What is Ethereum? (ETH)

Founding and Early Vision (2013‑2015)

In late 2013, programmer Vitalik Buterin published the Ethereum whitepaper, proposing a decentralized platform that could execute programmable contracts, known today as smart contracts.

Key motivations:

• Limitations of Bitcoin’s scripting language
• Desire for a general‑purpose blockchain that could host decentralized applications (dApps)
• Creation of a Turing‑complete virtual machine (the Ethereum Virtual Machine, EVM)

The concept quickly attracted attention, leading to the formation of the Ethereum Foundation, a Swiss non‑profit, and the recruitment of co‑founders Gavin Wood, Joseph Lubin, Mihai Alisie, Anthony Di Iorio, Charles Hoskinson, and Amir Chetrit.

Crowdsale and Launch (2014‑2015)

July 2014: Ethereum conducted a public crowdsale (ICO) raising over 3,000 BTC (≈ $18 million at the time). Participants received Ether (ETH), the network’s native cryptocurrency.

Technical milestones:

• Development of the first Ethereum client, “cpp‑ethereum,” written in C++.
• Implementation of the EVM, Solidity language, and the “Genesis Block” parameters.
• Establishment of the “Homestead” roadmap, outlining incremental upgrades.

July 30, 2015: The Frontier release went live, marking the official launch of the Ethereum mainnet.

Early Ecosystem Growth (2015‑2017)

Frontier and Homestead phases focused on stability and developer tooling.

Key events:

2016: The DAO (Decentralized Autonomous Organization) raised > $150 M, exposing security vulnerabilities.

2016: The DAO hack led to a contentious hard fork, creating Ethereum (ETH) and Ethereum Classic (ETC).

2017: Surge of Initial Coin Offerings (ICOs) built on Ethereum, driving network usage and gas price spikes.

Scalability Challenges and Research (2017‑2020)

By 2018, Ethereum faced severe congestion, with gas fees exceeding $30 per transaction during peak demand.

Research directions:

• Layer‑2 solutions: State channels, Plasma, and Rollups.
• Consensus redesign: Exploration of Proof‑of‑Stake (PoS) via the Casper protocol.
• Sharding: Partitioning the blockchain into multiple “shards” to increase throughput.

Community initiatives:

• Ethereum Enterprise Alliance (EEA) formed to promote enterprise adoption.
• Ethereum Improvement Proposals (EIPs) process matured, allowing community‑driven upgrades.

The Merge – Transition to Proof‑of‑Stake (2021‑2022)

2021: The roadmap was consolidated into the “Ethereum 2.0” (now simply “Ethereum”) upgrade path: Phase 0 (Beacon Chain), Phase 1 (Shard Chains), Phase 1.5 (The Merge), Phase 2 (execution layer enhancements).

Key milestones:

• December 1 2020: Beacon Chain launched (PoS chain operating in parallel).
• September 15 2022: The Merge completed, fully transitioning Ethereum’s consensus from Proof‑of‑Work (PoW) to Proof‑of‑Stake.

Impact of The Merge:

• Energy consumption reduced by > 99 % (from ~78 TWh/yr to < 0.1 TWh/yr).
• Staking became the primary method of securing the network; over 20 million ETH (~15 % of supply) locked in the deposit contract.
• ETH issuance dropped from ~13,000 ETH/day to ~1,600 ETH/day, introducing a deflationary pressure when combined with EIP‑1559 fee burning.

Post‑Merge Optimizations (2022‑2023)

EIP‑1559 (implemented in August 2021) introduced a base fee that is burned, making ETH a potentially deflationary asset.

Subsequent upgrades:

“Shanghai” (April 2023): Enabled withdrawals of staked ETH, introduced EIP‑3651 (cold account storage), and added several gas‑optimizations.

“Cancun” (projected 2024): Focuses on data‑blob support for rollups, further reducing costs for Layer‑2 solutions.

Layer‑2 adoption:

• Rollups (Optimistic and ZK‑Rollups) now handle > 70 % of Ethereum transaction volume.
• Major projects: Optimism, Arbitrum, zkSync, StarkNet, each offering near‑instant finality and sub‑$0.01 transaction fees.

Recent Developments (2024‑2025)

2024:

“Fusaka” upgrade scheduled for December 3 2025 (as per developer consensus), introducing PeerDAS to allow validators to verify only parts of data, cutting bandwidth and storage costs.

Continued growth of DeFi: Total Value Locked (TVL) surpassed $50 B, with protocols like Uniswap V4, Aave v3, and Curve 2.0 launching.

Institutional adoption: Spot Ether ETFs attracted $9.6 B in Q3 2025, surpassing Bitcoin’s inflows.

2025:

Ethereum’s ecosystem now hosts over 30 million active addresses, with daily transaction counts regularly exceeding 1 million.

Emerging standards: ERC‑4337 (account abstraction) enabling smart‑contract wallets without private keys, and ERC‑725 (identity) gaining traction in Web3 identity solutions.

Governance evolution: The Ethereum Foundation continues to fund core research via the “Ethereum Improvement Grants” program, supporting projects in zero‑knowledge proofs, cross‑chain bridges, and sustainable staking.

Summary

From its ambitious whitepaper in 2013 to the PoS‑driven, scalable platform of today, Ethereum has continually reinvented itself through community‑led research, rigorous upgrades, and a vibrant developer ecosystem. Its history reflects a persistent drive to overcome technical constraints while expanding the possibilities of decentralized finance, NFTs, and beyond. As the network moves toward full sharding and deeper Layer‑2 integration, Ethereum is poised to remain the foundational layer of the decentralized web.

Ethereum (ETH) is the world’s leading programmable blockchain, distinguished by its robust smart‑contract capabilities, decentralized application (dApp) ecosystem, and a vibrant developer community. Launched in 2015 by Vitalik Buterin and a team of co‑founders, Ethereum introduced a Turing‑complete virtual machine (the EVM) that enables developers to write and execute code without a central authority. This flexibility has fostered the growth of decentralized finance (DeFi), non‑fungible tokens (NFTs), and layer‑2 scaling solutions, positioning Ethereum as the backbone of Web 3.0. Its consensus mechanism transitioned from Proof‑of‑Work (PoW) to Proof‑of‑Stake (PoS) with the \"Merge\" in September 2022, dramatically reducing energy consumption by >99% and unlocking new economic levers such as staking rewards and liquid staking derivatives.

The tokenomics of ETH are governed by a combination of issuance, fee‑burn mechanisms, and staking economics. Post‑Merge, the base issuance rate fell to roughly 0.5% annualised, while the implementation of EIP‑1559 in August 2021 introduced a mandatory base‑fee that is burned each block, creating a deflationary pressure that scales with network activity. Consequently, ETH’s net supply can become negative during periods of high demand, as witnessed in 2021‑2023 when fee burns consistently outpaced new issuance. Stakers—validators who lock up ETH to secure the network—receive a proportion of the block reward and a share of transaction fees, aligning incentives between token holders and network security. The effective annual percentage yield (APY) for staking fluctuates between 4% and 6% depending on total staked ETH and protocol parameters.

Supply dynamics are further shaped by the "Ethereum Improvement Proposals" (EIPs) that can adjust issuance or fee structures. For instance, EIP‑4337 (account abstraction) and future upgrades like Danksharding aim to increase throughput while preserving the economic model. The total circulating supply, as of October 2025, sits just above 124 million ETH, with roughly 15‑20 million ETH burned annually during peak activity. The locked‑up portion—ETH deposited in the consensus layer for staking—accounts for roughly 20‑22 million ETH, representing a significant liquidity constraint that can amplify price sensitivity to macro‑economic factors.

From an investor’s perspective, ETH’s tokenomics provide a blend of scarcity, utility, and yield. The deflationary component (fee burns) creates a scarcity premium, while the utility of ETH as gas for executing transactions and as collateral across DeFi protocols drives ongoing demand. Staking introduces a passive income stream, but also imposes a lock‑up risk that can affect market liquidity. Moreover, the emergence of liquid staking tokens (e.g., stETH, rETH) enables holders to retain exposure to staking yields while maintaining tradable assets, further enriching the token’s economic profile.

Risk considerations include protocol upgrade uncertainty, potential centralisation of staking (as large validators accrue disproportionate influence), and the competitive pressure from layer‑2 solutions and alternative smart‑contract platforms. Nevertheless, Ethereum’s network effect, developer tooling, and continuous roadmap—spanning scalability (sharding), privacy (zk‑EVMs), and governance enhancements—position ETH as a resilient store of value and a foundational layer for the expanding decentralized economy.