Ethereum is the first open-source, public blockchain with smart contract functionality. The developer community uses ETH to build its own blockchains and apps. Ethereum is part of practically every innovation in blockchain.
If Bitcoin is digital gold, Ethereum could be compared to digital silver. Both coins dominate nearly 50% of the entire cryptocurrency market. Some believe Ethereum might flip Bitcoin’s market cap someday, hence why many hold this currency as a long-term investment.
But make no mistake. ETH is NOT a store of value. It’s a utility token, andwhat makes it valuable is the work you can do with it.
More like digital oil.
Formally, ETHis a virtual, decentralized, and autonomous computer network. This means:
It’s empowering because developers no longer need to trust their business to some IT company. Ethereum allows users to safely buy and sell computing power to other users directly. Because it’s worldwide available (and also the pioneer in smart contracts), it has become the largest host of blockchain projects.
That’s self-reinforcing, because developers create tools for each other, saving time and money. Which allows us to create more practical apps for everyday people. This brings more users to the Ethereum app marketplace, which attracts even more developers.
Fast-forward from 2015 to 2022, over 2,700 apps now use ETH. Decentralized applications (dApps) are its main use case:
The goal of Ethereum is to give users more control of their data by running apps on the blockchain. While there are many complicated ways to achieve this, using Ethereum is simple:
Here’s an example of what it looks like for a complete beginner in crypto. Let’s say you want to buy a coin that’s only available on the Ethereum blockchain (they’re called ERC-20 tokens). To do this, you need to buy Ether and use two dApps: a wallet, and a Decentralized Exchange (DEX).
You just used a dApp built on Ethereum. And there are dApps for so much more: lending, gaming, browsing, betting, even voting.
Have you wondered what makes Ethereum consistently rank in the Top 3 coins for nearly a decade? Part of the answer is the same reason Bitcoin keeps dominating. These projects are first-movers in blockchain currencies and utility.
Knowing that most modern blockchains launched after 2018, Ethereum has spent an extra 3 years in the market and 5 years in development. Because developers want to be in the largest blockchain marketplace, Ethereum has stayed popular. But for how long?
Modern networks are faster and cheaper, which makes them gain users faster than Ethereum. These new blockchains will likely become the new smart-contract leader, whether it’s Ethereum forks, Layer 2s, or competitor networks. Yet, that doesn’t make ETH anything less than a blue-chip project.
You may also wonder: If Ethereum is such an old project with more utility, why is it less dominant than Bitcoin? Short answer: they’re very different. Long answer:
What sets Ethereum apart is the ecosystem created by the developer community.
Ethereum offers the infrastructure for blockchain platforms. The better the infrastructure, the more developers will build on it. This creates a loop where newer platforms add to Ether’s utility.
It’s hard to draw the line of where the Ethereum ecosystem ends because everything is becoming interconnected. Many blockchains were created on Ethereum, so each of their ecosystems is also part of ETH. That includes Ethereum alternative versions (forks like Pulsechain), Layer-2 blockchains (e.g., Polygon), and networks built on Ethereum’s Virtual Machine (EVM) like BNB Chain.
To make it more complex, Ethereum can also interact with incompatible blockchains by using relay chains (PolkaDot), cross-chain networks (Avalanche), and oracles (ChainLink). Popular projects from other blockchains eventually create ERC-20 token versions for more exposure. And if we’re talking of Ethereum DeFi dApps, there might be dozens of liquidity-pool tokens on every exchange.
For a simplified version, the Ethereum ecosystem is:
If you’re the majority of people (who aren’t developers), the ecosystem is simplified to a handful of dApps. Let’s see the most relatable use cases.
3,000 dApps isn’t that much when you realize that most of them are practically identical. There are six clear use cases, the most popular being DeFi services:
Because Web3 dApps are a transactional Internet layer, most of the development and ETH allocation goes to financial services:
The rise of DeFi in 2020 led to a massive price surge in Ethereum. You might think that passive crypto would lead to inflation and lower prices. Instead, ETH increased its floor price because DeFi created new businesses, and people don’t want to sell when they’re earning.
Both the blockchain and DeFi dApps increased liquidity with the creation of stablecoins. Ethereum’s smart contracts allow programming tokens to peg prices to fiat currencies, either with collaterals or supply algorithms. So while investors might be selling Ethereum, they’re still holding Ethereum tokens like USDC, USDL, and DAI.
DeFi platforms soon expanded to stablecoin services, allowing users to:
Ironically, the next use case is the opposite of stablecoins.
NFTs are non-fungible ERC-721 tokens that can only be traded for ERC-20 tokens or ETH. Because there can only be one, they’re linked to digital assets and considered collectibles. They’re illiquid assets that only sell when collectors find them valuable, which makes them volatile and speculative.
By now there might be more NFTs than tokens. These marketplaces have been around since 2017, even on Solana. But because Ethereum has the largest ecosystem, it became the first to popularize them by 2021 (especially on Opensea).
As a new exchange means, NFTs have their own use cases, including digital art, domain tokenization, and in-game assets.
Decentralized Autonomous Organizations are free-to-join companies with flat hierarchies. These can both be off-chain (for informal community discussions) and on-chain (for voting decisions via staking and randomness). There’s no central authority, which in theory gives all users the opportunity to make governance decisions.
Some believe that DAOs make platforms better, some believe there shouldn’t be any governance. They’re controversial because:
The most successful one is MakerDAO.
Human-readable addresses are easier to remember and useful for creating digital identities. We use usernames instead of IDs, domains instead of IP addresses, and seed phrases instead of numbers. Now, it’s possible to replace your public wallet address with a custom name using the Ethereum Name Service (ENS).
You can buy, say, Satoshi.eth and link it to your address just like NFTs are linked to pictures. You can send crypto to Satoshi.eth instead of pasting the full address. Depending on the name provider, you might sell, rent, or use these names on websites. We could also use them for hiding public addresses for privacy.
An example of Ethereum applied to browsing is the Brave browser. Brave has an ERC-20 token called Basic Attention Token (BAT), which offers a different approach to digital advertising and privacy. Users earn BAT for watching non-intrusive ads, which they can then cash out, stake, or donate to support their favorite creators.
Brave browser distributes 70% of ad revenue among users in BAT. Users also like this platform because it’s light, efficient, and has built-in blockers for privacy-invasive ads and trackers.
Often when projects become successful, they branch out into other spaces: NFTs, DeFi, play-to-earn, metaverse. These innovations broaden Ethereum’s utility but also its definition, which makes it more confusing for beginners. To understand where all these come from, it helps to go back and see where Ethereum started (and why it even exists):
Vitalik Buterin might be the most famous person in crypto besides Satoshi. He founded Ethereum in 2013 with Gavin Wood, Charles Hoskinson, and Joseph Lubin, who later founded PolkaDot, Cardano, and Consensys respectively. But it didn’t happen overnight: the idea was 2-4 years in the making.
Vitalik first joined crypto when co-founding the Bitcoin magazine after the coin’s launch in 2011. He then realized Bitcoin had limited use and wondered “what else can cryptocurrencies be used for?”. Then, they developed throughout 2013, raised $16M in Ethereum’s ICO ($0.31 per coin), and launched in July 2015.
It was a proof-of-work blockchain with a max supply of 60M ETH (now 120M+). One update after another, Ethereum was becoming more accessible and steadily increasing traffic. Which led to the problems we’re dealing with today.
Ethereum isn’t scalable enough and it’s immutable. The simplest way to improve the blockchain is by creating alternate versions (forks). Ethereum has seen 100+ forks since 2015, such as Ice Age (2015), the famous DAO fork (which created Ethereum Classic, ETC), and the most recent one,Pulsechain.
In an attempt to solve the constant scalability issues, the Ethereum 2.0. development began.
Ethereum 2.0. aims to replace the blockchain with a proof-of-stake mechanism. This saves 99% of energy consumption while multiplying network speed and scalability. It’s a multi-stage upgrade called Serenity, and Phase 0 (Beacon Chain) was completed in December 2020.
Not only did this introduce Ethereum staking, but it also sped up the rise of DeFi. Through different platforms, ETH achieved a Total Value Locked (TVL) of $10B+ at launch, $111.43B at its peak, and a current $40B average. Before December’s update, ETH averaged $300 and $15B in daily trading volume. It immediately increased its floor price to $1200+, crossing $3,500 four times (with a $4,891.70 all-time high).
Up until 2022, proof-of-work and proof-of-stake Ethereum have coexisted. ETH 2.0. officially starts after the end of PoW, which takes place during The Merge. It’s a very anticipated transition that was delayed to September 2022. Traders also started preparing, which pushes ETH’s price above $1,800 amid this bear market.
According to the roadmap, all of Serenity’s stages should be finished by 2022. We’ve just seen Phase in late 2020, and Phase 1 won’t come until 2023-2024. Expect delays for future announcements.
Ethereum 2.0. consists of two processes:
While it’s not easy to explain all stages, it’s clear there are lots of upgrades to support ETH’s long-term market value.
If you wonder why Ethereum has to be so complicated, it’s because there’s no easy solution for scalability on large networks. Replacing old methods is hard because blockchains are immutable, and thousands of dApps rely on that infrastructure. Because a lot of money is at stake, it takes a long time to bring new versions and test their security.
If Ethereum had no problems, there wouldn’t be as many alternative blockchains and forks. But most issues would go away if Ethereum solved just this one:
While other blockchains are more scalable, they don’t nearly have the network volume of Ethereum. The blockchain trilemma limits the ability for blockchains to fulfill ALL the necessary features for functionality. For a better perspective:
It’s not problematic for Bitcoin because, for most people, it’s a long-time investment made in a few purchases. But smart contracts use Ether every day. Some use cases (like play-to-earn) might sign hundreds of transactions per minute, and there are over 3,000 dApps.
To solve scalability, there are long and short-term solutions: to increase supply with technology or reduce demand with higher prices. Sometimes you need over $100 to do anything with ERC-20 tokens, and network fees scale with your amount. If you don’t have enough or don’t want to pay them, you essentially lock your funds in the Mainnet.
If you pay $100 fees, many services become unusable:
It encourages people to hold or trade less. And because fewer peopleuseit, ETH prices fall. Even though today’s fees are far lower, still:
There are some misconceptions about what it’s like to develop on Ethereum. It might seem that because it’s so popular, building on it must be easy or available to everyone. And that’s not wrong, because developers have more tools now than in 2015.
That doesn’t mean Ethereum is easy to get into:
For these reasons, it took ~7 years for Ethereum to reach 3,000 dApps, most of which appeared around 2020. Modern blockchains like BNB Chain crossed 1,200 in ~2 years and might outnumber Ethereum in another few. After all, blockchain businesses need efficient networks, not just large marketplaces.
It’s hard to keep track of the hundreds of different apps. But unless you’re a developer, you don’t need that many. Only a wallet, exchange (or NFT marketplace if you own any), and an interest-earning platform.
As a starter, you can’t go wrong with these:
Metamask is the most used WEB3 wallet for mobile and browsers. It can hold hundreds of tokens and NFTs from multiple networks like Ethereum. Web3 wallets are worldwide available and a must-have, as you can’t connect to dApps without one.
Uniswap is the main decentralized exchange for ERC-20 tokens. It has a $6.5B TVL, $5B of daily volume, and +100K monthly users. This allows traders to swap almost any new token at fair prices and high speed.
Opensea is the largest NFT marketplace on Ethereum and the go-to platform for collectors. You can discover thousands of collections, buy NFTs, or create your own ones for free*. Along with Metamask and Uniswap, Opensea ranks in the Top 3 dApps with a monthly average of 300K new users and a $500M trading volume.
PulseChain is the first Ethereum fork that copies every token, user account, and smart contract. This allows users to switch to a more efficient network without losing or having to transfer assets. They also get free copies of all assets held in Ethereum.
Pulsechain aims to decrease block time to 3s while reducing fees and sharing network load.
Ethereum is the digital fuel of blockchain. Developers use it to build tools for each other and create a decentralized Internet. While DeFi is the most successful use case, smart contracts might eventually reach every sector, starting with gaming, social media, governance, and more.
As the most used developer blockchain, Ethereum has the most scalability limitations. Developers can solve this with layer-2 blockchains like Polygon, forks like PulseChain, and upgrades like Serenity. The question is: Can Ethereum regain its past glory before another project overthrows it?
Even though other blockchains are faster or cheaper, they’re far more centralized than Ethereum (and Avalanche). Ethereum doesn’t have that much competition if you count decentralization as the no.1 feature. It’s the essence of blockchain technology.
Scalability problems are temporary. Ethereum has stood the test of time, and it will continue to do so for many years to come.
The Ethereum wallet is a dApp built on Ethereum that allows you to send funds and manage a balance on the ERC-20 network. Most Web3 wallets support it by default because they’re EVM compatible. You know it’s an Ethereum wallet when you can connect it to Ethereum dApps.
If you’re using custodial wallets or centralized exchanges, Ethereum will be available regardless of the network. Out of all the mobile apps, you can use to buy crypto, almost all offer Ethereum. You can indirectly buy Ethereum on other networks via pegged tokens like Wrapped Ether (1 WETH = ~1 ETH).
Because Ethereum has no maximum supply, there might be no price limit. The problems that come with that are token inflation, lower scalability, or higher network fees. If Ethereum can solve those problems before other competitors do, it’s reasonable to expect a $10,000+ Ethereum within a few years.
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Disclaimer:Please note that nothing on this website constitutes financial advice. Whilst every effort has been made to ensure that the information provided on this website is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we strongly recommend you consult a qualified professional who should take into account your specific investment objectives, financial situation and individual needs.
Max is a European based crypto specialist, marketer, and all-around writer. He brings an original and practical approach for timeless blockchain knowledge such as: in-depth guides on crypto 101, blockchain analysis, dApp reviews, and DeFi risk management. Max also wrote for news outlets, saas entrepreneurs, crypto exchanges, fintech B2B agencies, Metaverse game studios, trading coaches, and Web3 leaders like Enjin.
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