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What Is Ethereum? Introduction To ETH

Ethereum has already changed the world - but where does ETH go from here?


*This article was edited on August 21, 2018 by Brian Penny to add more and clarify information.

Ethereum is the most important blockchain behind Bitcoin – and that may be due only to Bitcoin’s network effect, massive capitalization, and name recognition. The combined value of all the applications and tokens running on Ethereum far outweigh the value of Ether (ETH), the base token, itself.

TRX, BNB, OMG, and VEN are just a few high-value tokens starting their lives as ERC20 Ethereum tokens. And let’s not forget about Cryptokitties and other crypto collectibles on its blockchain selling for $100,000 to $1 million.

Before explaining why Ethereum is so important (hint: it’s the first project to focus on the blockchain over the crypto tokenization), let’s explain how the ETH coin is performing on the market.

Breakdown of ETH

Ethereum has a market cap of $27,806,833,708 as of August 21, 2018. This is based on a circulating supply of 101,465,958 ETH, which is currently uncapped (although this issue will inevitably create a hard fork).

The peak price so far of ETH was $1,389.18 on January 14, 2018. Daily trading volume is approximately $1 billion, and it’s accepted on pretty much every exchange, ICO, and crypto platform in existence.

So what is Ethereum? According to the Ethereum project, it is:

“…a decentralized platform for applications that run exactly as programmed without any chance of fraud, censorship or third-party interference.”

No discussion of Ethereum is complete without mentioning Vitalik Buterin, the project’s creator and de facto leader. Buterin came up with the idea of Ethereum a couple years after he learned about Bitcoin. Not even a legal adult when he took an interest in cryptocurrency, Buterin co-founded Bitcoin Magazine.

Buterin authored the Ethereum white paper in 2013, noting that while Bitcoin was a great invention, a blockchain which better supported “colored coins” or “tokens” was necessary. The concept of “smart contracts” is key to understanding the ETH token:

[…] a blockchain with a built-in fully fledged Turing-complete programming language that can be used to create “contracts” that can be used to encode arbitrary state transition functions, allowing users to create any of the systems described above, as well as many others that we have not yet imagined, simply by writing up the logic in a few lines of code.

What Does Ethereum Do?

Like similar blockchains, Ethereum makes virtually any type of application possible in a decentralized, tokenized way. It sports a Turing-complete programming language called Solidity that uses programs (or “smart contracts”) to solve the same computational problems as other platforms and languages.

While it has a primary token called Ether, without which no transactions on the network are possible, it underpins a massive number of other tokens and applications. Some examples of tokens are:

  • Aragon, a business-oriented decentralized application
  • Status and EOS, both mobile-oriented Ethereum applications, the latter of which enables new types of applications to be built on mobile platforms.
  • Power Ledger, one of a few initiatives to allow consumers to buy and sell electricity from each other as well as to businesses.
  • In fact, the majority of ICOs are ‘ERC-20’ compatible, meaning they abide by a certain set of Ethereum-compatible rules that allow them to be stored in ETH wallets. These rules help ensure that developers can focus on what makes their tokens unique, and not the basic rules that underpin any smart contract.

Decentralized Applications (DAPPS)

Perhaps the most innovative ability of Ethereum decentralized applications is they don’t require centralized servers and, therefore, control. Decentralization is a deep concept to investigate further, but essentially, it offers four key benefits over centralized applications.

  • Resilience
  • Censorship-resistance
  • Secure
  • Verifiable

Dapps are still very nascent and it’ll be several years before they’re proficient. From the perspective of investors, developers, and users, they represent an exciting gateway to a future that may solve some of the most insidious technology problems we all experience today.

For instance, data hacks could conceivably be a thing of the past. Medical records will be both secure and easy to find for medical personnel and patients, no matter which facility they visit. Even something as significant as slowing climate change or tracking disease outbreaks could be more effective with dApps.

In fact, cloud computing, Tor networking, and torrent file sharing are all legacy technologies that perfectly integrate into Ethereum’s blockchain-based application network.

With the first-mover advantage it has, Ethereum can quickly become the Google of Blockchain. And blockchain is well on its way to outpace AI, cloud, IoT, and other technologies as the most valuable because it’ll be powering all of it.


While Ethereum’s longest chain has been mined by GPUs and other mining hardware for much of its history, in the near future Ethereum will switch to proof-of-stake. Specialized hardware will no longer be required to earn transaction fees and block rewards — instead, people who hold Ether and a current copy of the blockchain will be able to earn rewards, almost like interest on a savings account.

And, like your bank account, Ethereum has been hacked. A 51 percent attack is also still possible, but here’s how the hack went down.

The DAO Hack

Ethereum is an ideal tool for both Decentralized Autonomous Organizations and Decentralized Applications. Smart contracts can be authored by anyone, however, and their security is important. Then came “The DAO,” a venture capital fund which forever changed the Ethereum community.

Shortly after its funding (through the Ethereum platform), a hacker managed to steal around $50 million worth of Ether.  The Ethereum community decided to hard-fork the Ethereum blockchain at block 1428757, effectively undoing the hack. However, not everyone agreed with this decision and continued mining the original Ethereum blockchain, calling their chain Ethereum Classic.

Ethereum Classic (ETC) has all the same functionality of Ethereum and is largely compatible. The important difference is that on the Ethereum Classic chain, the DAO hacker retained his/her/their theft of around 3.6 million Ether – at the time of writing, that’s worth almost $3 billion. No wonder there was an argument…

The Benefits of Ethereum

Ethereum is still relatively new in both technology and finance. It’s the first name in blockchain, and even those not using it were inspired by it. As a currency and investment instrument, Ether has grown more than 30 fold from its initial value of around .005 bitcoins.

  • For Investors

Ethereum’s base currency Ether makes a good investment because of the high number of new tokens and initial coin offerings which require Ether to make transactions.

The token is continually in high demand to fuel any transactions on the network, and there are dozens of massively popular blockchains using its platform. It’s also easily tradeable on exchanges.

  • For Developers

Ethereum is highly accessible to users, relatively easy to understand, and has a massive developer community surrounding it. Solidity has a steep learning curve, but it’s a worthwhile investment, as Ethereum skills will prove valuable on the job market.

Despite the hurdles of its proprietary language, Ethereum has wide adoption, and developing in its ecosystem is sure to position you well for the future.

  • For Businesses

Ethereum is seeing enterprise adoption. In fact, the Ethereum Enterprise Alliance includes partners like JPMorgan Chase, Microsoft, Intel, BP, Accenture, MasterCard, Cisco Systems, and more. Like Six Sigma, blockchain principles introduced by Ethereum will become standard operating procedure in corporations around the globe.

Additionally, things like rewards programs can be modernized with Ethereum tokens, and be assigned real-world, transferrable value, opening new avenues of monetization and engagement for businesses and consumers. The use-cases for the Ethereum blockchain in business are endless.

The Drawbacks to Ethereum

  • Not the Only Game in Town

Interesting and potentially disruptive alternatives to Ethereum are out, most notably Chinese-based NEO. Even Bitcoin is being upgraded to more closely resemble Ethereum’s multi-layered approach to blockchain.

This is only a drawback in the sense that an alternative could become a more attractive development platform, potentially lowering the desirability of Ether tokens. With the Lightning Network, however, cross-chain compatibility is coming to fruition. It’s more likely Ethereum will coexist with other blockchains like Microsoft, Google, and Apple.

Competition is always a good thing, and every blockchain since Ethereum’s rise copying it is a sign it’s doing something right.

  • At Present, Somewhat Ahead of its Time

While definitely a great step in the right direction, Ethereum was never perfect.

Ethereum requires massive computing and financial resources as well as electricity to run. This puts a ceiling on the number of people who can participate effectively. This type of drawback generally dissipates as time goes and the effects of Moore’s Law make technology cheaper and resources more efficiently used.

Many blockchains have since been released that address inefficiencies in Ethereum, and its development team is catching up. Its partnerships are what will keep it viable and sustain its growth, despite the glitches and hiccups.

  • It Can Be Slow… Really, Really Slow

Like first-mover Bitcoin, the Ethereum network has a maximum capacity that often tests the patience of those who use it. Something as seemingly harmless as a few cute kittens brought the network to a standstill.

Multiple efforts to solve the problem of scaling the network are in development – the Ethereum core team is working on a native solution called Plasma, while a token called Zilliqa aims to speed it up drastically through a highly-technical approach called ‘sharding’.

Meanwhile, another project – Raiden – is taking some of the less mission-critical transactions ‘off-chain’ altogether: instead of an app asking for 0.00001 cent every second from a power consumer, for example, it might ask for one cent every 2.77 hours – thus keeping the network mostly unclogged.


Ethereum isn’t the most cutting edge blockchain on the block anymore, but it’s a host for hundreds of apps that all require its ETH to power transactions. The first legitimate crypto-competitor to Bitcoin, Ethereum has several key ingredients working in its favor.

  • Ethereum hosts dApps and proprietary tokens, and many of its ERC20 tokens are among the top performing cryptos on the market.
  • Ethereum’s focus on blockchain over cryptocurrency and smart-contract-based platform spawned a thriving development community that will only continue to grow over time.
  • ICOs routinely host alpha and beta networks on Ethereum while developing a main net of their own. This means ETH is widely traded and accepted almost everywhere Bitcoin is (except retail stores).

It has weaknesses, but it’s self aware and nimble enough to compete in the modern blockchain market. There’s more competition than there was when Ethereum was first released, but it still has enough gas left in it to take them all on.

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