What Is Ethereum?

January 4, 2023

While Bitcoin is, of course, the daddy of all cryptocurrencies, with the widest name recognition and the largest market cap by far, a strong case can be made that it is no longer the most influential crypto network. That honour now probably goes to Ethereum.

Second in Size, First in Potential

If you look backwards, then yes, the popularity and influence of Bitcoin cannot be questioned, but if you look forwards it faces significant challenges in many ways, including both in terms of adoption and how governments and central banks react to the threat it represents to the existing order. The prospects for the second largest cryptocurrency network, Ethereum (ETH), however, are somewhat clearer, and the massive number of potential uses for Ethereum make it arguably the more “influential” of the two going forward.

So, what is Ethereum?

Ethereum is an open source blockchain network, meaning that it is a public computer network of blocks of records, joined in a chain and secured by cryptography. (I will assume at this point that you have at least a working knowledge of what a blockchain is, but if you are looking for a more detailed explanation, you can check out the education section) The Ethereum network is the base on which many other networks are built, and it is especially useful in the context of smart contracts, exchanges, and NFTs.

Ethereum is a platform that allows users to deploy and access decentralized applications. The blockchain it operates on, enables secure, immutable, and global transactions of the native crypto coin, also known as ether as well as tokens created on the chain. Aside from ether and tokens, Ethereum can be used for unique non-fungible tokens (NFTs) to manage digital art collections, or for smart contracts that self-execute pre-defined terms without needing a middleman. In order to issue transactions within the Ethereum network, users have to pay a small fee in ether called "gas fees."

Ethereum’s Origins and History

The White Paper that laid out the Ethereum network was published late in 2013, and was authored by Vitalik Buterin, so he is usually said to be the creator of Ethereum. However, while Buterin conceived of the idea and did the initial work, it took several collaborators to bring the idea to fruition. Gavin Wood, Charles Hoskinson, Amir Chetrit, Anthony Di Iorio, Jeffrey Wilcke, Joseph Lubin, and Mihai Alisie all played a part as well as Buterin, and they are all usually recognized as cofounders of Ethereum.

They collectively launched Ethereum in 2014, with an Initial Coin Offering (ICO) worth $18 million, paid for exclusively in bitcoin, that paid for the early development. However, the network didn’t go live until July 30th, 2015. Those that bought in early therefore had to wait for a year or so before their newly acquired ether could be exchanged, or even moved. It may seem strange today with the short-term, Wall Street mentality that exists around much of crypto, but back then, in the early days, that kind of patience and long-term view was commonplace among believers.

The Hard Fork and Other Changes

In 2016, Ethereum underwent a hard fork, where a cryptocurrency or network splits into two separate entities. In this case, it was prompted by what is known as “The DAO Hack”. DAO stands for Decentralized Autonomous Organization and is now a common term in the crypto world, but “The Dao” (with an upper case “T”) was a specific pooled investment group at the time. They were hacked, and 3.6 million ETH was stolen. That split the early Ethereum community into two camps. There were those that believed that the original protocol should be abandoned so as to effectively nullify the theft, and then there were others who believed that the immutable nature of blockchains should be preserved at all costs and that no change should be made. The first group won out, but when the network shifted, the unchanged network continued to run alongside the new Ethereum and was renamed as Ethereum Classic (ETC).

In 2022, Ethereum underwent another major change as the network shifted from proof of work (POW) to proof of stake (POS). POW is the classic crypto model, where miners are rewarded in a network’s token for solving complex computer problems and for creating blocks and monitoring the blocks that form the blockchain. POS, on the other hand, requires that token or currency holders put up, or “stake” some of their holdings, with network power and responsibilities being allocated according to the amount staked. It was a change known as “The Merge” and was very controversial at the time.

Ether’s Price History

Understandably enough in some ways, the path of ether’s value against the US dollar (ETH/USD), has been similar to that of BTC/USD. It started at a very low valuation, jumped significantly around 2017, fell back sharply, rallied strongly in 2021 and early 2022, then dropped again in the “crypto winter” that rolled around in the second half of 2022.

There are differences in the performance of ether and bitcoin over time, though. For example, the percentage gains in ether were much larger during the 2021/22 bull run as the practical applications of the network became clear, but ETH dropped sharply against BTC following The Merge. Long-term, though, like its better-known cousin, bitcoin, ether has shown appreciation measured in the thousands of percent and patient early adopters have been massively rewarded.

Ethereum versus Ether

In the early days of Ethereum, just as in the early days of Bitcoin, there was a clear distinction between the networks and the currency or tokens that supported them and were used to reward miners. In Bitcoin, the network was “Bitcoin”, using an upper case “B”, and the currency was “bitcoin”, with a lower case “b”. For Ethereum, Ethereum was the network and ether, abbreviated to ETH, the currency. To me, as someone who trades in words, those distinctions are important and it still grates to hear someone, especially someone in the crypto industry who should know better, use “Ethereum” when clearly talking about the token. However, that has become so commonplace, as has big B Bitcoin being used interchangeably as both the network and the currency, that my objections now sound less like a desire for correct usage and more like pedantry.

I get it, times change, and language is fluid, so does it really matter? If most people use the “wrong” word or spelling, is it wrong? I guess not, but for some of us early crypto people, “bitcoin” and “Bitcoin” and “Ethereum” and “ether” will always be different words with different meanings. I just won’t “correct” you if you use the “wrong” one.

The Future

As controversial as the move to POS in Ethereum was, it was probably necessary given the problems of scaling and the criticisms being levelled against crypto from the powerful green energy lobby. Slow processing of transactions and high fees had become commonplace, and The Merge alleviated those issues somewhat, as well as insulating Ethereum from criticism on an ecological front for the amount of power needed for POW.

So, with faster processing times and less power consumption, what is Ethereum’s future?

The ability of most networks to grow over time has been enhanced by multi-layer protocols, where one network is built on top of another for different use cases or to solve different problems. Ethereum, however, was built with that function in mind, so was essentially ahead of its time. Still, as adaptable and resilient as it has proven to be, there is always a chance that an updated version built on the same principles will one day surpass Ethereum.

Absent that, though, with the increased uses for smart contracts and NFTs bringing that kind of technology ever more into the mainstream, the future for Ethereum, and therefore ether on a long-term basis, looks bright.


When future generations look back on the history of finance, it may well be that July 30th, 2015, the day Ethereum went live, will go down alongside October 31st, 2008, the day that Satoshi Nakomoto published the Bitcoin White Paper as one of the most significant days ever. The network really does have that kind of future and, based on its widespread use at this point in history, it is well on its way to fulfilling that potential.

Author: Martin Tillier
Martin has around forty years of market experience and, in addition to his role as Head of Research at SmartFi, is a daily contributor of market analysis and opinion to Nasdaq.com. He first became interested in crypto 2014, when he started writing regularly on the subject. He is from England but now lives in Connecticut, USA with his wife, his dogs, and his three kids’ college tuition bills. 

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