Ethereum

An Ethereum (Ξ or ETH) is a decentralised platform and cryptocurrency that extends the capabilities of blockchain beyond simple transactions. It enables smart contracts — programs that execute automatically when certain conditions are met — and hosts tens of thousands of decentralised applications, from DeFi protocols to non-fungible tokens.

Origins and Vitalik Buterin

Ethereum was proposed in 2013 by programmer Vitalik Buterin, then just 19 years old. Unlike Bitcoin, which is designed primarily as a currency, Ethereum was built from the ground up as a platform for computation. Buterin recognised that the same distributed-ledger technology securing Bitcoin could run arbitrary programs (within constraints) without a central authority.

The network launched in July 2015 with a fixed initial supply of 72 million ETH, though unlike Bitcoin’s 21-million cap, Ethereum has no absolute maximum. The protocol is managed by the Ethereum Foundation and a global community of developers.

Smart contracts and decentralised apps

Ethereum’s defining innovation is the smart contract — a self-executing program stored on the blockchain. When certain conditions are met, the contract executes automatically and its results are immutable.

A simple example: an escrow contract that holds payment in its custody until a buyer confirms receipt of goods, at which point it releases the funds to the seller. No intermediary, no lawsuit risk, no trust required — just code.

This capability unlocked an entire ecosystem of decentralised applications (dapps): automated market makers that facilitate trades, lending protocols that pay interest on deposits, non-fungible token marketplaces, and thousands of smaller experiments. The collective term for financial applications built on Ethereum is DeFi.

From proof-of-work to proof-of-stake

Ethereum launched using proof-of-work consensus, identical to Bitcoin. Miners competed to solve puzzles and propose blocks, earning newly minted ETH and transaction fees.

In September 2022, Ethereum underwent its largest upgrade, called “The Merge,” transitioning to proof-of-stake consensus. Instead of miners, the network is now secured by validators who lock up ETH as collateral and are penalised (slashed) if they misbehave. This change reduced Ethereum’s energy consumption by roughly 99.95%, one of the most significant environmental improvements to a major blockchain.

The gas fee problem

Every operation on Ethereum — from transferring tokens to executing a smart contract — consumes “gas,” a measure of computational effort. Users pay for gas in ETH. When network demand is high, gas fees become expensive, sometimes exceeding the value of small transactions.

This problem has driven the development of layer-2 scaling solutions. Arbitrum, Optimism, and Polygon are separate blockchains that bundle hundreds of transactions together, submit a proof to Ethereum, and cost a fraction of mainnet fees.

Token standards

Ethereum’s flexibility has made it the home of multiple token standards:

• ERC-20 — the standard for fungible tokens (interchangeable, like currencies). Most DeFi tokens are ERC-20.
• ERC-721 — the standard for non-fungible tokens (unique assets, like art or collectibles).
• ERC-1155 — the multi-token standard supporting both fungible and non-fungible tokens in one contract.

These standards let any developer create tokens without writing code from scratch, accelerating innovation.

The upgrades: Shanghai, Dencun, and beyond

After the Merge, Ethereum continued to upgrade. Ethereum Shanghai (April 2023) enabled staking withdrawals, allowing validators to finally access their locked rewards. Ethereum Dencun (March 2024) introduced “blobs,” a new data type that reduced layer-2 costs by up to 100-fold.

Each upgrade is coordinated through a formal process: researchers propose an Ethereum Improvement Proposal (EIP), the community debates, and once consensus emerges, the upgrade is deployed. This governance structure, while slow, has proven robust.

Ethereum’s role in crypto

Ethereum remains the second-largest cryptocurrency by market cap and hosts the majority of DeFi activity. Its vibrant developer ecosystem and relative technical stability (no major exploits of the core protocol since launch) have made it the platform of choice for serious applications.

Competitors like Solana, Cardano, and Avalanche offer faster transactions or lower fees, but Ethereum’s network effects — the concentration of developers, users, and capital — are difficult to dislodge.

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