Ethereum

Ethereum is a decentralised, open-source blockchain platform that supports smart contracts and decentralised applications (dApps). Unlike Bitcoin, which is primarily a digital currency, Ethereum is a programmable blockchain where developers can build and deploy applications. Its native cryptocurrency is called Ether (ETH).

What Is Ethereum?

Ethereum was proposed by Vitalik Buterin in 2013 and launched in 2015. The key innovation of Ethereum over Bitcoin is programmability: developers can write smart contracts (self-executing code stored on the blockchain) that automatically execute when predefined conditions are met.

This programmability has enabled:
– Decentralised Finance (DeFi) protocols
– NFT (Non-Fungible Token) marketplaces
– Decentralised Autonomous Organisations (DAOs)
– Token issuances (ERC-20 tokens)

How Ethereum Works

Transactions and smart contracts on Ethereum are executed on the Ethereum Virtual Machine (EVM). Users pay a fee called “gas” (denominated in ETH) to compensate network validators for processing their transactions. Gas prices fluctuate based on network demand.

Ethereum vs Bitcoin

| Feature | Ethereum | Bitcoin |
|———|———-|———|
| Primary purpose | Programmable blockchain | Digital currency |
| Smart contracts | Yes | Limited (via Layer 2) |
| Consensus | Proof of Stake | Proof of Work |
| Supply cap | No hard cap | 21 million BTC |
| Transaction speed | ~12 seconds | ~10 minutes |

Ethereum’s Move to Proof of Stake

In September 2022, Ethereum completed “The Merge”, transitioning from energy-intensive Proof of Work to Proof of Stake. This reduced Ethereum’s energy consumption by over 99% and changed how new ETH is issued and how transactions are validated.

Practical Example

A developer builds a lending protocol on Ethereum using smart contracts. Users deposit ETH as collateral and borrow USDC stablecoins automatically through code, with no bank involved. Interest rates adjust algorithmically based on supply and demand. This is a real-world DeFi application running on Ethereum.

Key Takeaways

– Ethereum is a programmable blockchain that supports smart contracts and decentralised applications
– Its native currency is Ether (ETH), used to pay gas fees for transactions and smart contract execution
– Ethereum’s shift to Proof of Stake in 2022 made it significantly more energy-efficient
– It underlies most of the DeFi, NFT, and Web3 ecosystem
– Ethereum is the most widely used smart contract platform in the world by developer activity and total value locked