What is Ethereum (ETH)?

Ethereum (ETH) is the second most popular cryptocurrency after Bitcoin. Founded by Vitalik Buterin and Gavin Wood in 2015

8 min readJun 25, 2022

Ethereum (ETH) is the second most popular cryptocurrency after Bitcoin

Ethereum, the second-biggest cryptocurrency after Bitcoin, is a blockchain-powered platform for creating decentralized applications (dapps).

Where Bitcoin was designed as a currency and a store of value, Ethereum is a decentralized network for running smart contracts code that runs on a peer-to-peer network and is verified by Ethereum’s blockchain.

The idea is to create applications that are secure, transparent and censorship-resistant since they don’t rely on centralized platforms.

Ethereum has been used as the underlying software layer for everything from decentralized finance (DeFi) applications, to “play-to-earn” GameFi using non-fungible tokens (NFTs).

Bitcoin was the first cryptocurrency seen as digital gold and Ethereum (ETH) being seen as digital silver

Basic of Ethereum (ETH)

While Bitcoin uses blockchain technology for monetary transactions and allows nodes and messages to be attached to each transaction, Ethereum takes it a step further by using the blockchain to create a decentralized computer.

Ethereum is a decentralized open-source and distributed blockchain network powered by its native cryptocurrency, Ether (ETH), used to make transactions and interact with applications built on top of the Ethereum network. Ethereum’s white paper was published in 2013 by its co-founder Vitalik Buterin, detailing the use of smart contracts, which are self-executing agreements written in code.

The smart contracts allow for the creation of decentralized applications, or DApps, which are applications that work without a central entity behind them. In 2014, Buterin and Ethereum’s other co-founders sold Ether to raise funds for Ethereum’s development.

In July 2015, the Ethereum network was launched as one of the most ambitious projects in the crypto space with the goal of decentralizing everything on the internet.

Ethereum has its own programming language called Solidity, which is used to program smart contracts to run on the blockchain. The potential applications of Ethereum are wide-ranging thanks to the use of smart contracts. Its main use cases may not have yet been invented, similar to the way Facebook and Google weren’t created years after the internet was launched. Innovation on the Ethereum network is surging, with decentralized applications offering financial services, and non-fungible tokens (NFTs) being examples of what smart contracts allow developers to create. While Bitcoin is used as a medium of exchange and store of value, Ether is used to interact with applications on the Ethereum network. Paying for transactions, creating smart contracts and using DApps all require users to pay a gas fees in Ether or Gwei. We will share a little bit about the gas fee with you.

What is the Gas and who we pay for?

Gas refers to the fee, or pricing value, required to successfully conduct a transaction or execute a smart contract on the Ethereum blockchain platform. Priced in small fractions of the cryptocurrency ether (ETH), commonly referred to as gwei
Gas fees are paid in Ethereum’s native currency, ether (ETH). Gas prices are denoted in gwei, which itself is a denomination of ETH. Each gwei is equal to 0.000000001 ETH. For example, instead of saying that your gas costs 0.000000001 ether, you can say your gas costs 1 gwei.
Gas fees go to those supporting and securing the Ethereum network. On Ethereum’s execution layer (Ethereum 1.0), gas fee payouts go to Proof-of-Work miners on the Ethereum protocol. On Ethereum’s consensus layer (Ethereum 2.0), gas fees are distributed to those staking ETH to support this updated Proof-of-Stake variation of Ethereum.

Vitalik Buterin writes a whitepaper explaining the concept of Ethereum on November 2013 — *Vitalik Buterin* writes a whitepaper explaining the concept of Ethereum on November 2013

Who Invented Ethereum?

A Russian/Canadian computer programmer called Vitalik Buterin wrote the white paper on Ethereum is based. However, the building of the network and community was helped by a number of co-founders: Anthony Di Loria, Charles Hoskinson, Miha Alisie, Amir Chetrit, Joseph Lubin and Gavin Wood.

A brief history of Ethereum

November 2013 — Vitalik Buterin writes a whitepaper explaining the concept of Ethereum.
January 2014 — Ethereum is publicly announced.
July 2014 — Ethereum launches an ICO using Bitcoin to buy Ether.
June 2016 — $50 million of Ether is stolen from a crowd sale and Ethereum developers agree to reverse the decision by creating a ‘hard fork’.
March 2017 — A group of companies including Toyota, Samsung, Microsoft, Intel, and J.P. Morgan established the Enterprise Ethereum Alliance, a non-profit designed to make Ethereum suitable for big business.
December 2020 — The Beacon Chain goes live, the first phase of a sweeping upgrade known as Ethereum 2.0 that will eventually see the network switch over to a proof-of-stake consensus mechanism.
March 2021 — Visa begins using the Ethereum blockchain to settle stablecoin transactions.
April 2021 — The Berlin hard fork goes live, reducing gas costs on the network.
August 2021 — The London hard fork introduces base fees to every transaction and burns transaction fees rather than allocating them to miners.

Ethereum having a system not controlled by a third party but by codes is induced by smart contracts

How The Ethereum Works

Ethereum is not controlled by any third party or entity. Instead, they are controlled by codes. Several pieces come together to ensure that Ethereum is functioning accordingly.

Smart Contracts: The whole point of Ethereum having a system not controlled by a third party but by codes is induced by smart contracts. Smart contracts are automatically executed when certain stated conditions are met without the help of any external body. Smart contracts are involved in any cryptocurrency. They are not restricted to and can be used outside Ethereum, but they are popularly known for their Ethereum usage. Bitcoin also supports basic smart contracts, but its applications are limited when compared to Ethereum’s. Some developers and researchers have criticized smart contracts that these would open up possibilities for security vulnerabilities.
Ethereum Blockchain: This is where the history of all the smart contracts executed is stored. Hundreds of nodes from all over the world store a copy of the entire blockchain. Thousands of computers process a smart contract whenever it is executed to ensure that all the stated rules were adhered to. The nodes do not only store transaction details. Also stored in a node are accounts, smart contract code, and smart contract state. All the nodes follow the same rule set for verifying a transaction, and they are all connected.
Ethereum Virtual Machine (EVM): The Ethereum virtual machine executes smart contracts. It helps translate the smart contract written in a language computer that can’t read to a language (bytecode) that they can read. The EVM can execute at least 140 different codes with specific tasks.

Ether is a digital currency in financial transactions. Ethereum is the blockchain network where Ether is held and exchanged

Ether and Ethereum: What’s the Difference?

You can use Ether as a digital currency in financial transactions, as an investment or as a store of value. Ethereum is the blockchain network where Ether is held and exchanged. As mentioned above, this network offers a variety of other functions outside of ETH.

The Ethereum network can also be used to store data and run decentralized applications. Where the one company controls all the data. But now people can host applications on the Ethereum blockchain. This gives users control over their data and they have open use of the app as there’s no central authority managing everything.

One of the most intriguing use cases involving Ethereum is self-executing contracts or so-called smart contracts. Like any other contract, two parties agree to deliver goods or services in the future. Unlike conventional contracts, lawyers aren’t necessary: The parties code the agreement on the Ethereum blockchain. Once the contract conditions are met, it self-executes and delivers Ether to the appropriate party.

What is Ether (ETH)? Compare with Bitcoin (BTC)

As already stated, Ether is the cryptocurrency Ethereum uses to build and maintain its network. Ether is stored in accounts, and there are two types of accounts. Externally owned accounts are used to hold and send Ether by users, and Contract accounts are the accounts that hold smart contracts.

Ethereum currently uses the same Proof of Work mining technique as Bitcoin. However, it has plans to move to a different technique known as Proof of Stake in an upgrade widely referred to as Ethereum 2.0, and the first phase upgrade, called the Beacon Chain, going live on December 1, 2020. The second phase estimated will be upgraded in 2022.
Blocks on the Bitcoin network are added on an average every 10 minutes, while on Ethereum, they take about 15 seconds. A new block is added to the Ethereum blockchain, with the computer or miner that solves the puzzle at the heart of the block being rewarded with Ether.
Hashing algorithms are how these systems can maintain their privacy and ensure security. Bitcoin uses a hashing algorithm known as SHA-256. Ethereum uses a cryptographic algorithm called Ethash.
If by the Numbers, Bitcoin has over 19 million bitcoins currently in existence, and Ethereum has 120 million ether. The market capitalization for Bitcoin is $405 billion(25June2022), whereas for Ethereum it’s only $147 billion(25June2022). So even though Ethereum has more coins on the market, it isn’t at the level of Bitcoin.

Another challenge Ethereum faces is from so-called Ethereum killers other smart contract blockchains that seek to improve on Ethereum’s limitations — Another challenge Ethereum faces is from so-called *Ethereum killers* other smart contract blockchains that seek to improve on Ethereum’s limitations

The future of Ethereum (ETH)

Ethereum wants to be the platform on which all decentralized apps get built. However, it has experienced some growing pains. One of the biggest challenges has been transaction speeds. In order for Ethereum to become the network for all decentralized applications, it has to be able to allow more transactions to happen at once.

As a result of slow transaction speeds, users have historically been forced to pay high gas fees in order to force their transactions through. To speed up transaction times and reduce gas fees, developers have created scaling solutions such as Polygon and Arbitrum, which work by processing transactions off-chain before finalizing them on the main Ethereum blockchain.

In addition to moving the network to Proof of Stake, the upcoming Ethereum 2.0 upgrade seeks to address slow transaction speeds and gas fees.

Another challenge Ethereum faces is from so-called Ethereum killers other smart contract blockchains that seek to improve on Ethereum’s limitations.

They include networks such as Solana, Cardano, Tezos and Polkadot. These networks are all trying to increase speed without compromising security. Whoever cracks that combination first will unlock the decentralized future...