackers can speculate on these security breaches and drain the users’ funds. This type of cyber theft already happened once with “The DAO” (later on).
In conclusion, while Ethereum is a safe blockchain structure, some of its applications may be faulty. We can try to put it into perspective by comparing it to the Internet. For instance, the World Wide Web is a safe structure. You can run it on your computer and build apps on it, such as websites, programs, and more. However, you know very well that some of the sites and apps on the internet are malicious and fraudulent.
Using Ethereum is just as safe as you make it. Like the internet, you can enjoy smooth sailing if you do your due diligence and don’t interact with suspicious apps.
How does Ethereum work?
Like Bitcoin, Ethereum operates on a peer-to-peer (P2P) network of computing devices that hold and share the same files. Thus, you can see all the account balances and smart contracts in real-time at any given time. That happens because all the nodes (computers) on the network update their own state of the blockchain to reflect its overall image.
The computers on the Ethereum blockchain can read into smart contract codes thanks to the Ethereum Virtual Machine (EVM). This mechanism is a powerful, sandboxed virtual stack that is embedded within each full Ethereum node.
When two users or smart contracts engage in a transaction, every full node on the network uses the EVM to read and record the output. Next, mining through a Proof-of-Work (PoW) algorithm updates the state of the Ethereum blockchain. More on how mining works on Ethereum later.
What is a smart contract?
Smart contracts may seem intimidating at first. Their name is enough to make you think that it is some hyper-complex, advanced technology. However, it’s nothing like that.
A smart contract is simply a piece of code. Also, it is not a contract in the conventional understanding of a contract. Simply put, it is just code that is smart enough to execute itself when its preliminary conditions are met.
The originator of the “smart contract” concept is none other than Nick Szabo. He is the computer scientist who some speculated to be behind the pseudonym Satoshi Nakamoto, the inventor of Bitcoin.
In 1997, Szabo explained the smart contract by assimilating it to the “humble vending machine.” Here’s how that goes:
The vending machine is programmed to match certain requests with particular products.
A customer inserts a coin in the vending machine.
The machine dispenses the product corresponding to the request.
Furthermore, the vending machine can replicate the same process over and over again.
Smart contracts are similar to vending machines. However, every machine replies to one type of request only. Also, countless vending machines exist on the Ethereum blockchain, each registered at a unique address, and most of them meeting unique requests. Here’s how that works:
A smart contract on the Ethereum blockchain has been programmed to reply with “Hello” every time a user sends 1ETH to its address.
The smart contract has been developed so that all the nodes on the network can read it through the EVM.
When users send 1ETH to that address, the smart contract’s code triggers a response from the nodes on the network asking for validation.
All the computers on the network run the code and validate it if its conditions are met. In our case, the condition was that the smart contract would receive 1ETH.
Next, the users who have sent 1ETH to the smart contract’s code receive a “Hello,” thus executing the smart contract.
Now, this is a simple example of how a smart contract works. However, its features are best exploited by sophisticated applications and substantial financial transfers.
The best part about smart contracts is that anyone can use them. Therefore, it provides global utility to an infinite number of users. More so, smart contracts cannot be deleted or interfered with by third parties unless their codes are flawed or vulnerable.
Where does Ethereum come from?
A Brief History of Ethereum
In 2013, a young programmer and crypto-enthusiast, Vitalik Buterin, described the first Ethereum white paper concept. His idea was that Bitcoin and blockchain technology could serve many more purposes than just digital asset transactions. Therefore, he envisioned a decentralized network where programmers could freely build and execute decentralized applications.
The official development of the network started in 2014 through a Swiss company, Ethereum Switzerland GmbH (EthSuisse). To support the ongoing work, the Ethereum project hosted a public crowd sale in the summer of 2014. Through it, participants could buy ether (ETH) in exchange for Bitcoin (BTC).
After several tests, Ethereum was launched on 15 July 2015 through the Frontier implementation.
The Ethereum blockchain went through various forks, development stages, and even hacker attacks in the next six years. Nevertheless, it became the second most popular blockchain throughout this time and spurred new crypto concepts, such as decentralized finance (DeFi) and non-fungible tokens (NFT).
At the time of this writing, ether is second in value and market cap only to Bitcoin.
Who created Ethereum?
The main figure behind Ethereum is, undoubtedly, Vitalik Buterin. Buterin is nothing short of a poster boy genius, a Russian-Canadian programmer and writer for the crypto community. As a gifted child, he had the privilege of studying with similar brilliant kids in a special school. This way, he became an expert in mathematics, programming, and economics before finishing high school.
Vitalik first heard about Bitcoin from his father at the age of 17. His growing passion for blockchain pushed him to launch the Bitcoin Magazine with Romanian programmer Mihai Alisie in 2011.
After releasing the Ethereum whitepaper in 2013, Buterin attracted some exponential members of the crypto industry. Among them were:
Charles Hoskinson – programmer and researcher who later founded Cardano
Anthony Di Iorio – entrepreneur and investor who later founded the blockchain company Decentral and the Jaxx crypto wallet
Amir Chetrit – US-Israeli entrepreneur and cryptocurrency enthusiast
Buterin, Alisie, and the other three other initial founders of Ethereum presented the project publicly in 2014 at the North American Bitcoin Conference in Miami.
Hoskinson and Chetrit were the first to depart from the project shortly after taking part in creating the Ethereum Foundation, a “non-profit organization dedicated to supporting Ethereum and related technologies.”
In the years that followed, the Ethereum founding team increased to include:
Joseph Lubin – an entrepreneur who later founded ConsenSys, a Brooklyn-based software-production studio.
Gavin Wood – a computer scientist who later created Polkadot and Kusama
Jeffrey Wilcke –computer programmer who later created Grid Games, a games development studio
The blockchain’s name, Ethereum, was Buterin’s idea inspired by elements of science fiction. He believes that “the word ‘ether,’ referring to the hypothetical invisible medium that permeates the universe and allows light to travel,” defines his concept best. For instance, Ethereum could be an imperceptible medium for the applications running on top of it.
How was ether distributed?
In 2014, one year before its official launch, Ethereum had an initial supply of 72 million ETH. During an Initial Coin Offering (ICO) event, the network distributed roughly 50 million ether tokens for sale. Those who partook in the event had the option of buying ETH with bitcoins or fiat currency.
The offer was available for 42 days between July and September 2014.
What was the DAO Attack?
The Ethereum blockchain opened the doors to new types of online associations. Among them are the decentralized autonomous organizations, or DAOs, which are entities ruled by computer code.
The most famous example of a DAO is…The DAO. This entity was among the first ones on Ethereum to consist of complex smart contracts and operate as an autonomous venture fund.
The Dao was released in April 2016. However, by September, it was already defunct. Nevertheless, the project had everything thought out, such as distributing DAO tokens through an ICO and a roadmap for the future.
Unfortunately, in June 2016, some malicious DAO users exploited a vulnerability in its code, which enabled them to transfer one-third of The DAO’s funds to a subsidiary account. The unexpected hack led to a major change in the Ethereum blockchain community that ended with a hard fork. As a result, the chain split into two networks, Ethereum and Ethereum Classic.
Ethereum is the blockchain that chose to reverse to a previous stage to restore the siphoned funds. The original chain, where the theft remained to preserve immutability, became Ethereum Classic.
Shortly after, The DAO was delisted from popular crypto exchanges like Poloniex and Kraken.
The event showed that even the smaller security vulnerability could destroy an entire blockchain-based environment.
What is Ethereum Classic?
Ethereum Classic is the original Ethereum network that chose to function without “restoring” the funds stolen in the hack attack on The DAO. It has its own ether token, ETC, and shares many of its functioning principles with Ethereum.
Nevertheless, Ethereum Classic does not enjoy the same popularity and support as its breakaway chain, Ethereum. ETH classic has a market cap of only $6 billion, compared to ETH’s market cap of roughly $250 billion at writing.
Most of the initial Ethereum founders and supporters, including Buterin, have moved on with the Ethereum project. Among the few Ethereum Classic supporters is Ethereum co-founder Charles Hoskinson.
How is new ether created?
Bitcoin served as a rich source of inspiration for Buterin when he created Ethereum. That’s why creating new ether is similar to bringing one bitcoin into existence, which is mining.
Mining is a computing process that requires a great deal of energy. Therefore, only powerful computers specifically designed for this practice can mine for new ether tokens.
How does Ethereum mining work?
The computers that sustain the blockchain, also known as miners, have to solve a cryptographic puzzle. The transaction data will be validated and converted into a block upon its completion before becoming part of the blockchain.
The system incentivizes the computers who take part in mining. For instance, the one who solves the puzzle faster gets a small reward, consisting of all the fees for transactions in the block. Additionally, they also receive a small amount of freshly-generated ether.
What is Ethereum gas?
Ethereum’s support for smart contracts sounds easy in theory. However, its ability to sustain countless participants accessing the same contract is limited. That’s why the project introduced the concept of gas, which works as real-life fuel.
Smart contracts cannot be accessed without gas, like how a car cannot function without fuel. As a result, every contract sets an amount of gas as a minimum limit that users must pay if they want to run it. Without the necessary gas, the contract will stop running.
Ether and gas are different concepts. For instance, ether’s price fluctuates depending on crypto trades in the market. On the other hand, the price of gas depends on the mining activity on the network.
Generally, it is the miners dictating the gas cost. If a high number of users want to access smart contracts, the price will rise. Conversely, a lack of participants will take the gas price to a minimum.
Lastly, gas is generally a fraction of ether and is available in a smaller unit, called gwei. For example, 1 gwei is equivalent to one billionth of an ether.
How long does it take to mine an Ethereum block?
As of July 2021, it would take 54.7 days to mine 1 Ethereum at the current Ethereum difficulty level along with the mining hashrate and block reward. This could be possible with an Ethereum mining hashrate of 750.00 MH/s consuming 1,350.00 watts of power at $0.10 per kWh and a block reward of 2 ETH.
The average time should change once Ethereum makes its final transition from a consensus mechanism of Proof-of-Work (PoW) to Proof-of-Stake (PoS).
Can I mine Ethereum on my PC?
It is possible to mine Ethereum at home on your PC. However, you will need a powerful computer different from your personal working station. Additionally, you will have to install several apps and programs before joining an Ethereum mining pool.
Lastly, mining cryptocurrencies consumes a great deal of energy. Therefore, you will have to constantly monitor the energy input and mining output to ensure that the process is profitable.
How many others are there?
Unlike Bitcoin, Ethereum does not have a fixed supply of ETH that can ever exist. As long as people run smart contracts and miners dig for new ETH, new ether will exist. So put, while the blockchain will function, new ETH will be added to the pile.
As of July 2021, the circulating supply of ether is 116,833,077.56 ETH.
What are Ethereum ERC-20 tokens?
Ethereum rose to popularity thanks to allowing users to develop on-chain digital assets. They can later store and transfer these virtual goods on a free market through strict smart contract regulations, thus creating valuable financial resources.
These assets are represented by tokens, which were created under various token-minting standards. By far, the most popular standard is ERC-20 that leads to the creation of ERC-20 tokens.
ERC-20 tokens are highly flexible and enable holders to engage in various financial transactions. In addition, they are fungible, which means that they can be exchanged and replaced by similar items.
Lastly, ERC-20 tokens represent virtual currencies, vouchers, shares, and physical assets such as gold.
Buying and Selling Ethereum
How can I buy Ethereum?
Buying Ethereum is similar to purchasing Bitcoin or most cryptocurrencies, and it goes something like this:
Ensure that you have a secure internet connection
Have a cryptocurrency wallet (More on this later)
Have a valid payment method such as a debit/credit card or a bank account
Choose an online cryptocurrency exchange
Connect your payment method to the exchange
Purchase Ethereum and have it sent to your personal crypto wallet
Most cryptocurrency exchanges employ the Know Your Customer (KYC) practice. Therefore, they will ask for personal identification documents. Popular crypto exchanges include Binance, Coinbase, Bitstamp, and Bitfinex.
Where can I store my Ethereum?
You can store Ethereum in cryptocurrency wallets. However, since ether does not have a physical representation, the wallet isn’t the traditional pocketbook. On the contrary, a crypto wallet is made of two serial numbers:
A public address – You send this to other crypto users so they know where to send you digital assets.
A private key – The access code that gives you ownership to the funds available at the public address
IMPORTANT NOTE! You are the only one who should know the private key to your crypto wallet. Sharing it with someone will give them access to your cryptocurrencies, and most likely lose all your assets. In the crypto world, you never get reimbursed for wallet theft. So, that extra power you get over your financial assets also comes with more responsibility.
Ethereum is a secure technology that is unlikely to fall victim to cybercrimes. However, the same thing doesn’t apply to crypto wallets. If hackers are to strike, they will attack your cryptocurrency storage. Therefore, choosing a safe cryptocurrency wallet is critical to your investment.
When choosing an Ethereum wallet, you can pick from two types of crypto wallets: hot wallets and cold wallets.
What are hot wallets?
These crypto wallets are called “hot” because they are always connected to the internet. That makes them more susceptible to cyber-attacks. On the other hand, these applications are easy to use on your desktop or mobile devices. They are quick to access and trade on the go. Lastly, they are affordable but never free.
Most cryptocurrency exchanges offer their own wallets where you can store your Ethereum. Also known as custodial wallets, these apps do not provide you with private keys. Instead, the exchanges store your entire portfolio in a relatively secure wallet on their platforms. Their advantage is that if you lose your password, you can always regain access to your assets.
However, you should be aware that exchanges do not specialize in high-security protocols. So, you might be better off with a third-party crypto wallet.
Examples of hot wallets for Ethereum include Electrum, Exodus, and BitPay.
What are cold wallets?
Contrary to hot wallets, these forms of crypto wallets are not connected to the internet. Therefore, the risk of hackers stealing your bitcoins is “dead cold.”
Cold wallets come in two forms:
Hardware – They are electronic devices similar to USB memory sticks that have been purposefully modified to store private keys securely. Examples of cold hardware wallets for Ethereum include Ledger Nano S, Trezor One, and Ledger Nano X.
Paper – This one is the plainest form of crypto wallet. Simply put, it is a piece of paper with your private key written on it. So naturally, you should laminate this paper and keep it in a safe far from anyone’s reach but yours.
Cold wallets may offer better security than hot wallets, but they have their disadvantages as well. For instance, they are less flexible. So, they are not ideal for fast trading. Nevertheless, they are an excellent option for long-term storage.
How can I sell my ether?
To cash out your ether, you need to access a cryptocurrency exchange platform. Similar to buying ETC, you only need to place a sell order. However, this time you exchange ether for a fiat currency of preference.
You can also trade your Ethereum for other cryptocurrencies. For example, most crypto exchanges, such as Binance and Coinbase, allow you to trade ETC for various digital assets.
What can I buy with Ethereum?
Contrary to Bitcoin, Ethereum is not necessarily a digital alternative to fiat currencies. Instead, it is the fuel of the Ethereum network and works primarily as a tradable asset on the blockchain. Therefore, it is more of a utility token.
That being said, Ethereum also has sparse real-world applicability. Some retailers across the world accept ETH payments for various products or services. Among them are Overstock, Gipsybee, and Shopify.
Can I revert Ethereum transactions?
No. The Ethereum blockchain is immutable. Therefore, once a transaction receives validation, it becomes part of a block on the chain. From there on, there is no way back. If you send funds to the wrong address, you can be almost sure never to see that ether again. So, be very cautious when making ETH transactions.
Are Ethereum transactions private?
No. On the Ethereum blockchain, all the transactions are visible by the participants. Therefore, your name is not listed, and only the public addresses are mentioned in the listings. However, while it is challenging, your identity could still be discovered through complex analytical calculations.
What if I lose my Ether?
Blockchain technology removes the need for a middleman or a centralized institution governing transactions between users. As a result, you are the only one responsible for the security of your digital assets. But, as the saying goes, with more power comes more responsibility.
The risk of losing your seed phrase is always present, regardless of how you choose to store it. Even memorizing it comes with the odd chance that an accident leaves you with memory loss. In conclusion, if you ever lose or forget your private key and seed phrase, your ETH will be gone forever.
How do I make money with Ethereum?
Like most cryptocurrencies, Ethereum has a highly volatile price on the cryptocurrency market. Therefore, you could make money by buying ETH at a low price, holding it in your portfolio, and selling it later when its cost reaches a historical high.
Many investors “hodl” and never sell the ether they acquire. Instead, they hope that the price will skyrocket sometime in the future and increase their wealth considerably. Others use ETH to purchase cheaper, less-known digital assets. Lastly, some of them use a hybrid strategy combining the two above.
Since 2020 and the rise of Decentralized Finance (DeFi), Ethereum has become a pivotal asset that many uses for lending as collateral to take out loans, minting synthetic assets, and staking. (More on this later)
SWOT analysis
Strengths
Undoubtedly, Ethereum’s biggest strength is that it took the blockchain innovation from Bitcoin to a whole new level.
On Ethereum, developers can create and execute DApps (Decentralized Applications) and build digital projects like never before. More so, they can monetize them on an increasingly valuable network upheld by a fast-growing community.
At the time of this writing, the Ethereum blockchain hosts thousands of DApps, such as crypto wallets, financial apps, games, and others.
Another strength of Ethereum is the Smart Contract feature, which enables secure transactions between users in a trustworthy, decentralized environment.
Weaknesses
Unfortunately, Ethereum seems limited in scalability after only five years of functioning. As more users access it, the transaction time increases. At the time of this writing, the network supports only around 30 transactions per second, which is far from most participants’ expectations.
Several solutions for boosting scalability are in contention at the moment. However, their implementation is slow and faulty for the time being.
Opportunities
So far, Ethereum has shown a glimpse of its immense potential with the advent of decentralized finance. Assuming that it will overcome its scalability problems, Ethereum can become the decentralized ecosystem of the future for companies and developers worldwide.
Threats
Ethereum is a reliable and secure blockchain. However, as is the case with every technology based on computer coding, the risk of error persists. The DAO attack in 2016 shows that the threat of a malicious attack can lead to dramatic changes in the evolution of a distributed ledger.
Another threat to Ethereum may be the rise of other competitive blockchains, such as Cardano, which some believe it could overcome scalability issues earlier in their development.
5 reasons to invest in Ethereum
Ethereum doesn’t have the same appeal as Bitcoin has for investors. Nevertheless, the second crypto in command has brought enough buyers in its community to develop a market cap worth almost $250 billion. The people putting this much money into it must have had a few good reasons, and here are the top 5:
1. Ethereum’s Potential Price is High
In May 2021, the price of Ethereum rose to its all-time high, at $4,362.35. It might not seem much unless you realize that it was selling for 10x less than that only 5 months before. Also, when it first started trading, ETH was valued at less than $1. Therefore, the potential for value enhancement is always mouth-watering.
2. Ethereum is a multi-utility blockchain
Bitcoin was the first crypto and blockchain to hit the news. It has its share of appeal and popularity that contribute to its above $30k current price. However, as a technology, the Bitcoin blockchain is more limited than Ethereum.
The Ethereum blockchain favors innovation and has a highly aspiring community. In its 5 years of existence, the network has enabled decentralized finance, NFTokens, and thousands of other apps. In the future, everything connected to this blockchain could increase in value significantly.
3. Ethereum 2.0 will be a game-changer
One of the biggest issues with cryptocurrency is that the mining process requires high electricity, which takes its toll on the environment. At one point, even the Tesla CEO, Elon Musk, announced that his company would cease accepting BTC payments because of the strain that mining Bitcoin has on the planet.
Ethereum also uses high-cost electricity for mining. However, its much-expected update, Ethereum 2.0, should make the blockchain make Ethereum more scalable, more secure, and more sustainable. Above all, it may consume up to 99.95% less energy than the current one. At that point, many companies should embrace ether and boost their price even more.
4. Ethereum has corporate backing
Ethereum is one of the most popular crypto projects among traditional corporations. In fact, multiple Fortune 500 companies, such as Intel, Microsoft, J.P. Morgan, BP, and Thomson Reuters, have previous or ongoing collaborations with Ethereum.
Additionally, some banking institutions have embraced Ethereum easing its way to mainstream adoption. For example, it is the case of the Bank of America, which changed its credit card agreements so that cryptocurrency purchases are treated as “cash equivalent.”
5. Ethereum is a token creator
Ethereum has the ERC-20 token standard, which has enabled the creation of multiple crypto projects using it. In fact, most of the DeFi protocols that have surfaced in the past two years have native ERC-20 tokens.
This feature enables Ethereum to be more than just a blockchain and become the go-to platform for developers everywhere. As more and more reliable projects appear on it, the Ethereum value and importance will increase.
Ethereum Scalability
Scalability is the ability of a blockchain to upgrade and ensure the processing of a higher number of transactions. For instance, let’s say Ethereum was a webshop designed to process 100 customer purchases in 1 second. However, due to its increase in popularity, it now has to process 10,000 purchases in the same amount of time. Clearly, it cannot achieve that feat. So, upgrade works are necessary to help it improve its performance.
Why does Ethereum need to scale?
Ethereum has already proved that it can support the development and execution of highly complex applications. Moreover, some believe that one of the most promising future innovations, Web 3.0, will also be built on this blockchain.
Web 3.0, the next evolutionary step of the internet, should be a groundbreaking technological achievement with global effects. But, just like we cannot go back from the current Web 2.0 to the 1.0 version of the World Wide Web, we won’t be able to return from the 3.0 update.
This historical step is still in the making. However, it is obvious to many that Ethereum won’t support it, at least in its current state.
To effectively sustain Web 3.0, Ethereum will have to increase the number of transactions it can process. More exactly, it will have to boost its block gas limit, which now stands at 21,000 units of gas.
The gas limit represents the maximum amount of gas you are willing to spend on a transaction. For example, if you put a gas limit of 30,000 for a simple ETH transfer, the EVM would consume 21,000, and you would get back the remaining 9,000. On the other hand, with a gas limit smaller than 21,000 units, the EVM would consume the gas without completing the transaction, which would remain pending.
In the long run, multiple transactions submitted with insufficient gas limits would create a long backlog. As a result, the gas price would rise, and users would engage in a bidding war to have their transactions included in a block first. In other words, Ethereum would become too expensive and unpopular for regular use.
Web 3.0 is just one example of behemoth ecosystems that would require a speedy and effective blockchain to evolve rapidly. Many other applications also require Ethereum to scale as soon as possible. That’s why the future Ethereum 2.0 update is one of the highest anticipated releases in the cryptoverse.
How many transactions can Ethereum process?
As of July 2021, Ethereum can handle a maximum of 30 transactions per second. According to Vitalik Buterin, after the release of Ethereum 2.0, the network should accommodate as many as 100,000 transactions per second, mainly by using sharding. (More on this later)
The Blockchain Scalability Trilemma
For many people in the crypto community, blockchain scalability has straightforward solutions. After all, increasing the block gas limit should solve all of Ethereum’s problems, wouldn’t it?
The man spearheading this revolution, Vitalik Buterin, would disagree. According to him, every blockchain has three elements that sustain its delicate balance:
Security
Decentralization
Scalability
When you try to improve only one of these elements, the other two can pose problems. The same would happen when you would try to make two of the elements better. Simply put, you have to improve all three at once to ensure the blockchain’s long-term stability and balance. And, that’s the “scalability trilemma.”
What is Ethereum 2.0?
We already talked about the Ethereum 2.0 upgrade. In reality, the Ethereum 2.0 umbrella shelters many upgrades that have been proposed ever since the birth of Ethereum. Most of them should significantly improve the network’s performance. After all, this blockchain aims to become the future backbone of internet evolution and the new financial system.
Some of the Ethereum 2.0 upgrades should improve:
Scalability
Decentralization
Security
Computing speed
Additionally, it should also make Ethereum greener and more eco-friendly by reducing its reliance on high-resource mining.
As of July 2021, an exact date for the Ethereum 2.0 release does not exist. Instead, the blockchain should go through different various updates that would get it closer to its goal. The next upgrade, called London, should go live on Ethereum in August 2021, on block 12,965,000.
What is Ethereum sharding?
We mentioned earlier how every node on the Ethereum network has a copy of the entire blockchain. This helps its history surpass any issues that may take nodes down and out of the network.
Unfortunately, with every new block surfacing on the network, the increasing number of participating nodes must update their copies. As a result, they use more of the network’s bandwidth and slow down its operations.
A solution to this problem is sharding. This process divides the network into subsets of nodes, also known as shards. Then, every shard processes its own transactions and contracts without having to store data from other shards. When the processing ends for every shard, all the shards’ transactions on the network receive validation and become part of newly mined blocks.
What is Ethereum Plasma?
Ethereum Plasma is one of the most prominent off-chain scalability solutions for the Ethereum blockchain. Its mission is to increase transaction throughput by taking some of the transactions out of the chain.
Through Plasma, the Ethereum blockchain would receive the support of secondary chains. First, they would anchor themselves to the main chain through smart contracts. Then, they would take some of the transactions from the total workload and process them independently. As a result, Ethereum would have fewer transactions to solve, and it could do them faster, thus improving its speed and scalability.
What are Ethereum rollups?
Ethereum Rollups have similar goals to Plasma, increase speed and scalability. It works by creating a secondary chain connected through a smart contract to the main chain.
An operator on the secondary chain must place a bond on the main chain to ensure that only valid transactions reach the Ethereum main net. That bond also guarantees that the data stored on the secondary chain is valid and doesn’t need to be stored on the main chain.
In other words, rollups also relieve the primary chain of some work, similar to Plasma. However, they don’t send transactions at once. Instead, they roll them up or group them into a special block called a Rollup block.
As of the time of writing, two types of rollups exist:
ZK Rollups
ZK comes from zero-knowledge proof, which is a cryptographic verification method. This kind of rollup sends transactions in a complex way that ensures maximum data security. ZK rollups take place almost instantly and are almost entirely risk-free.
Optimistic Rollups
These rollups use a virtual machine called the Optimistic Virtual Machine (OVM), enabling smart contracts to run entirely on secondary chains. Instead of using a cryptographic proof system like ZK rollups, this solution allows main chain users to test the validity of a block. This process usually takes time, which makes optimistic rollups considerably slower.
What is Ethereum Proof of Stake (PoS)?
Proof-of-Stake (PoS) is a method for validating blocks on a blockchain. Contrary to Bitcoin’s Proof-of-Work (PoW) method, PoS does not require blocks to be mined but minted or forged.
On a PoS blockchain, nodes are randomly selected to validate candidate blocks. If they do it correctly, they receive that block’s entire amount of transaction fees. Additionally, they may get a block reward as well, depending on the protocol.
Many complain about Bitcoin’s strain on the environment due to the PoW’s high resource demand. Conversely, Proof-of-Stake is less demanding and does not consume the substantial energy that BTC miners require.
The differences between Proof-of-Work (PoW) and Proof-of-Stake (PoS) are many more, and they increase with every update and innovation in the crypto space.
While Ethereum started as a Proof-of-Work blockchain, it is transitioning to the PoS validation method. This step forward to a more energy-efficient blockchain should take place with the Ethereum 2.0 update.
What is Ethereum staking?
On blockchains that run Proof-of-Work validation methods, the miners ensure the network’s security. To mine a block, they have to consume a significant amount of electricity. Therefore, it is highly unlikely for them to cheat and approve invalid blocks since that would have them lose money and risk getting kicked off the network.
So, how do blockchains running Proof-of-Stake guarantee security?
On these networks, the nodes partaking in the validation have to stake their own ether tokens. So, instead of energy, they put forward their assets. As a result, cheating would cause them to lose their possessions and the potential transactions fees and other rewards.
Taking part in validating Ethereum blocks requires you to stake your ETH.
How much ETH do I need to stake on Ethereum?
If you are starting staking on Ethereum, you will need a considerable amount of ether. For instance, the minimum stake is 32 ETH per validator. At the time of this writing, that value translates to roughly $78,000.
The minimum stake on Ethereum is that high to reduce the risk of a 51% attack.
How much ETH can I earn by staking on Ethereum?
The value of earned ETH differs greatly between validators. Also, it depends on various factors, such as the amount of ETH you stake, the total amount of ETH staked on the network, and the inflation rate. The latter two factors are subject to intense volatility.
How long is my ETH locked up when staking?
Your ETH may be locked up in the validator for as many as 18 hours. The withdrawal time depends on how long the queue is when you begin the process.
What are the risks to staking ETH?
Becoming a validator on Ethereum gives you a significant role to play in the network’s evolution. First off, you must make sure that your validator doesn’t go offline for a long period. Secondly, you must always keep your deposit above the minimum 16 ETH limit. Otherwise, the network will remove you from the validator set and cause you to lose a substantial portion of your deposit.
Ethereum and Decentralized Finance (DeFi)
What is Decentralized Finance (DeFi)?
Decentralized Finance (DeFi) is an ecosystem of decentralized financial applications. Most of these public, open-source protocols are built on permissionless blockchains, making them accessible to anyone with a stable internet connection.
DeFi exploded in the summer of 2020 and promises more financial freedom and asset control for its users. Most of the DeFi protocols have been developed on Ethereum and, at the time of this writing, have a cumulated value of $68.78 billion.
What is the point of Decentralized Finance?
The best advantage of decentralized finance is that it gives virtually everyone on the planet access to financial services. This way, billions of people who normally rely on banks and other financial institutions can get full control and responsibility for their assets.
DeFi is built on blockchain technology, which is by nature decentralized and permissionless. Therefore, intermediaries, middlemen, and centralized authorities cannot tax people’s use or possession of financial assets.
What Decentralized Finance (DeFi) applications are there?
DeFi is an ever-expanding ecosystem of various applications, such as:
Stablecoins
These blockchain-based tokens are value-pegged to real-world assets. For instance, Tether is pegged to the value of USD. This makes it easier to convert fiat currencies to tokens and use them for various applications on the blockchain without depending on the proverbial volatility of cryptocurrencies.
Crypto lending
Several DeFi protocols provide a wide range of peer-to-peer (P2P) services. For example, one of them allows users to fund projects by lending their assets to developers. In return, they collect interest payments and other rewards that the developers put forward.
Other DeFi applications include:
Decentralized Exchanges
Decentralized Marketplaces
Creation of synthetic assets
Prediction Markets
Derivatives
FAQ - What do we know about Ethereum?
Is Ethereum a scam?
No, Ethereum is not a scam. Nevertheless, certain events in the history of cryptocurrencies have led some to label Ethereum as a swindle.
For instance, the DAO attack was enough for some to think that buying and storing ether is susceptible to cybercrimes. Next, the Bitcoin crash of early 2018 also cast a shadow on the credibility of the crypto industry, including projects like Ethereum.
In 2021, Ethereum is one of the most promising blockchain innovations. As a result, numerous corporations across the world have invested significant funds in it. Also, the project benefits from the backing of several illustrious brands, such as JP Morgan, Amazon, Microsoft, Tesla, Twitter, and more.
Is Ethereum better than Bitcoin?
While Ethereum drew its initial inspiration from Bitcoin, these two cryptocurrencies and blockchains are as different as they come. Listing all their differences would be counterproductive since this question almost always refers to which coin provides the best investment opportunity.
Again, while both ETH and BTC may be seen as “safe investments” in the long run, putting your money in one or the other comes with pros and cons. As the older coin, Bitcoin is more popular and has a larger market cap. On the other hand, Ethereum has more potential growth over time.
We are not in a position to give investment advice. So, before opening your wallet, you should do your due diligence and even consider financial advice from professionals.
Is Ethereum a bubble?
Cryptocurrencies are highly volatile by nature. Their prices can go to the moon and then immediately straight in the gutters. In more than 10 years, the crypto industry has seen several surges and dips, especially from the leading crypto, Bitcoin. These events have led some to believe that all crypto assets and projects, including Ethereum, are a bubble.
It is almost impossible to say whether Ethereum is a bubble or not. However, most specialists incline towards the latter, especially since Ethereum is one of the most solid projects in crypto and among the most promising, too.
Does Ethereum use encryption?
No, Ethereum does not use encryption in its protocol. Therefore, all the messages on the network are public and easy to see by all users.
Is Ethereum too risky?
Ethereum is as risky as you make it be. If you invest all your financial possessions in ETH during a bull run and sell during a bear market, then yes, you have made it extremely risky.
Ethereum’s risk factor depends on your responsibility and common sense. Put, if you research the technology and do your due diligence, there’s no reason you shouldn’t give Ethereum a try.
Investing in Ethereum may be risky. However, like all the dicey investments, this one can deliver you high rewards. That being said, you should never invest in Ethereum or any other financial asset more than you are willing to lose.
Which public companies own Ethereum?
As we mentioned above, Ethereum benefits from the backing of prestigious brands and corporations. Some of the public companies that own Ethereum include:
Coinbase – 32,222 ETH
Meitu – 31,000 ETH
Mogo Inc. – 146 ETH
As of July 2021, over 167,000 different Ethereum addresses exist. At the time of this writing, ETH has a circulating supply of 116,913,136.62 units. Some users have a few fractions of a full ETH. Others hold massive amounts of tokens, and they are also known as Ethereum whales.
The Ethereum co-founder, Vitalik Buterin, is one of these ETH whales. In 2018, Buterin disclosed his ETH address, which now has only around 1,366 ETH. In the meantime, he donated 16,000 ETH to charity and locked over 320,000 ETH in a smart contract.
Ethereum Timeline
2011
Bitcoin Love
Vitalik Buterin and Mihai Alisie found the Bitcoin Magazine after developing a passion for the then-new programming sensation, Bitcoin. The first issue would see the light of day in 2012.
2013
Inception
November – Vitalik Buterin releases the Ethereum whitepaper.
December – Ethereum is founded by Vitalik Buterin, Anthony Di Iorio, Charles Hoskinson, Mihai Alisie, and Amir Chetrit.
2014
Crowd Sale
January – The Ethereum project is announced at the North American Bitcoin Conference in Miami by Vitalik Buterin, Gavin Wood, Charles Hoskinson, and Anthony Di Iorio.
Again in January, development work begins through a Swiss company, Ethereum Switzerland GmbH (EthSuisse).
Joseph Lubin, Gavin Wood, & Jeffrey Wilcke were added as founders to the project.
1 April – Gavin Wood releases the Ethereum Yellow Paper – a technical definition of the Ethereum protocol.
July 22 to September 02 – Ether is put up for crowd sale and users could buy ETH with BTC.
2015
The Beginning
30 July – Ethereum is launched through the Frontier barebone implementation. The block gas limit was set at 5,000.
7 September – The Frontier Thawing fork increased the block gas limit to 21,000 and set the default gas price to 51 gwei.
October – Ether registers its all-time low so far at $0.4209.
2016
The DAO Hack
14 March – The Homestead fork is the first major upgrade to the Ethereum protocol, thus paving the way for all future big changes.
June – The DAO attack manages to steal over 3.6 million ETH from a vulnerable DAO contract.
20 July – The DAO fork is implemented to restore the ETH stolen in the DAO Attack. Anyone who lost funds could withdraw 1 ETH for every 100 DAO tokens in their wallets. The fork was chosen by 85% of the users. The rest chose not to restore the protocol to an earlier date and split, thus creating Ethereum Classic.
18 October – The Tangerine Whistle fork was the first response to the denial of service (DoS) attacks on the network during the autumn of 2016.
22 November – The Spurious Dragon fork was the second response to the denial of service (DoS) attacks on the network.
2017
Enterprise Ethereum Alliance (EEA)
March – Some blockchain startups, research groups, and Fortune 500 companies announced the creation of the Enterprise Ethereum Alliance (EEA) with 30 founding members. In the next years, the number of members has increased significantly to include names like Samsung SDS, Microsoft, Intel, J. P. Morgan, Cooley LLP, Merck KGaA, DTCC, Deloitte, Accenture, Banco Santander, BNY Mellon, ING, and the National Bank of Canada.
16 October – The Byzantium fork reduced block mining rewards from 5 to 3 ETH and delayed the difficulty bomb by a year. Additionally, it added the ability to make non-state-changing calls to other contracts.
2018
Ethereum Ups & Downs
January – Ethereum traded for a few days above $1,300 following the market’s then bull run, which also took Bitcoin as high as $19,000 before crashing it down.
2019
Ethereum Forks
28 February – The Constantinople and St. Petersburg forks ensured the blockchain didn’t freeze before proof-of-stake was implemented. Also, they added the ability to interact with network addresses that weren’t created yet.
8 December – The Istanbul fork optimized the gas cost of certain actions in the EVM and improved denial-of-service attack resilience. Also, it enabled Ethereum and Zcash to interoperate while giving smart contracts more power to implement more creative functions.
2020
The Beacon
2 January – The Muir Glacier introduced another delay to the difficulty bomb and increased the block difficulty of the proof-of-work consensus mechanism.
14 October – Staking was introduced to the Ethereum blockchain.
1 December – The Beacon Chain’s genesis made the first crucial step towards updating to Ethereum 2.0.
2021
ETH ATH
March – Visa Inc. announced that it began settling stablecoin transactions using Ethereum.
April –JP Morgan Chase, UBS, and MasterCard announced that they were investing $65 million into ConsenSys
15 April – The Berlin upgrade optimized gas cost for certain EVM actions and enhanced support for multiple transaction types.
12 May – Ethereum reaches its all-time high (ATH) so far at $4,362.35.
4 August – The London upgrade introduced reforms to the transaction fee market, along with changes to how gas refunds are handled.
*Future update – The Altair upgrade should go live in 2021 and be the first improvement of the Beacon Chain.
All Crypto Adventure content is not investment advice. It is intended for informational purposes only. DO NOT miss construe any such information or other material as legal, tax, investment, financial, or other advice.
DO YOUR OWN RESEARCH
Crypto Adventure encourages all of its readers to conduct a thorough analysis of all projects. It is essential to do your own analysis before making any investment based on your circumstances. If possible, consulting a financial professional is also recommended prior to making any investment decisions.
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