Ethereum is a decentralized blockchain with smart contract functionality. Ether (Abbreviation: ETH) is the native cryptocurrency of the platform. Among cryptocurrencies, ether is second only to bitcoin in market capitalization. It is open-source software.
Ethereum was conceived in 2013 by programmer Vitalik Buterin. Additional founders of Ethereum included Gavin Wood, Charles Hoskinson, Anthony Di Iorio, and Joseph Lubin. In 2014, development work began and was crowdfunded, and the network went live on 30 July 2015. Ethereum allows anyone to deploy permanent and immutable decentralized applications onto it, with which users can interact. Decentralized finance (DeFi) applications provide financial instruments that do not directly rely on financial intermediaries like brokerages, exchanges, or banks. This facilitates borrowing against cryptocurrency holdings or lending them out for interest. Ethereum also allows users to create and exchange non-fungible tokens (NFTs), which are tokens that can be tied to unique digital assets, such as images. Additionally, many other cryptocurrencies utilize the ERC-20 token standard on top of the Ethereum blockchain and have utilized the platform for initial coin offerings.
On 15 September 2022, Ethereum transitioned its consensus mechanism from proof-of-work (PoW) to proof-of-stake (PoS) in an upgrade process known as "the Merge". This has cut Ethereum's energy usage by 99%.
On 23 May 2024, the U.S. Securities and Exchange Commission approved 8 spot Ethereum ETFs including applications from BlackRock, Fidelity, Grayscale, Bitwise, VanEck, Ark, Invesco Galaxy and Franklin Templeton.
Key Features of Ethereum
1. Smart Contracts: Ethereum's primary innovation is the smart contract, a program that runs on the Ethereum blockchain. Smart contracts automatically execute transactions and control the transfer of digital assets between parties under certain conditions, without the need for a middleman. This technology enables a wide range of applications, including financial services, supply chain management, and new forms of decentralized autonomous organizations (DAOs).
2. Ethereum Virtual Machine (EVM): The EVM is the runtime environment for smart contracts in Ethereum. It is completely isolated, meaning that code running inside the EVM has no access to the network, filesystem, or other processes. The EVM makes the process of creating blockchain applications easier and more efficient than ever before.
3. Ether (ETH): Ether is the native cryptocurrency of the Ethereum platform. It is used to compensate participants who perform computations and validate transactions on the network. Ether is also used by developers to pay for transaction fees and services on the Ethereum network.
4. Decentralized Applications (dApps): Ethereum is also used to build and run dApps. These applications are not controlled by any single entity and are immune to censorship. Examples of dApps include decentralized finance (DeFi) platforms, non-fungible token (NFT) marketplaces, decentralized exchanges, and more.
Applications
The EVM's instruction set is Turing-complete. Popular uses of Ethereum have included the creation of fungible (ERC-20) and non-fungible (ERC-721) tokens with a variety of properties, crowdfunding (e.g. initial coin offerings), decentralized finance, decentralized exchanges, decentralized autonomous organizations (DAOs), games, prediction markets, and gambling.
ERC-20 tokens
The ERC-20 (Ethereum Request-for-Comments #20) Token Standard allows for fungible tokens on the Ethereum blockchain. The standard, proposed by Fabian Vogelsteller in November 2015, implements an API for tokens within smart contracts. The standard provides functions that include the transfer of tokens from one account to another, getting the current token balance of an account, and getting the total supply of the token available on the network. Smart contracts that correctly implement ERC-20 processes are called ERC-20 Token Contracts, and they keep track of created tokens on Ethereum. Numerous cryptocurrencies have launched as ERC-20 tokens and have been distributed through initial coin offerings.
Non-fungible tokens (NFTs)
Ethereum also allows for the creation of unique and indivisible tokens, called non-fungible tokens (NFTs). Since tokens of this type are unique, they have been used to represent such things as collectibles, digital art, sports memorabilia, virtual real estate, and items within games. ERC-721 is the first official NFT standard for Ethereum and was followed up by ERC-1155 which introduced semi-fungibility, both are widely used, though some fully fungible tokens using ERC-20 have been used for NFTs such as CryptoPunks.
The first NFT project, Etheria, a 3D map of tradable and customizable hexagonal tiles, was deployed to the network in October 2015 and demonstrated live at DEVCON1 in November of that year. In 2021, Christie's sold a digital image with an NFT by Beeple for US$69.3 million, making him the third-most-valuable living artist in terms of auction prices at the time, although observers have noted that both the buyer and seller had a vested interest in driving demand for the artist's work.
Decentralized finance
Decentralized finance (DeFi) offers traditional financial instruments in a decentralized architecture, outside of companies' and governments' control, such as money market funds which let users earn interest. DeFi applications are typically accessed through a Web3-enabled browser extension or application, such as MetaMask, which allows users to directly interact with the Ethereum blockchain through a website. Many of these DApps can connect and work together to create complex financial services.
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