Ethereum is a decentralized blockchain protocol designed to execute smart contracts and build decentralized applications on a distributed computing platform. The ideas behind Ethereum were first outlined by it's co-founder Vitalik Buterin who envisioned a blockchain where the only limit to potential use cases would be the creativity of developers.
The Ethereum blockchain utilizes smart contracts and offers developers the possibility to build decentralized applications (dapps). Ethereum uses the internal cryptocurrency Ether (ETH) as a means of payment for transaction processing. The Ethereum whitepaper was published in late 2013, and the project was officially announced at a Bitcoin conference in early 2014. Vitalik began designing the Ethereum due to limitations in the Bitcoin protocol.
The beginning of Ethereum
The Ethereum Foundation, founded in 2014, is an Ethereum-focused nonprofit organization dedicated to research, core protocol development, and Ethereum ecosystem growth. The Ethereum Foundation oversaw the Ether crowdsale in July 2014. The current Ethereum Blockchain (ETH) was forked from the original Ethereum Classic Blockchain (ETC) in a "hard fork" on July 20, 2016. This hard fork was initiated after a bug in the smart contract of Ethereum's Decentralized Autonomous Organization (DAO), which resulted in 3.6 million Ether being stolen. Since then, both blockchains have continued to operate under their respective names. The majority of DeFi applications and NFT projects are also based on Ethereum.
The original Ethereum crowdsale, managed by the Ethereum Foundation, sold approximately 60 million Ether (80% of the initial total of 72 million Ether) to the public. In the 2015 crowdsale, Ether was sold for around 30 cents at Bitcoin prices in September 2014. By the end of the sale, more than 50 million ether was sold, amounting to about $17.3 million. The remaining 12 million Ether (20%) was allocated to the Foundation and early Ethereum investors. New Ether was generated and distributed through mining rewards. The original reward was 5 Ether per block.
Transition from Proof-of-Work to Proof-of-Stake
Ethereum originally used a Proof-of-work (PoW) consensus. Just like Bitcoin, ETH used to be mined with specific mining hardware. However, since the so called "Merge" in September 2022, it has switched to a Proof of Stake (PoS) mechanism. Replacing the previous mining process with "staking". PoS works with validator nodes and users locking up a stake of native crypto tokens which secure the network. The switch to PoS made Ethereum more efficient in terms of energy usage and usability, lowering the entry barrier to operate infrastructure for the blockchain.
The Ethereum PoS validators require a stake of at least 32 ETH. This increases the barrier for attackers who want to cause a double spending attack similar to a 51% attack as on PoW networks. Attackers would need to control >33% of the total staked Ethereum supply. At the time of writing this cost to attack equates to more than $35 billion. In theory, this makes it cheaper to hack the Ethereum PoW network. In addition PoS is more decentralized than PoW because it is easier to setup validator nodes than miners and ETH can be collected by so called staking pools, allowing a higher participation of users to secure the network.
Majore Ethereum milestones
Dencun Upgrade March 2024
The Dencun upgrade describes two major EIPs that have been implemented, Daneb and Cancun. Introduction of Proto-Danksharding, which significantly reduces data storage costs for Layer 2 blockchain. So-called "blobs" carry transaction data to the Layer 1, which is validated separately from L1 transactions. This results in significantly lower transaction fees for L2 rollup users.
Shapella Upgrade 2023
The Shapella upgrade made staking withdrawals possible. Prior Ehtereum had been indefinitely locked in staking during the transition from PoW to PoS.
The Merge 2022
The Merge transition was switching off thePoW mining algorithm and moving to PoS instead. This arguably up to date biggest event for the Ethereum blockchain was watched on a YouTube livestream from the Ethereum Foundation by nearly 40,000 people.
Ethereum ICO
Ethereum was also originally funded by an ICO in 2014. ETH was sold for Bitcoin, for about 30 cents at Bitcoin prices in September 2014. By the end of the sale, more than 50 million ether was sold, amounting to about $17.3 million.
