Ethereum (ETH) has long been the blockchain where Web3 founders have flocked to build their applications and platforms. Now that the Ethereum Merge has taken place, paving the way to future scalability, it’s a great time to dig into the Ethereum project. You’ll learn all about their storied path to becoming what many feel is one of crypto's most important assets.
What is Ethereum (ETH)?
Ethereum (ETH) is the leading distributed blockchain network and platform for building smart contracts (i.e., for issuing crypto tokens) and decentralized applications (i.e., for DeFi, NFTs, and GameFi applications).
The Ethereum platform has been home to and center stage for major movements in the crypto industry, including the ICO craze of 2017-2018, the proliferation of DeFi in 2020, and the NFT boom beginning in 2021. All of these massive market events were staged primarily on the Ethereum Blockchain.
Ethereum’s native cryptocurrency is ether (ETH), however many people just call it Ethereum. Either way, the token is used for transaction fees, as collateral for things like DeFi lending applications, and since the Merge process began, as a staked token for those validating Ethereum blocks.
Ethereum gas fees are network transaction fees that are priced in Gwei, a denomination of Ether that equals 0.000000001 ETH.
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PoW vs. PoS Consensus Mechanism
Up until September 14, 2022, Ethereum used a Proof-of-Work (PoW) consensus mechanism, similar to Bitcoin. The computationally heavy system was used for processing transactions, minting new Ether, and securing the network. From September 14th forward, Proof-of-Stake (PoS) consensus went live on the main chain after years of debate and testing.
The implementation of PoS was set to bring Ethereum’s scalability to the next level. At the height of trending crypto events, congestion on the Ethereum Network has been an enormous problem, causing gas prices to undergo “gas wars” due to high demand, making it difficult for the little guy to take part in token events such as ICOs and airdrops, and creating honeypot targets for clever hackers.
The Ethereum Merge
The Merge refers to the switch from using a Proof-of-Work to using a Proof-of-Stake consensus mechanism. Ethereum merged its main chain (and other testnets) to the Beacon PoS blockchain and from that point on, the Beacon Chain would handle all transactions and block production using the less energy-intensive PoS consensus.
Mega thread of all the live stream parties, countdown dashboards, games, and more that you may need for The Merge!— Hudson Jameson (@hudsonjameson) September 14, 2022
Essentially, all of the EVM’s long history of cryptographically hashed transactions migrated to the Beacon Chain on Sept. 14, 2022.
With mining blocks for ETH rewards a thing of the past, PoS validators will be responsible for validating all transactions and proposing blocks of transactions to be added to the blockchain. For doing so, they’ll receive rewards in Ether. Each validator is required to stake 32 ETH, crypto that is non-liquid because it cannot be used elsewhere while staked (unlike liquid staking found on protocols like Lido DAO).
Summary of major events & forks:
- 2013: Ethereum Founder, Vitalik Buterin, released the Ethereum Whitepaper
- 2014: Ether sale was launched, beginning a 42-day sale event with Bitcoin as the currency.
- 2015: Olympic network released as a public beta and gave users a bug bounty of 25,000 ether to stress-test the Ethereum blockchain.
- 2015: Frontier was first implentation of the Ethereum platform and was when the genesis block was mined.
- 2016: The DAO contentious hard fork in response to the historic DAO hack
- 2016: Spurious Dragon and Tangerine Whistle hard forks in response to DDoS attacks
- 2017: Byzantium hard fork to reduce block mining rewards from 5 to 3 ETH, delaying the difficulty bomb by a year, and adding layer-2 scaling cryptography methods.
- 2019: Constantinople hard fork to prepare for Proof of Stake implementation and optimize gas fees on certain transactions.
- 2019: Istanbul fork improved DDoS attack resilience, made layer-2 scaling solutions based on SNARKS and STARKS better performing, and made Zcash interoperable.
- 2020: Beacon Chain genesis and the beginning of block production on the Beacon Chain.
- 2021: Staking deposit contract deployed in preparation for the Merge.
- 2022: Gray Glacier and Arrow Glacier upgrades moved the difficulty bomb forward to incentivize the transition from PoW to PoS.
Read more on Ethereum's history page.
Looks like the "hashrate will drop weeks before the merge due to miners rushing to sell ahead of everyone else" thesis has been proven completely false.— vitalik.eth (@VitalikButerin) September 14, 2022
I'm a bit surprised! I argued against a 50% drop but definitely expected like 5-10%. pic.twitter.com/l9OpT8fPFl
It’s interesting that such a massive decentralized platform would have such a well-known, respected, and contested Founder, Vitalik Buterin.
In the early days after Buterin published the whitepaper, additional Co-Founders included:
- Charles Hoskinson (Founder, Cardano)
- Gavin Wood (Founder, Polkadot)
- Joseph Lubin (Founder, Consensys)
- Anthony Di Iorio (Founder, Decentral)
Today, Buterin is at the helm of an enormous decentralized community of developers building on the Ethereum Blockchain. Core developers of Ethereum meet monthly on a public livestream. At the last such event, there were 49 participants, including Buterin.
Making headlines - ETH Merge Edition
- Institutional Investors Have Eyes on the Ethereum Merge
- How One of Crypto’s Majors is Going Green
- Ethereum Miners Plan a Post-Merge Pivot
Does Ethereum have staying power?
Ethereum has long been in the number 2 spot by market cap after Bitcoin (BTC), but when you think about the market caps of all the tokens launched on Ethereum, you discover that 47% of the entire crypto market is within the Ethereum ecosystem.
On top of that, the Ethereum developer ecosystem has amassed an industry-leading 42,457 commits (compare with Cardano’s 35,327 and Bitcoin’s 21,614).
Teams and developers have continued to choose Ethereum, even as other smart contract platforms (“Ethereum Killers” like Cardano, Polkadot, Avalanche, etc.) have emerged. Three of the main reasons they are still building on the Ethereum Network are:
Brand - Everyone that’s in crypto (and in business for that matter) knows Ethereum. The brand recognition as the go-to smart contract and dApps platform spans from degen pump & dump groups in Telegram all the way to IBM and JP Morgan. Those that build on Ethereum gain access to some of those network effects.
Developer Community - As the OG smart contract platform with native programming languages like Solidity, Ethereum has the largest community of Web3 developers as well as the biggest depository of Web3 building tools. The Ethereum Foundation continually runs hackathons and other developer events to grow and nurture the community of devs.
Decentralization - By building on Ethereum’s decentralized network, also known as the Ethereum Virtual Machine (EVM), builders can use Ethereum to circumvent the risks of centralized servers, such as censorship and centralized points of failure (hacks).
imagine you’re the merge, get a bit of stage fright, then peek out at the crowd and see this pic.twitter.com/KhHhm9uxZg— foobar (@0xfoobar) September 14, 2022
Ethereum’s extensive social community tops 11 million followers, with Founder Vitalik Buterin having 4.2 million and 5 Sub-Reddit communities totaling over 3.8 million.
Ever been hacked?
Possibly the most notorious hack in crypto’s history, The DAO Hack shook the crypto community. The DAO was an early decentralized autonomous organization that launched on the Ethereum Network in 2016. In their token sale, The DAO raised $150 million worth of ETH but was soon hacked because of code vulnerabilities. The event ultimately caused major market panic.
After debate over what to do, the Ethereum blockchain was hard forked and the stolen funds were recaptured. Not everyone agreed on the fork so in the process, Ethereum Classic.
Years later, a report came out from journalist, Laura Shin, exposing the alleged hackers of The DAO.
Beyond that and indirectly related, there have been many hacks involving assets within the Ethereum ecosystem. But maybe not quite as many as the “Ethereum Killers” have experienced...
Ethereum’s community partners include:
- Ethereum Foundation
- Ethereum Cat Herders
- Status Research & Development
- Prysmatic Labs
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As the fuel that runs the Ethereum Network, ether is used for gas fees on all EVM transactions. Post-merge, network validators will be required to stake 32 ETH in order to participate in the Proof of Stake consensus and earn block rewards. To get an idea of scale (and ether’s liquidity), daily ETH transactions on the day before the final Merge event (Sept. 13, 2022) totaled 1.093 million.
Ether (ETH) Token Sale
During the 42-day ether token sale, 72 million tokens were sold for $18.3 million, or over 31,000 BTC. In what was controversial at the time and is now referred to as a “pre-mine”, 9.9% of the token allocation went to the founding team and another 9.9% went to the Ethereum Foundation. This represents one of the bones of contention coming from Bitcoin maximalists over whether Ethereum is decentralized.
Ether (ETH) token allocation:
83.3% (60 million ETH) to the public sale
16.7% (12 million) to the Ethereum Foundation and early contributors:
- 6 million allocated to 85 early developers
- 3 million locked into an Ethereum Foundation long-term endowment (now worth $1.3B in ETH)
- 3 million earmarked for a developer buy-in program
122,365,374 (no cap)
Who's holds the most Ethereum? Check out this thread on Top Ethereum Wallets:
- One charismatic Founder and a leading Foundation
- 1.45 million smart contracts built on the network
- 300,000 active daily addresses
- 71 million Ethereum wallets
- 222,052 validators running the network
Pro-PoW— Erik Voorhees (@ErikVoorhees) September 15, 2022
Let the era of yin and yang begin.#TheMerge
Yes, a burning system was launched with EIP-1559 in August of 2021, with a base percentage of every transaction getting automatically burned. Currently, about 8.97 ETH are burned per day. Incidentally, you can watch ETH burn in real time.
Next up for Ethereum
Ethereum has a dynamic and open roadmap system that can be tracked (and contributed to) publicly on their Github repository. A few of the items in the works for late 2022 include:
- Post-merge preparations
- Translation of the Ethereum Foundation Blog
- Continue building the Open Design System
- Implement a UI (user interface) Library
- Build a new GETH website
(1/27) @ethereum Roadmap— Haym (@SalomonCrypto) September 14, 2022
In ~24 hours, Ethereum be changed forever. But The Merge is not the end, it simply marks a new chapter; one with many more improvements. Ethereum is becoming the World Computer!
A guide to the plan that will take Ethereum from 12 to 100,000 txns/sec. pic.twitter.com/mqdwbTNezr
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Disclaimer: The content of this article is for general market education and commentary and is not intended to serve as financial, investment, or any other type of advice.