What is Ethereum?

Ethereum Review & Guide

Ethereum is the second largest cryptocurrency network based on market capitalization. It’s also the second most dominant coin, with a market dominance of 17%. Launched in 2015, Ethereum brought forth several unique features never witnessed before in the crypto world.

Before Ethereum, Bitcoin dominated more than 85% of the cryptocurrency industry. The word altcoin was extremely rare. Bitcoin’s blockchain technology was getting popular, and several merchants had begun accepting payments in the cryptocurrency.

Back then, Bitcoin mining was a golden opportunity. Miners could use GPUs and makes lots of money in a few months. On the downside, the popular cryptocurrency exchange, Mt.Gox, was hacked and led to the loss of hundreds of millions of dollars. 

When Ethereum finally launched in mid-2015, it introduced several unique services that drew users’ attention including:

  • Initial Coin Offering
  • Decentralized Applications 
  • Smart Contracts

This guide will explore Ethereum in detail, define what Ethereum is and review the cryptocurrency as an investment asset.

What is Ethereum?

Ethereum is a decentralized blockchain network that enables developers to build and run decentralized applications on its platform. A blockchain can simply be defined a digital ledger. It’s decentralized and managed by computer nodes distributed at different geographical points.

Ethereum was developed with the same principles as Bitcoin but for a different purpose. While Bitcoin’s blockchain was designed to record transactions and act as a currency, Ethereum is a platform for hosting applications. Think of Google Play Store and its Android development platform. 

Google allows developers to build applications based on Android and run them on its Play Store. Ethereum offers developers appropriate tools to build decentralized applications. The network also came up with smart contracts; a set of actionable commands that enables settlements in a trustless and conflict-free manner.

Vitalik Buterin, a 19-year-old at the time, wrote Ethereum's whitepaper in 2013. Vitalik wanted a blockchain network that could host decentralized applications. He faulted Bitcoin’s scripting language as inept for the job and proposed a new blockchain.

In early 2014, Charles Hoskinson, Anthony Di Iorio, and Mihai Alisie joined Vitalik as the lead developers of Ethereum’s blockchain. The team also hired a Swiss-based software development company to help with the work. 
In mid-2014, Ethereum’s team proposed an online funding campaign. The campaign method would later be named as ICO, initial coin offering. Ethereum raised $18 million by selling investors ether coins for the already valuable Bitcoins.

Everything proposed by Ethereum, from decentralized applications to ICOs, smart contracts to ERC20 tokens would later become revolutionary. The features gave Ethereum meaning. All of the ideas are now utilized by thousands of startups and merchants around the world. Ethereum saw an opportunity not utilized by Bitcoin and seized it.

How is Ethereum Different from Bitcoin?

Bitcoin is money held in a digital form. Not like PayPal, but a decentralized network without government involvement. To transact using Bitcoin, users must have unique addresses that are encrypted using cryptography. 

The cryptographic addresses, a public and private key, prove ownership and help you send funds from one point to another. Bitcoin’s payment protocol records transactions made by users and has code that allows for the distribution of new Bitcoins after a block-size of Bitcoin transactions are verified.

Ethereum, on the other hand, built a blockchain, not to record transactions alone but also to host decentralized applications. In essence, Ethereum offers what Bitcoin offers and more. Ethereum also has a service known as smart contracts. The contracts are an essential part of the decentralized apps’ platform. 

Smart contracts help fulfill payments on the Ethereum blockchain in a trustless and safe manner. A good example of how smart contracts are used is during a crowdfunding campaign. An ICO pre-mines their own tokens and sells them to investors for Ethereum coins.

When an investor purchases ICO tokens, her tokens are held by smart contracts until the ICO confirms the purchase. The tokens are then released and sent into the investor’s wallet.

Ethereum’s differences to Bitcoin can be summarized as follows:

Block time10 minutes15 seconds
Currency cap21 millionInflationary
PurposeCurrencyUtility coin/currency
Block size1MBCapped by gas limit
Mining AlgorithmSHA256Ethash


How Ethereum Works

At the heart of the Ethereum blockchain is a peer to peer payment protocol. When you initiate an Ethereum transaction from one wallet address to another, your transaction’s details are converted into raw data. The raw data consists of the gas price you specified you would pay to miners, the gas limit, the destination address and a record of all transactions you’ve made in the past.
An Ethereum transaction is first validated within your wallet before the raw data is sent to the Ethereum blockchain. Your wallet’s local node provides an ID that you can use to track the state of your transaction on etherscan.io. 
On the Ethereum network, a transaction is verified by miners. Most miners categorize transactions based on the gas prices attached to them. They prioritize transactions with high gas prices and work on other transactions afterward.
The mining process is basically a guesswork process that tries to identify a genuine Ethereum transaction from a list of bogus data. The process is done by specialized machines, however, and they will often find the right transactions within seconds or minutes.

The verified transaction is added to a block with other valid transactions. The transaction’s data is then broadcasted to the local nodes owned by the destination address. The transaction is completed, and the recipient received the ether coins.


What is Ethereum?


Ethereum Virtual Machine

Shortened as just EVM, the Ethereum virtual machine is a digital engine that runs smart contracts coded in the Solidity coding Language. EVM, a runtime environment ,executes code as set by programmers. The EVM runs as a separate platform from the Ethereum network through sandboxing. 

Ethereum computer nodes also run on the EVM to ensure the network never experiences downtimes. However, Ethereum's blockchain becomes slow when a high number of nodes and apps utilize its EVM. 

Ethereum Products

Ethereum is a Turing-complete programmable network. The programming language used to deploy applications on the blockchain is known as Solidity. It’s an unpopular coding language, and one of the reasons that led to the development of Ethereum-like platforms that can be coded with popular coding languages. Examples of Ethereum alternatives include NEO, Lisk, and Cardano.

After learning Solidity, Ethereum provides developers with the tools to build the following products:

API tools to build a customized token

Popularly known as ERC20 tokens, coins attached to decentralized applications work in almost the same way. They are pre-mined and used as utility tools for making purchases on the application. Utility tokens are designed to work with every wallet that supports Ethereum.

Developers decide the number of tokens to develop based on a set of programmable rules. Note that while many ERC20 tokens are utility tokens, developers can also build their tokens to be currencies.

Tools to Build Smart Contracts

Ethereum’s smart contracts are advanced programming abstractions run by the Ethereum virtual machine and deployed on the Ethereum blockchain. In simpler terms, smart contracts are services used to facilitate the exchange of services on a blockchain network in a trustless conflict-free manner.

A use case of smart contracts is on peer to peer cryptocurrency exchanges. When a buyer wants to exchange fiat money for Ethereum, smart contracts are used to hold both the money and an equivalent amount of Ethereum. 

The seller directs the buyer on how to send their payment in fiat money. But to complete the deal, the seller sends an equivalent amount of Ethereum coins to a smart contract. After they confirm they have received the money, the smart contract completes the sale of the Ethereum coins.

ICOs depend on smart contracts to attract investors. The use of smart contracts to hold funds assures investors that they will receive the tokens promised. If the project fails to launch and the ICO is unable to provide tokens, the smart contracts refund investors their money.

The only requirement from Ethereum is that you accept funding using Ethereum coins. ICOs are a big deal nowadays, and some of the best ICOs have raised more than $100 million each through crowdfunding.

A Platform to Build Autonomous Organization

Many ICOs hire teams to manage funds and ensure that their projects are launched successfully. But for a company whose aim is to provide a decentralized investor-centered application, they don’t have to hire anyone.

Autonomous organizations act as managers. They are like non-human virtual assistants. They record proposals made by investors and engage investors in a voting process to determine which project should be launched first.

Decentralized autonomous organizations are programs, and as such can’t be influenced by outsiders. 

Tools to build dApps

Ethereum’s main purpose is to help developers code and run decentralized applications on its platform. Having created tokens and secured them in smart contracts, the next step is to build a decentralized application.

A decentralized application is a program that stores data on Ethereum’s blockchain but is customized to target a particular industry or project. There more than 1500 decentralized application deployed on the Ethereum blockchain.

Here are the most used decentralized applications and their uses:

  •  IDEX- decentralized exchange that holds funds using smart contracts
  •  LocaEthereum-an exchange where traders can buy Ethereum using fiat
  •  CryptoKitties-an app where users can breed and trade digital cats

Decentralized applications are based on cryptographically secure tokens, a decentralized blockchain, and trustless smart contracts. Building decentralized application is often the most challenging part for developers. Solidity is still a new language, which exposes developers to build apps with bugs.

Ethereum Price Growth

Ethereum enjoyed its first year on exchanges with a bullish run that peaked at $10 on March 21st, 2016. Investing $1000 worth of Ethereum in 2015 already guaranteed a return of 1000% in its first year on exchanges. That means you could have earned $10,000 from your $1000 in Ethereum investment.

The cryptocurrency continued with its bullish run after a slight crash in April 2016 and hit $50 in value by March the following year. For a trader who bought $10,000 worth of ether coins and held them for that year, the investment returned $50,000. 

Unfortunately, like the nature of digital assets, a market correction always occurs after a bullish run. Ethereum value price depreciated over the next three months and reached a modest low of $297. Investors who didn’t sell their coins after the market correction were the biggest winners though.
After the crash, ETH resumed a positive growth curve that peaked at $1,377 on January 14, 2017. The 2015 investment of $1000 was now worth more than $1.3 million, after barely three years.

Since April 2018, Ethereum has been on a roller coaster. The coin was able to move up to $830 by May 6th but went to down to $480 by mid-June. In general, 2018 has not been the best year for Ethereum, but the coin is doing much better than most of its competitors.


Ethereum is a decentralized platform where developers can build and host decentralized applications. Ethereum’s decentralized apps are powered by smart contracts, an innovation that enables traders to transact in a trustless and safe way.

Ethereum popularized the idea of crowdfunding in 2014 and raised $18 million from its ICO. Since then, more than 1500 decentralized apps have been deployed on its networks. Most of the apps raised funds through ICOs, leading to substantial growth in Ethereum crypto.

However, with an increase in the number of decentralized apps depending on the Ethereum virtual machine (EVM), sending Ethereum coins has been slow at times. This has often motivated developers to launch their own versions of Ethereum; a good example being EOS.

Irrespective of a few challenges with scalability, however, Ethereum has proved dominant over the years. Even in 2018 when its price has been volatile, the cryptocurrency has always risen in value after a crash. For Ethereum to solidify a bright future, however, it will have to improve scalability and have a platform that can handle thousands of requests per second.
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