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Ethereum (ETH) 101 - Complete Guide

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Author: Harshini Nag Updated: January 28, 2022

Ethereum launched in 2015 and emerged as one of the most significant cryptocurrencies and blockchain startups to follow Bitcoin’s lead. Ethereum introduced smart contracts functionality to the blockchain, as well as supporting peer-to-peer transactions. Ether (ETH) is Ethereum’s native token that enables the transfer of value across its network. 

Only Bitcoin (BTC) bests ETH in terms of value and popularity. Because of the growing relevance and usefulness, many people have started to pay attention to the smart contracts platform.

Read on to learn from this beginner’s guide all you need to know about Ethereum.

What Is Ethereum and Why Was ETH Created?

Ethereum first appeared as a concept in a whitepaper written in 2013 by Vitalik Buterin. In the whitepaper, Buterin described a blockchain platform that would support a new architecture for cryptocurrencies that differed from and improved upon Bitcoin. Most remarkable about Buterin’s concept was that the blockchain network would support decentralised smart contracts — creating many more use cases for the platform than merely just a digital currency.

After a meeting with likeminded people such as Gavin Wood, Anthony Di Iorio, Charles Hoskinson, Mihai Alisie, Joseph Lubin and Amir Chetrit, the Ethereum Foundation was founded on June 7, 2014, in Zug, Switzerland. Although Buterin is the face of Ethereum, the Foundation is the entity behind the implementation and running of the blockchain platform.

According to the whitepaper, the original goal of Ethereum was to create a global blockchain platform where developers could create decentralised applications (dApps). True to its goal, many projects exist today that are built on the Ethereum framework.

A smart contract is a piece of software with which peers initiate transactions over a blockchain platform. The details of this transaction protocol are immutable and the software auto executes when certain conditions are met. It is because of smart contracts that blockchain-based transactions do not require a central authority to enforce trust.

To streamline the interactions among peers on the Ethereum platform, the creators developed Ether (ETH) as its native token. The Ether token became available to the public after a public token sale on July 30, 2015. The token facilitates the execution of smart contracts on the Ethereum network.

How Does Ethereum Work?

A blockchain network, to put it simply, is a network of nodes spread out across the world, which means the network is not centralised in one place. Developers can then use these to host digital currencies, such as tokenized Bitcoin — so there is no single point of failure. Additionally, all the peers in a blockchain, such as the Ethereum network, believe in a single global truth, which means transactions are trustless.

Ethereum consists of a global network of computers, otherwise called nodes, which together forms a kind of supercomputer. The network assembles and runs smart contracts, which are self-executing and are free from fraud due to their immutability. Nodes within the network validate transactions through a proof of work (PoW) system, which will soon upgrade to a proof of stake (PoS) system with ETH 2.0, where peers stake their tokens in order to validate transactions. In return for successful validation of transactions, peers earn ETH.

Ethereum stands out not only because it pioneered the concept of smart contracts, but because of how it uses them. The blockchain platform treats smart contracts as an Ethereum account, meaning they can send transactions over the network using a balance that no other user can control. Ethereum users interact with smart contracts when submitting transactions. After users have submitted the transaction details and conditions, a special feature called the Ethereum Virtual Machine (EVM) reads the smart contract and executes it accordingly.

Key 3 Selling Points of Ethereum (ETH)


Smart contracts

Ethereum pioneered smart contracts. A smart contract is simply a software that auto-executes as long a set of conditions are met. As such, the software eliminates delays and removes the need for third parties to verify the veracity of the details in the smart contract. Because the data entered into the smart contract is immutable, no one can tamper with the information before and after the software executes.


Ability to host other cryptocurrencies

Ethereum, just like Bitcoin, is open source and that is how thousands of altcoins have come into existence. Ethereum’s introduction of smart contracts and its more ingenious architecture makes it easy for developers to create new projects on top of the network. This is why a great number of well-performing altcoins such as Binance Coin (BNB), Tron (TRON), and EOS are ERC-20 tokens.


Compatibility with many other blockchains

Apart from the Ethereum Foundation, the Enterprise Ethereum Alliance (EEA) plays a crucial role in the governance of the technology. EEA is simply a collection of companies interested in the potential of blockchain, specifically the Ethereum blockchain network, to help them optimise their business processes. The resulting collaboration has placed Ethereum at the forefront of cross-compatibility with other networks — which may lead to further success for the platform in the future.

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Is Ethereum Worth the Investment?

Since the birth of the cryptocurrency ecosystem, ETH has remained the most valuable token in terms of market capitalisation after Bitcoin (BTC). The growth of the digital currency since its inception has been incredible. In 2017 alone, for instance, ETH’s value exploded by 12,137% to $1,384.03 by the end of the year. 

Over the past three years, the token has experienced some wild fluctuations in price, with most of it caused by a shifting legal landscape in light of the burgeoning cryptocurrency industry. Later this year, the Ethereum Foundation will launch an upgraded version of Ethereum called Ethereum 2.0. In Phase 0, the team will launch the Beacon Chain; a testnet to expand Ethereum’s capabilities.

Remarkably, the upgrade will increase the scope of the network in terms of the solutions it can offer. If the platform has been able to maintain a robust status over the past six years, then could it be possible that the value of the platform will be even higher when the new upgrades fully roll out?

The important thing you should keep in mind when buying ETH is its immense growth potential, but potential downturns should always be anticipated. In 2018, for example, the token spent the entire year on the back foot. This tells you that, as much as cryptocurrencies present a real profit opportunity, one should always remain alive to the inherent risk involved and that one should only invest in Ethereum an amount that one can afford to lose.

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Frequently Asked Questions

  1. Whether ETH can surpass the price of Bitcoin remains a possibility but no one can put a definite timeline in place. Over the past few years, the Ethereum project has been developing in ways that threaten the dominance of Bitcoin. With the implementation of Phase 0 of ETH 2.0, the likelihood of Ethereum narrowing the gap with Bitcoin increases. Further upgrades to the Ethereum ecosystem will no doubt help to close the gap.
  2. ETH differs from BTC majorly because they are native to different blockchain networks. The Ethereum network is based on a proof of stake protocol, while the Bitcoin network is based on the proof of work system.
  3. Ethereum is the second most valuable token by market cap. Many traders believe that ETH is the best alternative to BTC because of its strong growth potential. The impending upgrade of the system is likely to drive up demand for the tokens, which should push up the price of ETH. Whether you should buy or not depends on how your personal circumstances, your investment goals and your risk appetite.
  4. ETH 2.0 promises to take the Ethereum blockchain to the next level. Specifically, the upgrade is aimed at increasing the transaction speed of the platform. Naturally, this will draw more people towards Ethereum, hence driving up demand. So, ETH 2.0 is likely to drive up the ETH price rather than undermining it.
  5. Yes. Ethereum is among the very first blockchain projects and played a major role in helping to grow the cryptocurrency community. The project has legitimate use cases, which explains the existence of the Enterprise Ethereum Alliance.
  6. At the time of writing, one ETH token was worth $431.75, which was 7.36% higher than the previous 24-hour trading period. However, given the volatile nature of the crypto space, this price may change significantly.
  7. Ether (ETH) is a digital currency that facilitates transactions on the Ethereum blockchain network. From a broad sense, ETH enables the transfer of value, as well as helping peers to run decentralised applications (dApps) within the Ethereum ecosystem.
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