The Ethereum blockchain went live on July 30th, 2015. Ethereum consists of one blockchain where both its own transactions (ether) and those of numerous other coins (tokens) are recorded. Whereas Bitcoin focuses mainly on payments and storing value, Ethereum focuses more on so-called “smart contracts”. The programming language of Ethereum is written in such a way that programmers can write their own programs based on the Ethereum blockchain. This means that if you want to use blockchain technology, you no longer have to create your own. Instead you can use the Ethereum blockchain. This has made Ethereum the foundation for thousands of decentralized applications, from financial services to gaming and digital art.
Table of contents
- The history of Ethereum
- The Merge: Ethereum’s transition to Proof of Stake
- Applications of Ethereum
- Decentralized Finance (DeFi)
- NFTs and digital ownership
- Layer 2 scaling solutions
- Staking Ethereum
- Gas fees
- The Ethereum protocol
- Ethereum’s position in the crypto ecosystem
- Regulatory landscape
- Where can you buy Ethereum?
The history of Ethereum
The Ethereum project started at the end of 2013. Ethereum was developed by researcher and programmer Vitalik Buterin. The budget for the development of Ethereum was raised in July and August 2014 by means of an Initial Coin Offering (ICO). During this ICO 11.9 million ether coins were sold, which is about 13% of the total number of ether coins. On July 30th, 2015, the Ethereum blockchain went live.
In 2016, after the failure of the DAO project, a hard fork took place. This fork created the current version of Ethereum and continued the old version under the name Ethereum Classic. The price of one ether was about $0.30 during the ICO. Since then, Ethereum has grown tremendously, reaching an all-time high above $4,800 in November 2021.
The Merge: Ethereum’s transition to Proof of Stake
On September 15, 2022, Ethereum completed one of the most significant upgrades in blockchain history: The Merge. This transition moved Ethereum from a Proof of Work consensus mechanism (similar to Bitcoin) to Proof of Stake. The upgrade reduced Ethereum’s energy consumption by approximately 99.95%, addressing one of the biggest criticisms of blockchain technology.
Under Proof of Stake, the network is secured by validators who stake their ETH as collateral rather than miners solving complex mathematical puzzles. This change not only made Ethereum more environmentally friendly but also set the foundation for future scalability improvements.
In April 2023, the Shanghai (also called Shapella) upgrade was implemented, allowing validators to withdraw their staked ETH for the first time. This completed the transition to a fully functional Proof of Stake system.
Applications of Ethereum
Ethereum’s smart contract functionality has enabled a vast ecosystem of decentralized applications (dApps). The blockchain makes it possible to create binding agreements between parties without the need for intermediaries such as banks, notaries, or other third parties.
By using the Ethereum blockchain, it is possible to exchange contracts with each other. These contracts no longer need to be drawn up and signed physically but can be executed automatically via the blockchain. This ensures that reliable information can be transferred faster, safer, and cheaper than traditional methods.
A few examples of sectors where Ethereum-based projects are making a significant impact:
- Decentralized exchanges (Uniswap)
- Lending and borrowing (Aave)
- Liquid staking (Lido)
- Gaming and virtual worlds (The Sandbox)
- Digital collectibles and art (OpenSea)
These are just a few examples from a much larger ecosystem. In principle, any application that benefits from transparency, immutability, and trustless execution can be built on Ethereum.
Decentralized Finance (DeFi)
One of the most transformative applications built on Ethereum is Decentralized Finance, or DeFi. DeFi refers to financial services that operate without traditional intermediaries like banks, using smart contracts instead to facilitate lending, borrowing, trading, and earning interest on crypto assets.
The DeFi ecosystem on Ethereum includes decentralized exchanges where users can swap tokens directly from their wallets, lending protocols where users can earn interest or take out loans using crypto as collateral, and yield farming opportunities. At its peak, the total value locked (TVL) in Ethereum DeFi protocols reached over $100 billion.
The introduction of EIP-1559 in August 2021 changed how transaction fees work on Ethereum. A portion of every transaction fee is now burned (permanently removed from circulation), which can make ETH deflationary during periods of high network activity.
NFTs and digital ownership
Non-Fungible Tokens (NFTs) became one of Ethereum’s breakthrough applications. Unlike regular tokens where each unit is identical (fungible), NFTs are unique digital assets that can represent ownership of art, music, collectibles, virtual real estate, and more.
Ethereum introduced the ERC-721 standard for NFTs, followed by ERC-1155 which allows for both fungible and non-fungible tokens in a single contract. These standards enabled the explosion of digital art sales, profile picture collections, and gaming assets that defined much of the 2021-2022 crypto boom.
While the NFT market has cooled from its peak, the technology continues to find applications in ticketing, identity verification, and proving ownership of both digital and physical assets.
Layer 2 scaling solutions
To address Ethereum’s scalability challenges and high transaction costs during peak demand, Layer 2 (L2) solutions have emerged. These are separate networks that process transactions off the main Ethereum chain while still inheriting its security guarantees.
Popular Layer 2 solutions include Arbitrum and Optimism (using optimistic rollups), Base (developed by Coinbase), and zkSync and StarkNet (using zero-knowledge proofs). These networks can process transactions much faster and cheaper than the Ethereum mainnet, making the ecosystem more accessible for everyday users.
Layer 2 solutions have become essential infrastructure for Ethereum, handling a significant portion of total transaction volume while settling their proofs back to the main chain.
Staking Ethereum
Since The Merge, Ethereum holders can participate in securing the network through staking. Validators must stake 32 ETH to run their own validator node and earn rewards for processing transactions and creating new blocks.
For those without 32 ETH or the technical expertise to run a validator, liquid staking services like Lido allow users to stake any amount and receive a liquid token (like stETH) in return. This token can be used in DeFi applications while still earning staking rewards.
Staking yields vary based on network activity but provide ETH holders with a way to earn passive income while contributing to network security.
Gas fees
Every transaction on Ethereum requires “gas” – a fee paid to validators for processing and validating the transaction. Gas fees fluctuate based on network demand: during busy periods, fees can spike significantly, while quieter periods see much lower costs.
EIP-1559 introduced a base fee that adjusts automatically based on network congestion, plus an optional priority fee (tip) to incentivize faster processing. The base fee is burned, while the priority fee goes to validators.
For users seeking lower fees, Layer 2 solutions offer dramatically reduced costs while maintaining connection to Ethereum’s security. Many everyday DeFi and NFT activities have migrated to these networks.
The Ethereum protocol
The Ethereum network now uses the Proof of Stake consensus mechanism. Validators stake ETH as collateral and are randomly selected to propose and attest to new blocks. Dishonest behavior results in “slashing” – the loss of some or all staked ETH.
This system is far more energy-efficient than the previous Proof of Work mechanism and allows for greater decentralization, as running a validator requires significantly less specialized hardware than mining.
Ethereum’s position in the crypto ecosystem
Ethereum is the second-largest cryptocurrency by market capitalization and the dominant platform for smart contracts. It hosts the largest developer community in crypto and the majority of decentralized applications by total value locked.
While competing Layer 1 blockchains like Solana, Avalanche, and others have emerged, Ethereum maintains its position through network effects, security, and decentralization. The ecosystem continues to evolve with ongoing upgrades aimed at improving scalability and reducing costs.
In May 2024, the U.S. Securities and Exchange Commission approved spot Ethereum ETFs, following the Bitcoin ETF approvals earlier that year. This opened the door for traditional investors to gain exposure to Ethereum through conventional brokerage accounts.
Regulatory landscape
Ethereum’s regulatory status has been a subject of ongoing discussion. In the United States, regulators have debated whether ETH should be classified as a security or commodity, with implications for how it can be traded and offered to investors.
The approval of Ethereum ETFs provided some regulatory clarity for the asset itself, though the broader DeFi ecosystem built on Ethereum faces continued regulatory scrutiny. The European Union’s MiCA framework provides a more comprehensive regulatory structure for crypto assets including Ethereum.
Understanding local regulations is important before investing in or using Ethereum-based services, as rules vary significantly by jurisdiction.
Where can you buy Ethereum?
Before you can buy Ethereum you must first have a place where you can store your Ether coins. Without an Ethereum wallet, you have no place to send your purchased coins. In an Ethereum wallet, you can store not only Ethereum but also thousands of other Ethereum-based tokens (ERC-20 tokens, NFTs, etc.).
A wallet can be created in several ways:
- On a cryptocurrency exchange (Binance, Kraken, etc.)
- By installing software on your computer
- By using a browser wallet like MetaMask
- By purchasing a hardware wallet (for example a Ledger Nano S or a Trezor)
For maximum security and true ownership of your Ethereum, using a hardware wallet or self-custody software wallet where you control the private keys is recommended. Remember the saying in crypto: “Not your keys, not your coins.”
Now that you have a place where you can store Ether you can buy it in different places:
- On a cryptocurrency exchange
- At an online broker
- With a cryptocurrency ATM (you can find locations here: coinatmradar.com)
- Through an Ethereum ETF in your brokerage account (for investment exposure without holding actual ETH)
