History of ETH: The rise of the Ethereum blockchain

The history of Ethereum

The blockchain Ethereum was created to overcome some limitations associated with the Bitcoin blockchain and introduce a wider range of services to developers. Ethereum blockchain technology allows the creation of smart contracts that can be executed automatically when certain conditions are met. Thanks to those smart contracts, a convenient environment has been created for developers of decentralized applications. This makes Ethereum very attractive for creating decentralized applications like digital wallets, voting systems, and even games.

For the first time, the idea of the Ethereum platform in which blockchain technology will be used not only for payments but also for the creation and implementation of DeFi financial services, applications, and games was announced in November 2013. The author of the White Paper project was Vitalik Buterin, already known for founding the first printed edition of Bitcoin Magazine dedicated to cryptocurrencies.

The talented programmer studied in Canada at the University of Waterloo. However, he left his studies without receiving a diploma because he became interested in developing blockchain projects. Later, in 2018, he received his doctorate from the University of Basel in Switzerland.

Ethereum’s co-founders were also Gavin Wood, Charles Hoskinson, Anthony Di Lorio, and Joseph Lubin, then other participants joined the project.

The major milestones of the Ethereum blockchain are:

April 2014 - Ethereum Switzerland GmbH (EthSuisse) was established. Switzerland was chosen as the country of registration, as it was the most loyal at the legislative level to blockchain technology and cryptocurrencies. A Yellow Book from Gavin Wood was immediately released, where a technical description of the protocol was given.
July 20 to September 2, 2014 - a pre-sale of ICO coins was held. Participation was allowed only in Bitcoins, investors transferred the BTC to the project account and received ETH in return. At first, the rate was as follows: 1 Bitcoin = 2000 ETH cryptocurrencies. Then the price gradually decreased to 1,337 coins. As a result, almost 60 million Ether were sold (~$17.3 million). Moreover, 9.9% of them were distributed among the team that founded the project and the non-profit organization Ethereum Foundation, which supports and finances the platform and its technologies (Vitalik Buterin is on the executive board).
August 2014 - Gavin Wood began developing his own domain-specific programming language, Solidity, which is used to write most smart contracts.
July 20, 2015 - the first block was generated. A reward of 72,009,995 coins was credited to 8,903 accounts.
July 30, 2015 - the main network is launched. The first version of the protocol is Frontier. Although that protocol didn't have the best safety record, banks were interested in the project. They started testing smart contracts on the platform.
October 30, 2015 - the project was supported by Microsoft Corporation, releasing a set of tools for programmers with which that is possible to develop applications and programs on the Ethereum blockchain. Users have gained access to the Ether.Camp - Integrated Development Environment (IDE), a shareable, web-based editor and fast execution sandbox. Examples of created programs are EtherSign for signing documentation, and smart lock from the company Slock.it, A HunchGame in which you can receive a reward for correctly predicting rumors about actors, singers, and other stars.
December 1, 2020 - at 12:00 UTC, the zero phase of Ethereum version 2.0 (ETH2) was launched. The transition to Ethereum 2.0, also known as ETH 2.0 or Serenity, aims to address scalability and sustainability issues by implementing a proof-of-stake (PoS) consensus mechanism and shard chains.
August 2021 - the EIP-1559 update was carried out, which changed the structure of the distribution of gas fees: now part of the collected "coins" is burned.
March 13, 2024 – the long-awaited Dencun upgrade went live on the Ethereum mainnet. The Ethereum Cancun upgrade aims to enhance scalability, security, and efficiency within the Ethereum network, introducing the concept of proto-danksharding. Danksharding represents the final phase of the Ethereum 2.0 (Serenity) upgrade that enhances data management and transaction processing. Users will enjoy faster transaction processing times, reduced transaction costs, and optimized data management.

What is Ethereum?

As you already know, Ethereum (ETH) is not only one of the most popular cryptocurrencies but also a decentralized blockchain platform based on which you can create smart contracts, decentralized applications (dApps), and other decentralized services.

Ethereum was created not so much as a cryptocurrency but as a base for the introduction of blockchain technology into new projects. Blockchain is a technology for encrypting and storing data (registry), which are distributed across many computers connected to a common network. Each cryptocurrency uses its cryptographic encryption algorithm. At the same time, for the safe operation of the blockchain, the release process is controlled using consensus-building algorithms.

The two most popular consensus algorithms are Proof-of-Work, or PoW, and Proof-of-stake, or PoS.

The PoW algorithm requires cryptocurrency miners to solve complex mathematical problems to verify and record transactions in the blockchain.
The PoS algorithm assumes that users store cryptocurrency and thereby ensure the operation of the blockchain.

Ethereum, unlike Bitcoin and several other popular cryptocurrencies, works based on the PoS algorithm.

How secure is Ethereum and how it works?

Ethereum, unlike real (fiat) money, is not backed by certain assets (gold, currency, etc.). Nevertheless, the value of ETH is supported by a limited number of "coins" in circulation, active investments in this cryptocurrency of fiat funds, and high interest in the possibilities of the Ethereum blockchain network.

Ethereum works on the basis of blockchain technology. The system is decentralized and distributed:

1. Centralized servers replace user computers that form network nodes.

2. The Ether protocol supports the continuous and uninterrupted operation of the Ethereum Virtual Machine (EVM).

3. EVM is a virtual computer, the state of which is consistent with the entire network of the Ether. EVMs are formed by all computers connected to Ethereum: each network participant stores a copy of the state of this computer. The EVM defines the rules for calculating the new allowable network state from block to block.

4. You can make changes to the network only after verification. For the safe operation of the system, an algorithm is used to achieve consensus proof of storage (PoS). Unlike proof-of-work (PoW), in the proof-of-storage algorithm, a certain number of "coins" are needed to participate in the generation and confirmation of new blocks in the blockchain.

5. The operations are performed by special trusted validator nodes - a “node” is any instance of Ethereum client software connected to other computers running Ethereum client software, forming a network. There are three types of Ethereum nodes: full node, light node, and archive nodes.

Full nodes store all data from the blockchain and participate in verifying information about transactions.
Archive nodes additionally support the storage of historical blockchain states.
Light nodes do not store data about network status changes, they interact with full nodes to get up-to-date information about the network status.

The most commonly used nodes are either full or lightweight, as archive nodes aren’t beneficial for the average node operator.

The validator does not need large computing power, they do not mine the block, but simply create it or check the blocks created by other validators (carry out their certification). Validators are rewarded for offering new blocks and certifying previously created ones.

Interactions on the Ethereum network are called operations.
The history of all changes is stored in the blocks of the blockchain network.

At the same time, all transactions are public, they can be viewed using special blockchain browsers, such as Etherscan (a Block Explorer and Analytics Platform for Ethereum, a decentralized smart contract platform).

To carry out any operations on the Ether network, the user must purchase a certain number of "coins" of the network. For any interaction on the network, a commission is required — a fee for "gas". "Gas" is a unit for measuring the amount of computing effort required to perform operations on the Ethereum network. Each operation requires computing resources, so each operation requires a commission. In other words, the cost of "gas" is the commission required for a successful operation on the ether network.

Developers can upload programs (reusable code snippets) to the network. Such programs are called smart contracts. Any developer can create a smart contract and publish it on the Ethereum network, and any network user can invoke a smart contract to execute its code. With the help of smart contracts, developers can arbitrarily create complex user applications and services - trading platforms, financial instruments, games, etc.

What does the Ethereum network do?

The Ethereum blockchain network allows the creation of smart contracts and more complex programs and products based on the blockchain.

In addition to smart contracts, the Ethereum network allows to create:

Decentralized applications (Gapps) – Gapps can be based on combining several smart contracts. Such applications can serve any purpose, just like regular applications, their only significant difference is decentralization, which increases the level of user privacy.
Decentralized financial services (DeFi) – services for the provision of financial services based on decentralized applications without intermediaries. These can be services for storing funds on a cryptocurrency wallet to provide blockchain support (staking), secured debt positions and stablecoins, credit protocols, prediction platforms, digital wallets, monitoring, analysis services, etc.
Non-interchangeable tokens (non-fungible tokens, NFT) - a type of tokens where each instance is unique, it cannot be replaced or exchanged for another token. NFTs indicate the right to own unique assets, such as works of art, but this is only an entry in the virtual registry, which does not give any rights. Currently, about 90% of non-interchangeable tokens are issued through Ethereum.
Decentralized exchanges (DAX) - platforms for cryptocurrency circulation and trading, which operate without a central management and control body and allow trading without intermediaries.
Ethereum tokens - cryptocurrencies launched on the Ethereum network, using its algorithms as a basic technology. The most famous such tokens are MakerDAO (DAI), Arbitrum, and Uniswap (UNI).
Metaverses - the Ethereum network also allows you to create entire metaverses, that is, virtual reality powered by blockchain technology. These can be video games, virtual events, sophisticated software, etc.

Ethereum – how are new coins minted?

In 2022, the Ethereum blockchain switched from a proof-of-work (PoW) consensus algorithm to a proof-of-storage (PoS) algorithm, abandoning the mining model in favor of staking.

Staking ETH 2.0 is the freezing of Ethereum coins on a smart contract deposit to maintain the blockchain network, generate new blocks, and conduct operations. The owner of the cryptocurrency (validator or the miner) joins the ecosystem maintenance, verifies the transaction, and searches for the block hash signature while receiving payment for it. Coin blocking is required to ensure that this node will not act at the expense of the system, because if so, it will be damaged, too.

Three main ways to stake ETH:

1. Centralized exchange. Coinbase and Binance could be a great help. That is the easiest way suitable for beginners. All you have to do is select the service, sign up, buy ETH, stake them, and start getting profit from your ETH.

2. Staking pool. This way has the excellent advantage of giving users liquid tokens to use instead of staked ETH.

3. Setting up your node. The hardest way - you will have to stake 32 ETH and own a PC connected to the Internet every day and night.

Features of Ethereum

Ethereum is a large-scale, programmable, open-source blockchain project whose functionality goes beyond payment transactions. Thanks to it, as in Bitcoin, it is possible to conduct P2P transactions without intermediaries in the form of banks and other financial organizations.

One of the main features of Ethereum is that the main purpose of this blockchain network is to provide the opportunity to develop and launch decentralized applications that are based on blockchain technology and use smart contracts. The popularity of Ethereum as a platform for decentralized applications (dApps) is associated with the relative ease of working with this blockchain. Any beginner with basic knowledge of the Solidity programming language can launch a smart contract using client software.

The key features of Ethereum also include the immutability and impossibility of disabling smart contracts, which ensures the autonomy and security of applications.

Another distinctive feature compared to other popular cryptocurrencies is that Ethereum does not have an issue limit. At the same time, this does not mean that ETH is issued indefinitely: the system has a special algorithm that limits the number of "coins" in circulation.

Where to buy Ethereum

In addition to staking, you can purchase Ethereum on one of the cryptocurrency exchanges, in some cryptocurrency wallets, or directly from other network users.

The Ethereum token is traded on almost all CEX. The TOP centralized platforms are Kraken, Binance, OKEx, and Huobi Global.
Dyor Exchange enables you to trade Ethereum within a self-custodial wallet, with a quick and easy account setup.
You can make a deal through a decentralized exchange such as SushiSwap, Uniswap, and DexGuru. That way is suitable for more experienced crypto investors.
You can also buy Ethereum through popular payment services: PayPal, Venmo, Binance Pay, AdvCash, and Payeer.

The difference between Bitcoin and Ethereum

The same as Bitcoin, Ethereum is a decentralized cryptocurrency that uses blockchain technology. However, Ethereum is a younger cryptocurrency that was created in 2015. On the other hand, Bitcoin was created in 2009 and is the oldest cryptocurrency.

Although Ethereum and Bitcoin have some common features, they still have a number of differences:

The main difference between Ethereum and Bitcoin is the lack of cryptocurrency mining on computing machines (Proof of Work algorithm) and the ability to create decentralized applications that run on the blockchain. Bitcoin was created as an alternative to traditional currencies and is mainly used as a means of exchange and storage of value. Ethereum has a wider range of applications than Bitcoin. This opens up new opportunities for creating new business models and improving existing processes. Ethereum has a faster transaction processing time than Bitcoin. Ethereum can process up to 15 transactions per second, while Bitcoin can only process up to 7 transactions per second.
Another great difference between Ethereum and Bitcoin is the ability to quickly create smart contracts. While Bitcoin is just a convenient way to store and transfer funds, smart contracts in Ethereum allow you to do all this and provide the basis for a new economy free of states and banks. A smart contract is an alternative to legal contracts. It exists inside the Ethereum system and its execution is guaranteed by a computer program, and there is a strict mathematical system in the foundation. The terms of the contract are specified in the code. When they are completed, a transaction occurs automatically.
Unlike Bitcoin, you do not need computing equipment to earn on Ethereum - staking provides a fantastic opportunity to earn rewards on your holdings

How does the Ethereum blockchain differ from the Bitcoin blockchain?

If we talk about the Ethereum blockchain itself, then the same information is stored there as in the Bitcoin blockchain. The differences are:

Bitcoin stores the transaction history (wallet A transferred 10 bitcoins to wallet B), while in Ethereum there is a history of states (there is 1 Ether in wallet A now, 10 Ether in wallet B, and 0.5 Ether in wallet C). Ethereum is a transactional machine of states that change by creating new transactions.
The mining process is almost the same. In Bitcoin, new blocks appear every 10 minutes, and in Ethereum - every 15 seconds. Both miners race to solve a mathematical problem to add a block and only one gets rewarded.

Bitcoin fans blame Ethereum for the lack of a clearly defined amount of ETH in the system.

Let's remember how it works in Bitcoin:

The maximum number of BTC is limited - there may be 21 million coins in total;
Block reward is reduced by 50% every 4 years.

Such a system may lead to the fact that in the future, Bitcoin network participants will be motivated only by transfer fees and the value of BTC itself since the reward for blocks will soon be greatly reduced.

Ethereum does not have a clear mechanism for determining the number of coins in the system and the block reward. Instead, the Minimum Required Emission (MNI) is used. Ethereum automatically reduces the block reward to a level that is necessary to guarantee network security. Thus, the number of coins in the system is not fixed, but the minimum required.

How is Ethereum building a new economy?

To build a full-fledged economy, you need a contract-signing tool and a third party trusted by both sides of the transaction. But the idea of cryptocurrency is that people don't want to trust banks or the government.

Today, the global economic network consists of the economies of individual states: the United States, Japan, China, the EU, and so on. Cryptocurrencies allow you to separate the economy from the country. Ethereum is an economy without a country.

This is where Ethereum comes on the scene, providing a self-sufficient technical layer that clearly and impartially performs its functions, regardless of whether it is trusted or not.

Ethereum expands the concept of cryptocurrency to the crypto economy through smart contracts. The main idea of Ethereum is an economic system independent of the government.

How to use Ethereum?

There are two types of accounts in Ethereum: a wallet and a smart contract. Both can make transactions, store coins, and accept ether.

The main difference is that the coins on the balance of the smart contract are managed not by a person, but by an algorithm.

A regular wallet is controlled by a bundle of public and private keys, and a smart contract is a hash of its code. Due to this, the smart contract cannot be changed - it is necessary to change at least one character in the contract code and the hash will irreversibly change, and the blockchain will reject it.

What kind of Ethereum wallets are there and how to choose them

To store Ethereum, as well as other cryptocurrencies, and perform operations with them, crypto wallets are used - special software or hardware. Access control to the cryptocurrency is carried out using the blockchain platform. Crypto wallets come in two types: hot (provide online storage) and cold (provide offline storage of cryptocurrencies).

Cold wallet: a USB flash drive on which your broadcasts are recorded. Hardware cold wallets are considered safer for storing cryptocurrencies. The safest way to store it, but again, you can lose or forget your password. Their disadvantages also include lower speed of operations and less convenience for inexperienced users.
Wallet on your device: a program on your phone, tablet, or computer. The money is stored directly on the device, so if the smartphone breaks or gets lost, you will not be able to recover the funds.
Online wallet: register on the website, the wallet will be available on the Internet. The password can be restored, but the service you trust will have access to your funds: you need a high level of trust in the service. Most online wallets charge a percentage for storing funds on the platform, usually, that is 3-7%.

The most popular hot cryptocurrencies for storing Ethereum are Metamask (browser-based), Trust Wallet (software), and Myetherwallet (browser-based). There is a special service on the official Ethereum website that helps you choose the most suitable wallet using a number of filters.

It is not recommended to use cryptocurrency exchanges to store cryptocurrencies. It is advisable to use exchanges only to make transactions with "coins".

Difference Between Ethereum and Ether

It is important not to confuse: Ethereum and Ether are different things and not synonyms. Ethereum is the blockchain network that supports Ether and all other Ethereum-based tokens, while Ether is the main token on the Ethereum blockchain. Generally, Ether is the right term when talking about Ethereum's token, such as investment, buying, etc.

Learn everything you need to know about Ethereum's token standards in our article.

How do I make a transaction in Ethereum?

There are three things you can do in Ethereum:

transfer ETH to another user;
create a smart contract and write it to the blockchain;
execute a smart contract.

A smart contract is just a code that can be executed by making a transaction to its address. When you transfer the Ether, the information about your transaction is recorded in the Ethereum blockchain by the miner. When you add or execute a smart contract code, when you add a block, the program code is executed.

You have to pay a commission for each operation. This commission is a reward for miners whose computers are engaged in adding blocks and executing the code of smart contracts. Network fees on Ethereum are called gas.

If everything is clear with the transfer price, then the cost of recording or executing a smart contract depends on its complexity - the more transactions, the more gas is required for its execution. In Ethereum, you set the amount of the transaction fee yourself.

When you queue up one of the transactions, you must specify:

Recipient's address.
The amount of ETH to be transferred (may be 0).
How much maximum gas are you willing to spend on the execution of the operation.
Your gas price (gwei).

The official Ethereum wallet: set how many ethers to send, where, and the price for gas. The commission is calculated from the amount of gas its cost in gwei.

The main risks and challenges of Ethereum

The main risks and challenges for the Ethereum are as follows:

regulation and legal aspects,
the threat of centralization,
ensuring scalability and performance,
ensuring the security of smart contracts,
competition from other blockchain platforms.

The main problem of Ethereum is the scalability and performance of the network. The Ethereum blockchain was created as a tool for launching decentralized applications. The more of them there are, the more overloaded the main blockchain becomes. For example, in 2017, the CryptoKitty game overloaded the Ethereum blockchain so much that the fee for conducting operations increased dramatically.

The experts note that the developers of Ethereum, who are working on improving this blockchain, face the task of simultaneously ensuring a high speed of operations, their affordable cost, and a high level of decentralization.

Ethereum has competitors who are trying to gain market share in platforms for decentralized applications (dApps) — these are Tron, Solana, Cardano, and TON. But so far, Ethereum is still the most popular platform for decentralized applications.

Ethereum has risks related to regulation and legal aspects: some validators comply with the requirements of the Office of Foreign Assets Control (OFAC) of the US Treasury Department regarding blocking transactions that may violate US sanctions. Because of this, the network has been criticized for censoring operations. Also, there are risks associated with the centralization of stakers: many participate in staking through pools, which leads to either large ether owners or pools becoming a staker.

Ethereum forecast

So, what awaits Ethereum in the future?

Price forecasts for 2030 - according to experts' forecasts, in 2030, it is predicted that Ethereum will cost from $4,000 to $20,000. This is due to the fact that Ethereum continues to evolve and improve, and more and more people are starting to use it for their projects.
Further development of the Ethereum blockchain - Ethereum has a variety of technologies that make it attractive to investors. One of the main reasons is the possibility of creating smart contracts that allow you to automatically fulfill the terms of the contract without the participation of third parties.
Transparency of transactions - Ethereum also uses blockchain technology, which ensures the security and transparency of transactions. This makes Ethereum attractive for use in various fields such as finance, healthcare, law, and more.

Ethereum has good prospects, as demand for its blockchain to run decentralized applications remains high. This leads to an increase in gas fees, which, in turn, contributes to the growth of the ETH exchange rate.

According to the experts, the transition of ether from the proof-of-work (PoW) mechanism to the proof-of-storage (PoS) mechanism will significantly affect the price of the cryptocurrency and the overall growth of the platform. The introduction of large-scale solutions and reduction of energy consumption using PoS can have an impact on the price of ETH in the long term.

Bitcoin halving took place in April 2024. This event historically affects the quotes of not only Bitcoin but also other cryptocurrencies, including Ether. Bitcoin can set a new maximum value, reaching a level close to 100 thousand dollars. In this case, Ether will also set a new price record in the region of $ 7,300. But, following the technical analysis of past halving periods, this level will be reached no earlier than 2025. The experts warn that technical analysis is not a reliable prediction of the future price, so it is important for investors to conduct their analysis.

Conclusion

Even though Ethereum has its advantages, Bitcoin is still the most popular and widely used cryptocurrency in the world. However, with the development of blockchain technology and decentralization, Ethereum has the potential to become one of the leading cryptocurrencies in the future.

Overall, Ethereum offers many opportunities for investors and developers. It is worth noting that Ethereum continues to evolve and improve, and we can expect even more growth and development in the future.