Ethereum Blockchain

What is Ethereum?

Ethereum is an open-source blockchain network with smart contract functionality, designed to be scalable, programmable, secure, and decentralized. Ethereum blockchain users can build apps, dApps, decentralized finance apps (DeFi apps), NFT marketplaces, hold assets, make transactions and communicate, with no central authority or intermediaries involved. Ethereum has its own cryptocurrency, Ether, which is used to pay for certain activities on the Ethereum network. Like on the Bitcoin blockchain, Ethereum transactions are public.

Short history of the Ethereum network

Ethereum was initially described in a white paper by Vitalik Buterin in 2013. The white paper described a way to build dApps (decentralized applications) and other applications besides money. Buterin argued to the Bitcoin Core developers that Bitcoin and blockchain could benefit from these suggestions and a more robust programming language, but an agreement on how the project should proceed was not found. Vitalik Buterin then proposed the development of a new platform with a Turing-complete programming language, which eventually became Ethereum, officially launched in 2015. Additional founders of Ethereum included Gavin Wood, who specified the Ethereum Virtual Machine (EVM) in the Ethereum Yellow Paper, and Joseph Lubin, founder of the blockchain software company ConsenSys.

The ERC-20 token standard was created in 2015, allowing for fungible tokens on the Ethereum blockchain. The standard implements an API for tokens within smart contracts, and numerous cryptocurrencies have since launched as ERC-20 tokens.

In 2016, a group of network participants gained majority control of the Ethereum blockchain, stealing more than $50 million worth of ether, which had been raised for a project called The DAO. This resulted in a hard fork, when most of the Ethereum community opted to reverse the theft by invalidating the existing Ethereum blockchain and approving a blockchain with a revised history. A fraction of the community chose to maintain the original version of the blockchain: this unaltered version permanently split to ecome the Ethereum Classic (ETC) cryptocurrency.

The Ethereum Foundation, a non-profit organization dedicated to supporting Ethereum and related technologies, was founded in 2014 and is part of a large ecosystem of organizations, individuals, and companies that support Ethereum. They allocate resources to critical projects, advocate for Ethereum to the outside world and are a valued voice within the ecosystem.

The Enterprise Ethereum Alliance was created in 2017 and now counts over 150 members, including Microsoft, Mastercard and ConsenSys.

The Ethereum network is also widely known for non-fungible tokens, enabled by the ERC-721 standard which was created in 2018. In January 2018, Ethereum was the second-largest cryptocurrency in terms of market capitalization behind Bitcoin, and has since maintained this relative position.

What is the difference between Ethereum and Bitcoin?

The Ethereum and Bitcoin blockchain have some important distinctions. While Bitcoin's primary use case is a store of value and a digital currency (BTC), leaving out smart contract functionality and prioritizing security over programmability, Ethereum was designed to be a programmable network, using the Solidity programming language, a language library with similarities to C and JavaScript. Ethereum enables smart contracts and is more like a marketplace of financial services, games, social networks and other dApps.

Contrary to Bitcoin which has a maximum number of tokens that can enter circulation, the amount of ETH that can be created is unlimited, and there are over 122M coins in circulation.

Transaction fees are also treated differently in the Ethereum and Bitcoin networks. These fees, called gas on Ethereum, are paid by the participants in Ethereum transactions. The fees associated with Bitcoin transactions are absorbed by the broader Bitcoin network.

Until September 2022, both Ethereum and Bitcoin used the Proof-of-Work (PoW) consensus mechanism (also called consensus algorithm) which requires miners to compete for rewards. In September 2022, Ethereum moved to the Proof-of-Stake (PoS) consensus mechanism. This transition was included in a series of upgrades called Ethereum 2.0 and will, according to the Ethereum Foundation, cut the network's energy usage by 99.95%. The merge could change the narrative around the entire industry in relation to potential climate benefits.

How does the Ethereum blockchain work?

The Ethereum network exists on thousands of computers worldwide, thanks to users participating as nodes, making the network decentralized and highly immune to attacks. Anyone can run an Ethereum node and participate in validating the network provided they have the right hardware, knowledge and time to commit to it. Ethereum runs a computer called the EVM (Ethereum Virtual Machine). Each node holds a copy of that computer. Any interaction (also called transaction) must be verified so that every node can update their copy. Each Ethereum transaction is stored within blocks. Every new transaction is recorded on a new block, which is connected to previous and future blocks in a chain.

With Proof-of-Work, miners validated these blocks before committing them to the network and committed their computer power to finding the 64-digit code that identifies each block. Miners were rewarded in ETH. Via proof of stake, Ethereum will be secured by a global network of validators running Ethereum's software while staking a certain amount of ETH tokens, removing the need for miners.

Where to buy ETH?

To buy ETH, you'll need to go a cryptocurrency exchange platform. A crypto exchange is a marketplace where you can buy and sell cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH). You'll be able to purchase crypto with fiat currency (think USD) via your bank account, credit card or debit card.

Crypto exchanges provide you with accounts where you'll keep your digital currency, allowing you to buy, sell, stake and speculate in the crypto market and NFT space as well as purchase digital assets. Some well-known cryptocurrency exchanges include Coinbase and Binance.