Ethereum

Type	Decentralized blockchain
Release date	30 July 2015
Founder	Vitalik Buterin
Native cryptocurrency	Ether (ETH)
Consensus	Proof of stake (PoS)
Website	ethereum.org

What is Ethereum?

• Ethereum is a globally distributed network of computers that is powered by blockchain technology.
• The Ethereum network acts as the foundation for communities, applications, organisations and digital assets that is accessible for creation and utilization by anyone.
• Ethereum is renowned primarily for its native cryptocurrency, Ether (ETH).

What can Ethereum do?

• Banking: Ethereum offers an inclusive platform accessible to everyone, and it provides financial services such as lending, borrowing and savings products.
• An open internet: Users have full control over their own assets and identity, instead of them being controlled by a few mega-corporations.
• A peer-to-peer (p2p) network: Ethereum allows users to coordinate, make agreements or transfer digital assets directly with each other, eliminating the need for intermediaries.
• Censorship-resistant: No government or company has control over Ethereum. The decentralized nature of Ethereum makes it nearly impossible for anyone to ban its services.
• Commerce guarantees: Users benefit from a secure, built-in guarantee on Ethereum, assuring that funds will only change hands when agreed-upon conditions are met.
• Composable products: All applications are built on the same blockchain with a shared global state, meaning they can build off each other. This ensures that no one can remove essential tools or components relied upon, providing greater stability, trust, and user experience within the network.

How does Ethereum work?

In brief, Ethereum = Blockchain + Smart contracts + ETH.

• Blockchain

Blockchain is simply a database of specific data that continuously grows, with the following characteristics:

1. Once data is stored in the database, it can never be modified or deleted. Each record on the blockchain is permanently preserved.
2. No individual or organization can maintain the database alone. It requires an agreement of the majority of users within the database, with each user holding a copy of the database.

Imagine a network of 10 individuals. Each person has an empty folder and a blank page. Whenever any person performs an action, such as a transaction, a notification is sent to everyone in the network. Each person then records the notification on their own page. When the page is completely filled, each individual must seal the page's content and ensure that all pages in the network are identical. Once sealed, the content in the page can never be altered and the page is added to the folder.

Over time, these pages (blocks) containing content (transactions) will be sequentially added to the folders (chain), thus forming a database (blockchain).

• Smart contracts

Smart contracts are computer programs stored on the Ethereum blockchain that allow converting conventional contracts into digital parallels. Smart contracts follows an "if this then that" structure, which means they behave exactly as programmed and cannot be altered. Contracts are essentially agreements. People make agreements verbally or write pen-and-paper contracts and fullfill the agreements after certain conditions are reached. However, these conventional contracts are not without their flaws. Enter smart contracts, the perfect solution to address these shortcomings.

	Conventional contracts	Smart contracts
Execution	Executed by human through the court system	Automatically executed
Validity	Valid only if both parties agree and sign	Can be vlidated by anyone on the Ethereum networks
Security	Less secure as they are stored in paper form or digitally	Highly secure as they are stored on a blockchain
Modification	Easily modified with mutual consent of both parties	Difficult to modify
Cost	Require the use of third-party intermediaries, making them more expensive	Cost-effective due to the removal of third-party intermediaries
Accuracy	Prone to errors due to human involvement	Accurate due to the use of code
Record Keeping	Records stored in paper form or digitally, not publicly available	Records stored on a blockchain and can be viewed publicly

Smart contracts serve as the cornerstone of Ethereum applications. They have the capability to perform nearly anything that other computer programs can do with the above benefits. They can perform computations, create currency, store data, mint NFTs, send communications, generate graphics, etc.

• ETH

Every independent blockchain has its own native cryptocurrency that is used to reward miners and validators adding blocks to the blockchain and as a payment method, including for transaction fees (gas fees). In Ethereum's case, its native cryptocurrency is called Ether (ETH), which can be used to pay for executing smart contracts on the Ethereum platform. The price of ETH symbolizes the value of the Ethereum ecosystem, as Ethereum is not a company with stock. Therefore, the primary method of investing in Ethereum is by purchasing ETH.

Ethereum vs. Bitcoin

Source: Coinbase (July 2023)

	Ethereum	Bitcoin
Popularity	#2	#1
Type	Decentralized blockchain	Digital currency
Circulating supply	120.2M ETH	19.4M BTC
Total supply	Infinite	21M BTC
Market cap	$222.4B	$568.1B
All time high	$4,891.70	$68,789.63

• Since Bitcoin stands as the pioneering and most renowned cryptocurrency, drawing a comparison between Bitcoin and Ethereum proves highly beneficial when analyzing Ethereum. As Bitcoin's primary competitor, Ethereum is ranked #2 on most cryptocurrency platforms, while Bitcoin is ranked #1.
• While this section focuses on comparing Ethereum and Bitcoin, it's essential to acknowledge that they are not of the same kind. Ethereum operates as a decentralized blockchain, where cryptocurrency is merely one of its numerous applications (financial services, games, social networks, etc.). In contrast, Bitcoin exclusively functions as a cryptocurrency, akin to the virtual counterpart of a dollar.
• The circulating supply of a cryptocurrency represents the number of tokens that have been issued and are actively available in the market. For Bitcoin, over 90% of its total supply has already been mined. On the other hand, Ethereum does not have a finite supply.
• While the concept of unlimited supply may raise concerns for Ethereum, it actually contributes to its stability as a cryptocurrency and sets it apart from becoming the next Bitcoin. This characteristic prevents scarcity-driven market behaviors and allows for a more sustainable and adaptable ecosystem for Ethereum, ensuring its continued relevance and functionality.
• Market cap is calculated by multiplying the asset's current price and its circulating supply.
• Buterin dreamed up Ethereum as a way to leverage the blockchain technology underlying Bitcoin for all sorts of uses beyond currency.

Valuation

Ethereum's price history 2015-2023

Risks

• Regulatory
• Technological
• Collapsing of Bitcoin