What is Ethereum

Ethereum is an open-source, blockchain-based, decentralized software platform. It enables Smart Contracts and Decentralized Applications (DApps) to be built and run without any downtime, fraud, control, or interference from a third party.

What is a Smart Contract? What is a Decentralized Application? Please refer to “What is Smart Contract” and “What is DApp” chatper.

Just as Bitcoin Network, Ethereum is open-source. Anyone with an internet connection can run an Ethereum node or interact with the network. Currently, Ethereum is used in decentralized finance (DeFi), Non-fungible Tokens (NFT), and other fields, and provides a platform for token issuance (ERC-20 standardized tokens) and contract execution for a large number of decentralized projects.

What is DeFi? What are Non-Fungible Tokens. Please refer to “What is DeFi" and "What is NFT” chapter.

Ethereum was proposed in 2013 by programmer Vitalik Buterin, and in the same year he released the Ethereum whitepaper. Development was crowdfunded in 2014, and in 2015, Ethereum was officially launched and the ‘genesis block’ was created. This was called ‘Frontier’ launch. The native cryptocurrency of Ethereum is Ether ($ETH).

Who is Vitialik Buterin? What did he do? Please refer to "Who is Vitialik Buterin” chapter.

What Is the Difference Between Ethereum and Bitcoin Network?

The biggest difference between Ethereum and the Bitcoin network is that although both allow you to use cryptocurrencies without the need for any intermediary (like bank) to permit or facilitate them, the main purpose of Ethereum is to allow users to build and deploy Smart Contracts and decentralized applications on it. Ethereum is Turing complete and its programmability means you can build specific applications and store data or control the functionality of that program/contract via the blockchain without any downtime, censorship, fraud, or third parties interference. Ethereum does all of this through the Ethereum Virtual Machine (EVM), a computing device that runs programs on software instead of a physical computer.

What is Ethereum Virtual Machine? Please refer to “What is EVM” chapter.

While Bitcoin is only a payment network, Ethereum is more like a marketplace of financial services, games, social networks, and other apps that respect your privacy and cannot censor you. There would be great innovation happening on the Ethereum network.

What is Ether ($ETH)?

ETH is the native cryptocurrency of Ethereum. When a user sends ETH or uses an application running on Ethereum, the user is required to pay a small amount of ETH as a fee for using the network, this fee is called a gas fee. This fee is an incentive for miners to process and validate the actions that users want to perform. Ethereum miners are the key to ensuring the safe operation of Ethereum. Their job is to provide data records for Ethereum, that is, the work of generating blocks. Miners who do this work will also be rewarded with a small amount of newly issued ETH.

What is Gas Fee? What are miners? Please refer to “What is Gas Fee” and “What is Mining” chapter. 

The largest difference from Bitcoin ($BTC) is that $ETH does not have a maximum supply. When Ethereum launched in 2015, the initial supply of $ETH was 72 million. As of January 2023, the supply of $ETH is approximately 120 million.

What Is the Merge of Ethereum?

The Merge is an upgrade to the Ethereum network. Ethereum initially used a Proof-of-Work (PoW) consensus mechanism to verify transactions - the same as Bitcoin. However, as network traffic increases, so does the cost of proof-of-work. Gradually realizing its limitations, Ethereum's founders came up with Ethereum 2.0 (the term is now deprecated and is now called the "Consensus Layer"). The Consensus Layer uses a consensus mechanism called Proof-of-Stake, which is faster, less resource-intensive, and (at least theoretically) more secure.

What is Proof-of-Work? What is Proof-of-Stake? Please refer to “What is PoW” and “What is PoS” chapter.

Consensus Layer is a major upgrade to the Ethereum network. It’s designed to allow the Ethereum network to grow while increasing security, speed, and efficiency. Because of the complexity of moving assets from one network to another, Ether 2.0 (the Consensus Layer) and Ether 1.0 (the Execution Layer) have coexisted for a long time. The transition begins at the end of 2020 and is completed in September 2022. The Merger is also known as the Paris upgrade.

The History of Ethereum

Ethereum was conceived by Vitalik Buterin in his introductory paper while founded by a group of people. Vitalik Buterin, Anthony Di Iorio, Charles Hoskinson, Mihai Alisie and Amir Chetrit are the initial 5 founders in 2013.

Buterin proposed that Ethereum should proceed as a non-profit project in 2014 when the founders met in Zug, Switzerland. The formal software development started in 2014 via a Swiss company, Ethereum Switzerland GmbH. The technical definition of the Ethereum protocol was published in the Yellow Paper by Gavin Wood.

In 2015, the first live release of the Ethereum network "Frontier" was published, which marked the official launch of Ethereum. In November of the same year, Fabian Vogelsteller proposed ERC-20, a technical standard for fungible tokens on the Ethereum blockchain, making it easier for developers to build compliant applications.

In 2016, a decentralized autonomous organization called The DAO raised $150 million through crowdfunding on Ethereum, but The DAO was hacked a few months later, resulting in a loss of 3.6 million Ether. As a result, Ethereum performed a hard fork to reappropriates the affected funds and resulted in splitting Ethereum into two chains, Ethereum Classic (the original chain) and Ethereum (the one we are using now).

From 2017 to 2021, Ethereum has undergone multiple upgrades, including Byzantium, Constantinople, Istanbul, Berlin, and London, among others. Among them, the London hard fork has attracted more attention, because the EIP-1559 upgrade contained in it introduces a mechanism that changes the way gas fees are estimated on the Ethereum blockchain.

In September 2022, the Merger/Paris upgrade is complete and Ethereum transformed from PoW to Pos.

The Shanghai upgrade is expected to take place in March 2023, and withdrawal of staked $ETH will be enabled. Shanghai upgrade will include code allowing withdrawals of $ETH staked in the Beacon Chain since December 2020, finally giving the network participants the ability to take out their locked $ETH, which will be another milestone in the development of the Ethereum network.