Ethereum can be thought of as a blockchain-based decentralized computer. While Bitcoin (BTC) was created as a money experiment, Ethereum was designed as a platform for decentralized applications (DApps). In its development, the network’s founders accepted the loss of a certain level of technological efficiency in order to achieve the more trustless environment that the blockchain brings.
The Ethereum ecosystem consists of a network of developers, entrepreneurs and investors who support the platform and of Ether (ETH), the native currency of the platform. Ether is the second-biggest cryptocurrency based on market capitalization, surpassed only by Bitcoin. The purpose of Ether is to act both as a cryptocurrency and as a fuel to support the Ethereum network — for example, through fees.
The Ether price has continued to increase over the years as blockchain projects flock to the Ethereum network to build out their platforms. The greater the use case of the Ethereum protocol, the higher the Ether price seems to have the potential to rise. One use case in particular, decentralized finance (DeFi), has exploded since the boom of 2020 as users look to bolster their returns through lending, yield farming and other activities. In the interim, the total value locked (TVL), which reflects the size of the market segment, has ballooned on the Ethereum network.
Introduction to Ethereum
Having been referred to as a global supercomputer, Ethereum builds on the idea of the Bitcoin network but takes a sharp turn in that it adds the functionality of a base layer. This makes it possible for developers to build on top of it, which they have done in many ways via protocols such as side chains to support interactions between chains, or interoperability. Ethereum gives developers an opportunity to build on a different type of platform — one that is trustless, decentralized and has been touted as a new internet, or Web 3.0.
Ethereum’s secret weapon is smart contracts, which are a game changer for internet transactions. The Ethereum white paper describes a smart contract as “a piece of code implementing arbitrary rules.” This basically means computer code written by anyone on the blockchain that not only specifies the terms of a contract but has the ability to automatically enforce said terms.
Many of the hottest crazes in the cryptocurrency scene have taken place on Ethereum, including initial coin offerings (ICOs), stablecoins, DApps, DeFi and nonfungible tokens (NFTs).
Ethereum history
Ethereum was conceived by Russian-Canadian computer programmer Vitalik Buterin in 2013 at the young age of 19. 2014 was also a key year for the project, as it is when Buterin connected with his other seven co-founders for the first time and Ethereum raised $18 million USD in a crowdfunding campaign, demonstrating the community support of the project.
It wouldn’t be until July 30, 2015, that the mining network would be released and smart contracts could be executed on the platform. Buterin didn’t go it alone, as Ethereum has a deep bench of co-founders, some of whom have since gone on to launch successful decentralized projects of their own. They include:
- Gavin Wood
- Anthony Di lorio
- Charles Hoskinson
- Mihai Alisie
- Joseph Lubin
- Amir Chetrit
- Jeffrey Wilcke
Network security
The Ethereum network is secured by nodes — some 20,000 of them globally. Anyone can run a node by contributing their computing power to the network. Ethereum currently uses a proof-of-work (PoW) consensus algorithm, which is designed to protect the integrity of the network and ward off attacks. This algorithm also establishes the difficulty and rules by which the miners do their work.
The number of nodes is expected to grow significantly as Ethereum transitions from a PoW consensus algorithm to proof-of-stake (PoS), which is expected to improve the ease at which participants can validate transactions and secure the network. The more nodes there are, the greater the trust resulting from decentralization, as the nodes can ensure that there is no manipulation taking place on the network. As long as at least 50% of the system participants are honest, the network can overcome attempts at manipulation.
Supply and demand
While Bitcoin has a finite supply of 21 million coins, Ethereum has taken a different approach. There is no cap on the total ETH supply, despite a 2018 Ethereum Improvement Proposal (EIP) submitted by Buterin to limit the number of coins to 120 million — a proposal that to this day has not been approved. There is, however, an annual limit.
According to the Ethereum Foundation, ETH is “issued at a constant annual linear rate via the block mining process” of 0.3 times the total ETH purchased in the 2014 crowdfunding campaign. Considering that roughly 60 million ETH was issued in the presale, no more than 18 million ETH can be issued each year. That annual amount, however, can be issued indefinitely.
Despite the fact that the ETH supply will continue to expand, the rate at which the supply increases will decline over time due to the fixed nature of the coin’s issuance. As a result, Ether is not considered an inflationary asset; on the contrary, it fits the bill of a disinflationary currency, meaning that its inflation will lessen over time.
Buying ETH
Thanks to Ether’s status as one of the top two cryptocurrencies, it is not too difficult to buy ETH. Major crypto exchanges including Coinbase, Binance, Kraken, Gemini, Huobi, FTX, Bitfinex and many more offer countless trading pairs that feature ETH, from ETH/BTC to ETH/USD and beyond. In addition, many of the mainstream payments platforms that are expanding into cryptocurrencies support Ether transactions, including PayPal and Shopify, to name a couple.
Ethereum Historical Price