What is Ethereum? The Complete Guide – Part 2 (2024 Update)

• What is Ethereum? The Complete Guide – Part 1 (2024 Update)

Contents – Part 2

• History of Ethereum
  • DAO Attack
  • Hard Fork- Ethereum splits into ETH and Classic (ETH)
  • 2019 Hard Fork -Constantinople and Petersburg
  • Ethereum Price History- Bull run’s All-Time High and the “Flippening”
  • London Hard Fork
• Ethereum vs. Bitcoin: What’s the Difference?
  • Founders
  • Ether vs Bitcoin
  • Supply
  • Transaction fees
  • Mining
  • Block Times
• Advantages and Disadvantages of Ethereum

3. History of Ethereum

In late 2013, a then 19 year-old Vitalik Buterin published the Ethereum whitepaper, addressing Bitcoin’s need for a scripting language for app development.

Vitalik Buterin at TechCrunch’s Disrupt event in London, 2015

Buterin ultimately proposed a revolutionary platform with a “more general scripting language” that allows anyone to build programs such as smart contracts, financial agreements, personal identity registries, and much more.

The idea wasn’t well received at first, but soon gained traction in the following year.

In 2014 came the Ethereum Foundation (Stiftung Ethereum), a nonprofit foundation created to promote and support the Ethereum platform, shortly followed by an initial coin offering (ICO), and development of core technology.

Subsequently, excitement began to build as the technology began to solidify, and developers flocked to the platform – Ethereum was progressing rapidly.

DAO Attack

All was smooth, until one event in 2016 threatened the very existence and future of the Ethereum project – The DAO Attack.

Short for the ‘decentralized autonomous organization’, The DAO was a set of smart contracts developed on the Ethereum platform, raising a historic US $150 million in crowdsale funding.

In order to influence development of the project, investors were required to purchase DAO tokens with ether, also known as ETH (the fundamental cryptocurrency fueling Ethereum’s operation).

Not long after close of the crowdsale, The DAO was exploited – resulting in over USD $50 million in ether being drained from DAO funds, and leaving the Ethereum community wondering whether to perform a divisive “hard fork” in order to reappropriate the lost funds.

Hard Fork- Ethereum splits into ETH and Classic (ETH)

Ultimately, the network hard-forked, and split into two, giving us what we now know as Ethereum (ETH) and Ethereum Classic (ETC) – and thus, bringing us into the present day.

To read up further on The DAO Attack, and Ethereum’s successive hard fork, check out this comprehensive timeline and article here.

This post addresses the former (ETH), and will only briefly touch on Ethereum Classic and its core differences to Ethereum.

CoolWallet Storage Tip: If you’re holding more than one month’s salary in cryptocurrency on an exchange, we strongly encourage you to move it to cold storage. A small investment in security now, will pay dividends in the future. To read up more on cold storage, check out ‘Section 7: How Do I Store Ethereum?’

2019 Hard Fork -Constantinople and Petersburg

In January 2019, Ethereum was set to be undergo another hard fork to delay the “difficulty bomb” and pave the way towards an eventual Proof-of-Stake transition. With only hours to go, an external security team discovered a major vulnerability that one of the Ethereum Improvement Protocols (EIP), EIP1283  would bring to Ethereum. The hard fork was postponed till February and bundled with another hard fork to undo EIP1283. The late discovery of the security threat and subsequent public resignation of senior Ethereum team members caused signficant strife within the Ethereum community. 

In late February 2019, both hard forks, or network upgrades, finally got implemented. The first upgrade, Constantinople, deployed all 5 Ethereum Implementation Protocols (EIP), including EIP1283, in order to smooth Ethereum’s journey to Proof-of-Stake and delay the difficulty bomb.

Petersburg was then activated immediately after and replaced Constantinople. It removed EIP1283 and thereby fixed the re-entry vulnerability that caused the hard’s fork delay in January.

You can read our guide to Ethereum’s 2019 hard forks here.

Ethereum Price History- Bull run’s All-Time High and the “Flippening”

In late 2017, Ethereum’s price surged in tandem with Bitcoin. The price of ETH reached an incredible $1431 price in January 2018, during a speculative frenzy in anticipation of the so-called “Flippening”, which is the  future moment that Bitcoin’s market cap will be eclipsed by another cryptocurrency. 

The flippening never happened, and as Bitcoin’s price fell in 2018, so did Ether’s, even faster, dropping at one stage to around $80. ETH made a comeback in 2019 with Bitcoin’s bull run, but many longtime HODL’ers were severely disappointed by the lack of a price pump that never materialised.  Still, some Ethereum holders are still confident. You can track the “Flippening” here!

In early to mid 2020, Ethereum’s price surged in tandem with Bitcoin, making them the two largest cryptocurrencies leading the crypto market bull run. Being the blockchain platform of choice for Dapp developers, the price of ETH reached a whopping $4,196 in May 2021, surging even faster than Bitcoin during the speculative frenzy of DeFi and NFTs.

Ethereum ETH all time price history (CoinMarketCap)

The growing popularity of Ethereum, as well as alternative platforms like Binance Smart Chain, Solana, and Polkadot, has vastly contributed to the proliferation of thousands of DeFi, NFT, and crypto gaming applications.

Following the Elon and China FUD, the space suffered a 3-month slump, with ETH dropping to less than half of its all-time high value. However, in August 2021, the market started to recover, and by November 2021, Ethereum’s price reached a new all-time high of $4,644.

The bear market of 2022 and 2023 saw Ethereum’s price decline further, at times dipping below $1,000 due to macroeconomic factors. Despite this downturn, the ecosystem continued to grow, setting the stage for a rebound. By March 2024, ETH soared again, surpassing $3,000, driven by advancements in blockchain technology and broader acceptance of cryptocurrencies.

The future value of Ethereum remains a key concern for investors. For those interested in Ethereum price predictions, there are several sources to consult for insights and forecasts.

• Binance Ethereum (ETH) Price Prediction
• Forbes Ethereum (ETH) Price Prediction

London Hard Fork

The London Hard Fork, which was successfully launched on August 5, 2021, introduced two major improvements to the Ethereum protocol. The EIP (Ethereum Improvement Proposal) 1559 is an upgrade aimed to partially alleviate Ethereum’s exorbitant gas fees and network congestion.

Instead of the previous auction-style transaction scheme where the highest bidders get their transactions settled first, the implementation introduces a fixed-price for the fees according to the congestion level of the network. Furthermore, the base fees paid by spenders will be burned instead of being used as additional rewards, making ETH more scarce, and in turn, deflationary. In fact, the coin’s value continues to rise in a series of short surges following the implementation.

The London Hard Fork also included a mining difficulty delay, which amended Ethereum’s increasing difficulty to allow miners to continue their work until the forthcoming merge in 2022.

4. Ethereum vs. Bitcoin: What’s the Difference?

Although striving to repair and fill different gaps and issues in present day society (and the economy), Ethereum and Bitcoin oftentimes can’t help but be mentioned in the same sentence by cryptocurrency enthusiasts and investors due to their decentralized nature and similarities of their respective currencies (Ethereum and Bitcoin).

To jog your memory, Bitcoin is considered the world’s first cryptocurrency, launched in 2009 to decentralize the financial sector and act as a universal payment system without the need of a central bank or administrator.

It should be no surprise by now to hear that Ethereum offers much more than just a decentralized, P2P, payment system, but an application of the blockchain for smart contracts and decentralized applications – or, to put it more simply, the automatic execution of tasks.

Ethereum co-founder Gavin Wood even acknowledged the major difference between the two, stating, Bitcoin is first and foremost a currency; this is one particular application of a blockchain. However, it is far from the only application. For example, e-mail is one particular use of the internet, and that function definitely helped popularize it, but there are many other ways people use the internet. Ethereum takes a more comprehensive approach towards tackling societal, economical, and political deficiencies through one giant computational network, while the Bitcoin network tackles just a particular application of blockchain technology – payment.

Let’s take a look at several other core differences in their operation, purpose, and functionality.

Founders

One of the most notable differences between the two is in terms of leadership. While Bitcoin was founded by the ever-mysterious and yet to be uncovered ‘Satoshi Nakamoto,’ Ethereum has a face to the name, in fact…several faces: Vitalik Buterin, Gavin Wood (now Polkadot founder), Mihai Alise, Anthony Di lorio, and Charles Hoskinson (Cardano head).

As transparency issues are ripe within the crypto-sphere, anonymity may be seen as a downside of Bitcoin and other cryptocurrencies, while having (several) faces to the Ethereum project’s name gives investors and users some assurance of accountability – for example, users can rest easy knowing Vitalik isn’t overtly manipulating the market and Ethereum prices.

Ether vs Bitcoin

Terminology-wise, it’s important to nail down the difference between Ethereum and Ether, and Bitcoin and bitcoin. Ethereum refers to the Ethereum blockchain on which smart contracts and decentralized applications are deployed, while Ether refers to the token powering the transactional and computational costs of the blockchain.

Similarly, Bitcoin refers to the protocol and payment network, and more comprehensively – the ecosystem, while bitcoin refers to the actual currency. For example, “I just purchased three bitcoins the other day.”

While both Ether and bitcoin are cryptocurrencies and can be traded, exchanged, and transacted between users, Ether is largely used to pay for services and transaction fees on the network – enabling the development and distribution of applications – while bitcoin is used more closely to an actual currency and alternative therein.

Supply

Bitcoin’s supply is diminishing, and quickly. Capped at 21 million coins, it’s already estimated that the majority of bitcoins out there have already been mined (89% as of September, 2021), with the block subsidy set to deplete at block 6,930,000, or around the year 2140.

Ethereum on the other hand has no maximum supply, and is capped at an annual rate of 18 million Ether – meaning that the purchasing power of a deflationary currency (bitcoin) is expected to rise over time, whereas the value of an inflationary currency (Ether) will drop. That is, until the EIP-1559 was proposed to make ETH somewhat deflationary.

Currently, the Ether supply sits at just over 117 million and, as such, boasts a much lower cost of entry for newcomers.

Transaction fees

A slight difference that is noticeable is both protocols’ transaction fees. As the network began to bloat, and bitcoin’s price began to rise, so did transaction fees, topping out at a nearly $55 average transaction fee at its peak in early 2021.

Ethereum used to enjoy much lower fees averaging at $4, but this has changed drastically after the proliferation of DeFi, which has clogged the network due to overwhelming demand. Today, the average ETH transaction fee is $20, which is a bit cheaper than BTC but would still hurt your wallet.

Mining

While Ethereum is currently sitting in limbo as a hybrid between PoW and PoS, Bitcoin adheres to PoW as their consensus mechanism, where service requesters are required to perform work (computational resources and verification) in exchange for reward.

As mentioned above, PoW requires large amounts of resources and energy, and pits miners against each other – with each competing to complete transactions the fastest in order to receive a reward (Bitcoin). Ethereum’s network requires a lot of energy, and their push towards PoS is a solution towards curbing wasteful and expensive energy costs.

Additionally, PoS requires users validating the network to have some actual stake in the network – after all, they are “staking” their own coins – while PoW miners theoretically don’t even need to own the targeted currency they are mining.

Block Times

Both networks have suffered their fair share of bloat and congestion, leading to slow transaction and confirmation times on the network. Remember, in order to process and validate transactions, users mine blocks to uphold the security and integrity of the network.

Bitcoin’s expected block time averages at about 10 minutes, while Ethereum’s ranges between 10 to 20 seconds – allowing for faster transaction confirmation times.

5. Advantages and Disadvantages of Ethereum

Ethereum offers users, investors, developers, content creators, institutions, and businesses an unfathomable opportunity for growth, innovation, and mass adoption, however, it does currently suffer from several issues holding it back. Below is a comparison chart of five core advantages and disadvantages of the Ethereum network.

Ethereum offers users, investors, developers, content creators, institutions, and businesses an unfathomable opportunity for growth, innovation, and mass adoption, however, it does currently suffer from several issues holding it back. Below is a comparison chart of five core advantages and disadvantages of the Ethereum network.

Advantages

• Provably fair and transparent: Smart contracts are public, addressing core transparency issues in many industries. This allows users to verify actual functionality, eliminating unscrupulous practices, cheating, and theft, especially in online casinos and poker websites.
• Decentralized: Elimination of central party control over processing and single points of failure. Decentralized infrastructure provides:
  1. High levels of fault tolerance
  2. Attack resistance
  3. Collusion resistance
• Fast block times: Quicker block times (averaging 10 to 20 seconds) enable faster transaction and confirmation times, ensuring a smoothly running network.
• Turing-complete: Allows any system or programming language to compute anything computable (given sufficient resources), facilitating the deployment of smart contracts and decentralized applications. Example: a car breathalyzer detecting intoxication can automatically disable the car keys and adjust insurance costs.
• Robust ecosystem: Ethereum provides a platform for launching countless projects and tokens, offering a foundation for innovation and improvement.

Disadvantages

• Slow to fix: Although smart contracts are public and visible, bugs and security holes cannot be quickly fixed. Example: the 2016 attack and hack of The DAO.
• Higher learning curve: Writing solid and comprehensive smart contracts can be challenging due to the novelty of blockchain technology and current programming knowledge, primarily feasible for simple contracts.
• Scalability: The network has historically been clogged with transactions, resulting in slower transaction and confirmation times. To achieve mainstream adoption, Ethereum needs to handle over 4,000 transactions per second (tps). Currently, it handles about 10-15 tps but is expected to scale to 100,000 tps in the coming years.
• Centralization of ICOs: Despite many ICOs launching on a decentralized network, there is still a risk of centralization due to single development teams with high funding or companies controlling large amounts of money.