What Is Ethereum?
At its core, Ethereum is a decentralized global software platform powered by blockchain technology. It is most commonly known for its native cryptocurrency, ether (ETH).
Ethereum can be used by anyone to create any secured digital technology. It has a token designed to pay for work done supporting the blockchain, but participants can also use it to pay for tangible goods and services if accepted.
Ethereum is designed to be scalable, programmable, secure, and decentralized. It is the blockchain of choice for developers and enterprises creating technology based upon it to change how many industries operate and how we go about our daily lives.
It natively supports smart contracts, an essential tool behind decentralized applications. Many decentralized finance (DeFi) and other applications use smart contracts in conjunction with blockchain technology.
Learn more about Ethereum, its token ETH, and how they are an integral part of non-fungible tokens, decentralized finance, decentralized autonomous organizations, and the metaverse.
Key Takeaways
- Ethereum is a blockchain-based platform best known for its cryptocurrency, ether (ETH).
- The blockchain technology that powers Ethereum enables secure digital ledgers to be publicly created and maintained.
- Bitcoin and Ethereum have many similarities but different long-term visions and limitations.
- Ethereum changed from proof of work to proof of stake in Septemeber 2022.
- Ethereum is the foundation for many emerging technological advances based on blockchain.
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Ethereum Founder Joe Lubin Explains What It Is & Why It Matters
How Does Ethereum Work?
Vitalik Buterin, credited with conceiving Ethereum, published a white paper to introduce it in 2014. The Ethereum platform was launched in 2015 by Buterin and Joe Lubin, founder of the blockchain software company ConsenSys.
The founders of Ethereum were among the first to consider the full potential of blockchain technology beyond just enabling the secure virtual payment method.
Since the launch of Ethereum, ether as a cryptocurrency has risen to become the second-largest cryptocurrency by market value. It is outranked only by Bitcoin.
Blockchain Technology
Ethereum, like other cryptocurrencies, involves blockchain technology. Imagine a very long chain of blocks. All of the information contained in each block is added to every newly-created block with new data. Throughout the network, an identical copy of the blockchain is distributed.
This blockchain is validated by a network of automated programs that reach a consensus on the validity of transaction information. No changes can be made to the blockchain unless the network reaches a consensus. This makes it very secure.
Consensus is reached using an algorithm commonly called a consensus mechanism. Ethereum uses the proof-of-stake algorithm, where a network of participants called validators create new blocks and work together to verify the information they contain. The blocks contain information about the state of the blockchain, a list of attestations (a validator's signature and vote on the validity of the block), transactions, and much more.
In mid-September 2022, Ethereum officially switched over to a proof-of-stake algorithm, which is cheaper and more environmentally friendly than a proof-of-work model.
Proof-of-Stake Mechanism
Proof-of-stake differs from proof-of-work in that it doesn't require the energy-intensive computing referred to as mining to validate blocks. It uses a finalization protocol called Casper-FFG and the algorithm LMD Ghost, combined into a consensus mechanism called Gasper, which monitors consensus and defines how validators receive rewards for work or are punished for dishonesty.
Solo validators must stake 32 ETH to activate their validation ability. Individuals can stake smaller amounts of ETH, but they are required to join a validation pool and share any rewards. A validator creates a new block and attests that the information is valid in a process called attestation, where the block is broadcast to other validators called a committee who verify it and vote for its validity.
Validators who act dishonestly are punished under proof-of-stake. Validators who attempt to attack the network are identified by Gasper, which identifies the blocks to accept and reject based on the votes of the validators.
Dishonest validators are punished by having their staked ETH burned and being removed from the network. Burning refers to sending crypto to a wallet that has no keys, which takes them out of circulation.
Wallets
Ethereum owners use wallets to store their ether. A wallet is a digital interface that lets you access your ether stored on the blockchain. Your wallet has an address, which is similar to an email address in that it is where users send ether, much like they would an email.
Ether is not actually stored in your wallet. Your wallet holds private keys you use as you would a password when you initiate a transaction. You receive a private key for each ether you own. This key is essential for accessing your ether. That's why you hear so much about securing keys using different storage methods.
Historic Split
One notable event in Ethereum’s history is the hard fork, or split, of Ethereum and Ethereum Classic. In 2016, a group of network participants gained majority control of the Ethereum blockchain to steal more than $50 million worth of ether, which had been raised for a project called The DAO.
The raid's success was attributed to the involvement of a third-party developer for the new project. Most of the Ethereum community opted to reverse the theft by invalidating the existing Ethereum blockchain and approving a blockchain with a revised history.
However, a fraction of the community chose to maintain the original version of the Ethereum blockchain. That unaltered version of Ethereum permanently split to become the cryptocurrency Ethereum Classic (ETC).
Ethereum vs. Bitcoin
Ethereum is often compared to Bitcoin. While the two cryptocurrencies have many similarities, there are some some important distinctions.
Ethereum is described by founders and developers as “the world’s programmable blockchain,” positioning itself as an electronic, programmable network with many applications. The Bitcoin blockchain, by contrast, was created only to support the bitcoin cryptocurrency.
The Ethereum platform was founded with broad ambitions to leverage blockchain technology for many diverse applications. Bitcoin was designed strictly as a payment method.
The maximum number of bitcoins that can enter circulation is 21 million. The amount of ETH that can be created is unlimited, although the time it takes to process a block of ETH limits how much ether can be minted each year. The number of Ethereum coins in circulation is more than 122 million.
Another significant difference between Ethereum and Bitcoin is how the respective networks treat transaction processing fees. These fees, known as gas on the Ethereum network, are paid by the participants in Ethereum transactions. The fees associated with Bitcoin transactions are absorbed by the broader Bitcoin network.
Ethereum, as of September 2022, uses a proof-of-stake consensus mechanism. Bitcoin uses the energy-intensive proof-of-work consensus, which requires miners to compete for rewards.
The Future of Ethereum
Ethereum’s transition to the proof-of-stake protocol, which enables users to validate transactions and mint new ETH based on their ether holdings, is part of a significant upgrade to the Ethereum platform. Previously called Eth2, this upgrade is now referred to only as Ethereum. However, Ethereum now has two layers. The first layer is the execution layer, where transactions and validations occur. The second layer is the consensus layer, where attestations and the consensus chain is maintained.
The upgrade added capacity to the Ethereum network to support its growth, which will eventually help to address chronic network congestion problems that have driven up gas fees.
To address scalability, Ethereum is continuing development of "sharding." Sharding will divide the Ethereum database amongst its network. This idea is similar to cloud computing, where many computers handle the workload to reduce computational time. These smaller database sections will be called shards, and shards will be worked on by those who have staked ETH. Shards will allow more validators to work at the same time, reducing the amount of time needed to reach consensus through a process called sharding consensus.
Sharding is expected to be implemented sometime in 2023.
Web3
Web3 is still a concept, but it is generally theorized that it will be powered by Ethereum because many of the applications being developed use it.
Use in Gaming
Ethereum is also being implemented into gaming and virtual reality. Decentraland is a virtual world that uses the Ethereum blockchain to secure items contained within that world. Land, avatars, wearables, buildings, and environments are all tokenized through the blockchain to create ownership.
Axie Infinity is another game that uses blockchain technology and has its own cryptocurrency called Smooth Love Potion (SLP), used for rewards and transactions within the game.
Non-Fungible Tokens
Non-fungible tokens (NFTs) gained popularity in 2021. NFTs are tokenized digital items created using Ethereum. Generally speaking, tokenization gives one digital asset a specific digital token that identifies it and stores it on the blockchain.
This establishes ownership because the encrypted data stores the owner's wallet address. The NFT can be traded or sold and is viewed as a transaction on the blockchain. The transaction is verified by the network and ownership is transferred.
NFTs are being developed for all sorts of assets. For example, sports fans can buy a sports token—also called fan tokens—of their favorite athletes, which can be treated like trading cards. Some of these NFTs are pictures that resemble a trading card, and some of them are videos of a memorable or historic moment in the athlete's career.
The applications you may use in the metaverse, such as your wallet, a dApp, or the virtual world and buildings you visit, are likely to have been built on Ethereum.
The Development of DAOs
Decentralized Autonomous Organizations (DAOs), which are a collaborative method for making decisions across a distributed network, are being developed.
For example, imagine that you created a venture capital fund and raised money through fund-raising, but you want decision-making to be decentralized and distributions to be automatic and transparent.
A DAO could use smart contracts and applications to gather the votes from the fund members and buy into ventures based on the majority of the group's votes, then automatically distribute any returns. The transactions could be viewed by all parties, and there would be no third-party involvement in handling any funds.
The part that cryptocurrency will play in the future is still vague. However, Ethereum appears to have a significant, upcoming role in personal and corporate finance and many aspects of our modern lives.
How Can I Buy Ethereum?
Investors can use one of many cryptocurrency exchange platforms to buy and sell ether. Ethereum is supported by dedicated crypto exchanges, including Coinbase, Kraken, Gemini, Binance, and brokerages like Robinhood.
How Does Ethereum Make Money?
Ethereum is not a centralized organization that makes money. Validators who participate in the Ethereum network earn ETH rewards for their contributions.
Is Ethereum a Good Investment?
As with any investment, the answer to that depends on your financial objectives, goals, and risk tolerance. The cryptocurrency ETH can be volatile, putting capital at risk. However, it is certainly worth researching as an investment because the various existing and emerging innovative technologies that use Ethereum may assume larger roles in our society in the future.
Is Ethereum a Cryptocurrency?
The Ethereum platform has a native cryptocurrency, known as ether, or ETH. Ethereum itself is a blockchain technology platform that supports a wide range of decentralized applications (dApps), including cryptocurrencies. The ETH coin is commonly called Ethereum, although the distinction remains that Ethereum is a blockchain-powered platform, and ether is its cryptocurrency.
Can Ethereum Be Converted to Cash?
Yes. Investors who hold the cryptocurrency ETH can use online exchanges such as Coinbase, Kraken, and Gemini for this process. Just set up an account at the exchange, link a bank account, and send ETH to the exchange account from an Ethereum wallet. Place an order on the exchange to sell ETH. Then, once sold, transfer the U.S. dollar proceeds to the linked bank account.
Investing incryptocurrenciesand initial coin offerings (ICOs) is highly risky and speculative, and this article is not a recommendation byInvestopediaor the writer to invest in cryptocurrenciesor ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.
FAQs
What is Ethereum and how does it work? ›
Ethereum is a decentralized blockchain platform that establishes a peer-to-peer network that securely executes and verifies application code, called smart contracts. Smart contracts allow participants to transact with each other without a trusted central authority.
What is ETH in simple terms? ›Ether (ETH) is Ethereum's cryptocurrency. It is the fuel that runs the network. It is used to pay for the computational resources and the transaction fees for any transaction executed on the Ethereum network. Like Bitcoins, ether is a peer-to-peer currency.
How do you explain Ethereum to someone? ›Think of Ethereum as a technology platform that allows anybody to run applications on its global network. Because these applications no longer use a central server, they are known as decentralized applications (or dApps). In other words, no central authority is needed to create and run them.
What is Ethereum and why is it important? ›Ethereum is open source and used primarily to support the second-largest cryptocurrency in the world known as Ether. Ethereum enables the smart contracts and applications built on its blockchain to run smoothly without fraud, downtime, control, or any third-party interference.
How does Ethereum work for beginners? ›Ethereum is an open-source, decentralized computing platform network. The Ethereum network works like the Bitcoin network in that it's built on blockchain technology, essentially a digital public ledger where financial agreements can be verified and stored entirely by software — without intervention of a third party.
How does Ethereum become real money? ›At a Glance: Ethereum can be cashed out simply by selling it on an crypto exchange. The use needs to sell their ETH against their preferred currency and withdraw they sale money to their bank account. As a rapidly growing cryptocurrency, compared to other crypto, buying and mining Ethereum is exciting and rewarding.
How do you explain Ethereum to a child? ›To understand what Ethereum is, let's break down each key term in the one-sentence definition above. Ethereum is the name of the technology itself. You can think of the term like the word “internet.” It's a network, a technology, and a platform for a huge variety of different applications.
What is Ethereum in one sentence? ›Ethereum is a blockchain-based network. It is a platform that developers can use to build applications and program the smart contracts on which virtual currency is based. Like blockchain, it can be used for many different types of applications, including a number of financial uses.
How much is $50 in ETH? ›The conversion value for 50 USD to 0.032 ETH.
Why do people want to buy ETH? ›Another reason to consider investing in Ethereum is the increasing use of blockchain technology, which attracts more and more successful crypto traders. Such technology can facilitate online payments, loan distribution, and commodities trading.
Why do people believe in Ethereum? ›
Proponents of Ethereum believe its main advantage over Bitcoin is that it allows individuals and companies to do much more than just transfer money between entities leading Bloomberg to write it's “the hottest platform in the world of cryptocurrencies and blockchains” and companies such as JPMorgan Chase, Intel and ...
Who controls Ethereum? ›Decentralized governance
No one person owns or controls the Ethereum protocol, but decisions still need to be made about implementing changes to best ensure the longevity and prosperity of the network. This lack of ownership makes traditional organizational governance an incompatible solution.
The main difference between Ethereum and Bitcoin is the fact that Ethereum is programmable. That feature broadens the scope of Ethereum, making it more than just a digital currency. It makes Ethereum a marketplace for financial services, games and apps.
What are the benefits of owning Ethereum? ›Ethereum allows smart contracts to execute safe financial transactions. Smart contracts let decentralized applications run automatically on the blockchain when certain predetermined conditions are met. The Ethereum network can be used for the creation and trading of non-fungible tokens, or NFTs.
What is the end goal of Ethereum? ›4.1 Ethereum
Ethereum's aim is to create an alternate protocol for constructing decentralized applications. These applications provision distinct tradeoffs which are very effective for extensive division of decentralized applications.
Get started with as little as $25, and you can pay with a debit card or bank account.
How long does it take to make 1 Ethereum? ›Q #2) How long does it take to mine 1 Ethereum? Answer: It takes around 7.5 days to mine Ethereum as of September 13, 2021, at the hash rate or hashing power of 500 mh/s with an NVIDIA GTX 3090 that hashes at around 500MH/s. With a GPU that hashes at around 28.2 MH/S, it should take much longer.
Can you still make money on Ethereum? ›An Ethereum holder can earn staking fees by running their own validator node to process transactions and to help secure the Ethereum network. However, one needs to own and commit 32 ETH, or ether, tokens to do this, which at a cost of about $32,000 can be prohibitive for many investors.
Can you get rich from buying Ethereum? ›Is Ethereum right for you? Ethereum could potentially make you a lot of money if it succeeds over time, but crypto is also a riskier investment. There are no guarantees that Ethereum will make you rich, and there's always a chance you could lose money when investing in crypto.
How many Ethereum are left? ›There is a wide range of currencies that have a finite supply. Ethereum, however, has an infinite supply. In January 2021, there were 113.5 million tokens in circulation. As of April 2022, there are roughly 120 million.
Can Ethereum make you a millionaire? ›
Despite its drawbacks, though, Ethereum still has plenty of long-term potential. While it may not make you a millionaire in the coming months, by staying invested for the long haul, it could potentially be a lucrative investment.
How do you explain cryptocurrency for dummies? ›A cryptocurrency is a digital currency, which is an alternative form of payment created using encryption algorithms. The use of encryption technologies means that cryptocurrencies function both as a currency and as a virtual accounting system. To use cryptocurrencies, you need a cryptocurrency wallet.
What is one major difference between Bitcoin and Ethereum? ›Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Ethereum is a decentralized global software platform powered by blockchain technology. It is most commonly known for its native cryptocurrency, ether (ETH).
How would I explain Ethereum to a non technical friend? ›Ethereum is a platform like the Internet. Most of the Internet is made of computers that are centralized: meaning they belong to one company or government. The problem with this is when something happens to the one company, whether it is Facebook, Google, Apple, etc.
What is Ethereum most known for? ›Ethereum is a decentralized blockchain network powered by the Ether token that enables users to make transactions, earn interest on their holdings through staking, use and store nonfungible tokens (NFTs), trade cryptocurrencies, play games, use social media and so much more.
Who owns the most Ethereum? ›| Stockholder | Stake | Shares owned |
|---|---|---|
| Parkwood LLC | 0.26% | 790,000 |
| Rye Brook Capital LLC | 0.10% | 304,200 |
| Benedetti & Gucer, Inc. | 0.02% | 70,491 |
| Rothschild Investment Corp. | 0.01% | 43,492 |
The reasons that Ethereum crypto is the future of cryptocurrency, and why it has the potential to be worth more than Bitcoin, are simple. It's a decentralized platform that allows developers to create their own applications on top of it, as opposed to Bitcoin which only allows for one application.
How much is 1 full ethereum? ›About Ethereum
Ethereum's price today is US$1,617.43, with a 24-hour trading volume of $10.26 B. ETH is -4.72% in the last 24 hours. It is currently -3.75% from its 7-day all-time high of $1,680.39, and 7.47% from its 7-day all-time low of $1,505.03. ETH has a circulating supply of 122.37 M ETH.
Conversion tables
The current value of 1 ETH is $1,591.34 USD.
1 ETH = 1,599.729999 USD Jan 27, 2023 21:55 UTC
Check the currency rates against all the world currencies here. The currency converter below is easy to use and the currency rates are updated frequently.
How much will I make if I invest $100 in Ethereum? ›
Investing $100 in Ethereum (ETH) could bring returns of more than 85.24% in the short term, more than 238.43% in the medium term, and more than 517.47% in the long term.
What if Ethereum fails? ›“If the Ethereum Merge fails or has substantial setbacks, that's going to trigger a devaluation of the currency,” Fasanello said.
How much money should I invest in Ethereum? ›Because there's no guarantee that any crypto's value will increase, experts advise to never invest more than 5% of your portfolio in cryptocurrency. Never invest at the risk of not meeting other financial goals like paying off high-interest debt or saving for retirement.
How will Ethereum change the world? ›Ethereum 2.0 will slash the network's energy consumption by at least 99.95% by shifting to a Proof-of-Stake mechanism. Second, Ethereum plans to significantly increase the number of transactions it can handle per second to about 150,000 by the end of 2021.
Is Ethereum actually worth anything? ›Without any doubt, Ethereum is the second most popular yet valuable cryptocurrency out there. It has the biggest market capitalization after Bitcoin. As a result, many consider it a valuable investment instrument. Also, many new techs are being developed around Ethereum, such as NFT, dApps, and many more.
Is Ethereum backed by anything? ›In contrast, Ethereum – and most other popular cryptocurrencies – are backed by nothing at all.
Can the government track Ethereum? ›Yes, the IRS can track cryptocurrency, including Bitcoin, Ether and a huge variety of other cryptocurrencies. The IRS does this by collecting KYC data from centralized exchanges.
Who is the real founder of Ethereum? ›Vitaly "Vitalik" Buterin (born 1994) is a Russian-Canadian computer programmer and founder of Ethereum. Buterin became involved with cryptocurrency early in its inception, co-founding Bitcoin Magazine in 2011.
What are the disadvantages of Ethereum? ›- Scalability. ...
- Increasing Transaction Costs. ...
- Centralization Fears. ...
- Privacy. ...
- MEV. ...
- Ethereum competitors that aim for scalability (Solana, Polkadot, Near) ...
- Aiming for interoperability (Cosmos, Cardano) ...
- Aiming for security (MEV Mitigation) (Solana & Osmosis)
Bitcoin for the long run
From this perspective, Bitcoin appears to be the superior investment option. Of course, this does not guarantee that it will outperform Ethereum over the next six to 12 months.
Is it better to invest in Ethereum or Bitcoin? ›
Bitcoin's impressive historical returns, combined with its deep liquidity and potential to power the future of online payments, makes it an attractive long-term investment target. Ethereum may have a more diversified ecosystem than Bitcoin, but it also has more challengers and rivals.
Is it still worth investing in Ethereum? ›For 2022-3 in general, we think recession risks pose a risk to ETH and so now might not be the best time to buy ethereum if you have a medium-term outlook. We think ethereum is a good long-term investment for the next one to three years and are bullish overall.
What happens when I buy ETH? ›You don't buy shares of Ether like you would stocks or ETFs. Instead, you are exchanging your dollars for Ether tokens. There are no dividends, no payouts. Your only hope is that in the future, other people on the Internet will pay you more for your tokens than you bought them for.
What is Ethereum in simple words? ›Ethereum is a decentralized blockchain platform that establishes a peer-to-peer network that securely executes and verifies application code, called smart contracts. Smart contracts allow participants to transact with each other without a trusted central authority.
Why is Ethereum so powerful? ›Ethereum enables building and deploying smart contracts and decentralized applications (dApps) without downtime, fraud, control, or interference from a third party. 6 To accomplish this, Ethereum comes complete with its own programming language that runs on a blockchain.
Is Ethereum still worth buying? ›For 2022-3 in general, we think recession risks pose a risk to ETH and so now might not be the best time to buy ethereum if you have a medium-term outlook. We think ethereum is a good long-term investment for the next one to three years and are bullish overall.
Is it worth it to invest in Ethereum? ›Ether (ETH), the native token on the blockchain network Ethereum and the second-largest cryptocurrency by market cap, is a risky and volatile investment. It should only be considered if you have a high risk tolerance, are in a strong financial position and can afford to lose whatever you invest in it.
Is Ethereum better than Bitcoin? ›Transactions are faster on the Ethereum network than on Bitcoin's. Bitcoin is primarily a store of value and medium of exchange; Ethereum is seen as a general purpose blockchain. Bitcoin uses a proof-of-work (PoW) consensus algorithm, while Ethereum uses a proof-of-stake (PoS) consensus algorithm.
What is the difference between Bitcoin and Ethereum? ›Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Ethereum is a decentralized global software platform powered by blockchain technology. It is most commonly known for its native cryptocurrency, ether (ETH).
Why do people buy Ethereum? ›Another reason to consider investing in Ethereum is the increasing use of blockchain technology, which attracts more and more successful crypto traders. Such technology can facilitate online payments, loan distribution, and commodities trading.
Why is Ethereum losing so much value? ›
This year, Ether prices have been depressed ever since the Federal Reserve announced its intention to institute a series of aggressive interest rate hikes in order to combat inflation. High interest rates dissuade consumers from investing in more risky assets, which includes crypto.
How much Ethereum should I own? ›Financial planners suggest only investing 1% to 5% of your overall portfolio in crypto. Despite its booming popularity, the crypto market is extremely volatile and prices can fluctuate rapidly overnight.
What makes Ethereum so special? ›Ethereum enables building and deploying smart contracts and decentralized applications (dApps) without downtime, fraud, control, or interference from a third party. 6 To accomplish this, Ethereum comes complete with its own programming language that runs on a blockchain.
How much is 1 Ethereum coin worth? ›| 24 Hour High | 24 Hour Low | Market Capitalization |
|---|---|---|
| 1,607.48 USD | 1,563.13 USD | 189,254,724,701.39 USD |
Ethereum has an unusually long list of founders. Anthony Di Iorio wrote: "Ethereum was founded by Vitalik Buterin, Myself, Charles Hoskinson, Mihai Alisie & Amir Chetrit (the initial 5) in December 2013. Joseph Lubin, Gavin Wood, & Jeffrey Wilcke were added in early 2014 as founders."
Why buy Ethereum over Bitcoin? ›The main difference between Ethereum and Bitcoin is the fact that Ethereum is programmable. That feature broadens the scope of Ethereum, making it more than just a digital currency. It makes Ethereum a marketplace for financial services, games and apps.