Ethereum is the biggest cryptocurrency of its kind.
What kind of cryptocurrency you say?
Well, the kind that gives you the power to program on it!
It is second only to Bitcoin in terms of market cap but thanks to its implementation, it has a ton of more use cases.
To really recognize Ethereum for what it is though, you need to understand a few things first.
So let’s get started!
Let’s Begin With… A brief history of Ethereum.
As it happens, Ethereum was originally a gamer’s idea.
Its creator, Vitalik Buterin, apparently came up with the idea for Ethereum when he lost an in-game item in World of Warcraft, a popular game in its day.
The cause was a glitch in the system - a centralized server under the control of a single body.
What happened to Vitalik highlighted a flaw in its system.
So, he went on to make an immutable system which could defeat that flaw.
His creation, Ethereum, had its initial coin offering in 2014 and raised $18 million in a matter of six weeks.
The network then officially came online in 2015.
Through the years, Ethereum has become number one in the 'alt-coin' world - basically the top of any cryptocurrency outside of Bitcoin.
Although it had its problems, everything ran relatively smoothly until the Ethereum fork took place…
So you’re probably wondering… What is ‘The Fork’?
Specifically, this refers to the fork of Ethereum into two separate blockchains - Ethereum Classic and Ethereum.
But, why did Ethereum split into two?
Well, long story short, there was a huge hack where a large amount of funds were stolen in 2016.
The Ethereum community was split over whether they should roll the network back and issue refunds, or simply leave the network unchanged - leaving the theft on the blockchain.
Well, the original, unchanged version is now called Ethereum Classic.
The new version which contains the rollback is known simply as Ethereum.
Even after the first fork though, there were still a ton of issues with Ethereum.
And to solve those issues, Ethereum had to change at a basic level.
That happened in 2022 with an upgrade…
OK, so what changed with the Merge?
Well, it's actually quite simple. First, let me explain a few concepts.
Blockchains, in general, work by forming a network of computers which store transactions in a shared ledger.
These computers are called nodes, and they provide the building blocks to operate and store the blockchain.
For Ethereum to work as a store of data and a software platform, the nodes need to agree on new entries into the ledger of transactions - also known as a blockchain.
But only some nodes actually get to vote on what changes to make, a special group called validators that validate transactions.
In Bitcoin, validators used raw computational power to validate transactions.
It was known as Proof Of Work.
Yet, in this new Ethereum version - validators instead put up a stake or collateral in the form of Ethereum tokens - in order to be eligible for the position.
As such, this system is called Proof of Stake.
Proof of Stake was one of the biggest improvements for Ethereum in the merge.
It made things much more efficient than they used to be.
But don't let all this talk about transactions fool you.
Ethereum is more than just a simple old ledger for transactions - like Bitcoin.
You see, the thing about Ethereum is that it's actually a programming platform….
Moving On, Let’s Introduce Smart contracts
Smart contracts are at the heart of what made Ethereum so powerful when it was conceived.
To illustrate, here is an example of what a smart contract does.
Let's say you want to exchange Bitcoin for Ethereum.
You have the Bitcoin, and John has the Ethereum you want.
But you both want to be sure that nobody gets fooled, and everything stays above board.
So you get a smart contract to act as a trusted middleman.
You get a wallet address and set up a smart contract.
As such, you program the smart contract to only release Bitcoin once John has transferred his Ethereum into that wallet address.
Once you have both transferred your assets into the wallet address, the smart contract releases your respective funds.
Now that was a rather simple use case.
Smart contracts can be used for a lot more than being a middleman.
What else can Smart Contracts be used for?
In fact, you can build entire apps on it.
This includes apps like games, exchanges, utilities, and much more.
Since these apps are based on code that isn't controlled by any central body, they are called decentralized apps or dapps for short.
Dapps would absolutely not be possible unless there were smart contracts underneath them.
And since smart contracts are what Ethereum really offers to the world, it's no wonder that Ethereum is now the biggest cryptocurrency of its kind.
But like everything else, Ethereum also has its good and bad sides...
Let’s Talk about the Benefits of Ethereum
The most obvious benefit is that Ethereum has grown to become the biggest alt-coin.
The biggest thing Ethereum has going for itself is momentum.
It has been at the top of the food chain for a while, maintaining premier status through the highs and lows of the market.
And if you're familiar with crypto, you know the market's lows can get pretty brutal.
So it's really something that Ethereum is still as popular as it is.
Another benefit is that Ethereum has the biggest community.
It gives Ethereum unwavering support and even includes people who have invested in and built dapps on its ecosystem.
This community is the real reason why Ethereum is still being talked about today.
If people did not have trust in Ethereum, its price would have plummeted against the competition's onslaught and the world would have moved on to newer technologies.
But we'll talk about those newer technologies in just a moment.
Another advantage is that it's also getting more efficient.
As I mentioned before, Ethereum has had plenty of issues and two of them were scalability and speed problems.
It was particularly notorious for its staggeringly high gas fees - basically caused by bidding for their transactions to be completed first.
At the time of this video, Ethereum fees can go anywhere from a couple to tens of dollars, depending on the platform you're using.
Accordingly, Ethereum has announced scalability solutions, mainly something they are calling DankSharding.
These changes are expected in late 2023 and 2024.
We'll talk about that in just a bit as well.
So overall, Ethereum is slowly but steadily making progress towards becoming more usable for more people.
What are the Downsides of Ethereum?
Well, first off, it is getting some really tough competition.
Since Ethereum has come around, a lot of credible opponents have sprung up.
These include Tron, Solana, Cardano, Polkadot, Avalanche, and most recently, Aptos.
Unsurprisingly, the list is expected to go on as blockchain technology becomes further explored.
Almost all of these platforms have something that Ethereum, with all its upgrades, technically still lacks.
For example, Solana is a lot faster and more scalable than Ethereum, even though it may not be the most reliable yet.
Tron has been around since 2017 and does not have all the gas fee issues Ethereum users have had to deal with throughout the years.
Aptos is one of the best-funded and most promising projects that is set to compete with Solana, and thus Ethereum.
To put a long story short, the market has a lot more options than it used to.
So, Ethereum has to be quick and solve its issues fast.
And that's where the cracks really show.
Because another huge issue is Ethereum's chronically slow development speed.
Ethereum's Merge gave us a faster and more efficient system.
But we're all still painfully waiting on further updates.
Even though the system is still moving and evolving, it's way behind the curve.
Its watered-down prototype, Proto-DankSharding, might be implemented in late 2023.
But, according to Ethereum, the real upgrades for full DankSharding are "likely several years away."
And so real upgrades might not even come around until late 2024 or even later.
Conclusion
So there you go!
In this article, you learned about the fascinating history and the inner workings of Ethereum.
It’s the world's second-largest cryptocurrency and the biggest platform for smart contracts and decentralized applications.
You’ve seen how its creation by Vitalik Buterin was inspired by a desire for a system that could avoid the flaws of centralized servers.
I also showed you some major events in Ethereum's history, including the pivotal Ethereum fork and the transition from Proof of Work to Proof of Stake in the 'Merge'.
You've discovered the power of Ethereum's smart contracts, which enable decentralized and trustworthy transactions.
Ethereum also allows the creation of entire decentralized apps (dapps), as well as a solid community backing it up.
But, you also learned about the challenges Ethereum is facing.
From intense competition to high transaction fees and its slow development speed, the real upgrades are still a few years away.
So, while Ethereum has its strengths and weaknesses, its contribution to blockchain and cryptocurrency are obvious.
Well, that’s it for this one. I hope you learned something new - good luck out there!
