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What is Ethereum? The Beginner’s Guide

Ethereum is the biggest smart contract platform on the market. Vitalik Buterin is the founder and the frontman of Ethereum. Ethereum’s success has been driven by three megatrends: ICO, DeFi, and NFT.

Ethereum got wider awareness thanks to the ICO boom of 2017. During the DeFi boom of 2020 and 2021, decentralized apps built on Ethereum gained millions of users. NFT collections on the Ethereum platform became a real phenomenon in 2021.

Ethereum is built as an operating system for smart contracts and decentralized applications. Ethereum’s greatest strength is its network effect. The Merge, which took place in September 2022, was the most important update of Ethereum. Ethereum’s future looks very bright after major technical updates done in the 2020s.

You can buy Ethereum from all major cryptocurrency exchanges. An active Ethereum investor should follow Ethereum news daily. There are hundreds of different social media channels for Ethereum fans.

Ethereum is the leading smart contract platform

Ethereum is the biggest smart contract platform on the market. Ethereum is an operating system for distributed applications which are called dapps. You can think of Ethereum as the iOS or Android of the crypto world.

Ethereum has historically been called a second-generation cryptocurrency. Bitcoin was the first cryptocurrency, but Ethereum was the first smart contract platform. The Ethereum blockchain was launched in July 2015.

The smart contract platform niche has become really popular in recent years. Ethereum has dozens of serious competitors, which have gained significant market cap in the 2020s. These are BNB Chain, Cardano, Polkadot, and Cosmos. Despite the competition, Ethereum’s position as a leading platform remains stable.

Basic information about Ethereum:

Category Smart contract platform
Ticker in exchanges ETH
Circulating supply 122M ETH
Max supply No limit
All-Time High (date) $4890 (16-Nov-2021)
All-Time Low (date) $0.42 (20-Oct-2015)

Ethereum’s native token is Ether (ETH). It is used for staking and paying transactions. Native tokens of rivaling platforms have similar functions.

This article is a beginner’s guide to Ethereum. We go through Ethereum’s history, technology, and potential as an investment.

Ethereum is Vitalik Buterin’s project

Vitalik Buterin is the founder and the frontman of Ethereum. He described Ethereum’s white paper at the end of 2013. Ethereum was actually founded by a group of individuals, but Buterin has always been the person who gives the face and the voice to the Ethereum community. Below is a picture of Vitalik Buterin.

vitalik buterin

Cardano founder Charles Hoskinson and Polkadot founder Gavin Wood were also part of Ethereum’s core team in its early stages. However, the men went their separate ways to develop competing solutions.

Vitalik Buterin was under 20 years old when Ethereum was founded. Back then, Buterin worked for Bitcoin Magazine. He was well aware of the limitations and possibilities of Bitcoin.

Buterin argued that Bitcoin needs its own programming language for building decentralized applications. He wanted to expand Bitcoin to be more than just a currency. Vitalik Buterin wasn’t alone. Many other platform projects were launched in 2014 and 2015 too.

Bitcoin is famous for its slow development process. Changes happen rarely and they are difficult to make. This drove Buterin in creating his own cryptocurrency.

Do you know where the word Ethereum comes from? Buterin explains the origins in the following tweet.

Ethereum was funded through an ICO in August 2014. It gathered a lot of interest from many OGs in the crypto industry and raised about 20 million dollars. This is a small amount compared to funding rounds today, which are in hundreds of millions of dollars.

The genesis block of the Ethereum blockchain was created in July 2015. The platform didn’t really take off until 2016. This is also when Ethereum faced its worst crisis to date. An ambitious project called The DAO collapsed due to a vulnerability in its smart contract.

The aftermath of this hacking caused massive debates in online forums and social media. Should the victims be reimbursed? The crisis literally split Ethereum in half. The blockchain was hard forked into two chains. This is what the Bitcoin community did as well in 2017 when Bitcoin Cash was born. The difference is that Ethereum, in fact, is the new branch.

Many newcomers assume that Ethereum Classic was hard forked from Ethereum. It’s the other way around. Ethereum was the hard-forked chain, but it became so much more popular than Ethereum Classic that it became de facto Ethereum.

The ICO, DeFi, and NFT booms

Ethereum’s success has been driven by three megatrends: ICO, DeFi, and NFT. Each of these booms (and busts) strengthened the status of Ethereum in the market. They have also changed the entire crypto industry.

The ICO boom (2017-2018)

Ethereum got wider awareness thanks to the ICO boom of 2017. Crowdfunding was already a thing in the crypto industry, but ICOs held on the Ethereum platform gained extraordinary popularity in 2017. ICOs raised the price of Ether (ETH) so much that in the summer of 2017, it almost reached the market cap of Bitcoin. Bitcoin’s market share fell from about 85% to 37% in a matter of months (March-June 2017).

The ICO boom made Ethereum a significant project in the crypto industry. Before 2017 altcoins didn’t receive much attention. Thanks to Ethereum, other altcoins gained status in the market that had previously been dominated by Bitcoin.

Justin Sun, the founder of Tron, is in the photo below. Tron was once one of Ethereum’s challengers in 2017-2018. Its ICO was held on the Ethereum platform too. Almost all of Ethereum’s competitors used Ethereum as a platform for their ICOs!

what is tron | justin sun

The ICO frenzy that started in the spring of 2017 lasted about a year. Ethereum reached its all-time high ($1432) on January 13, 2018. The next time the Ethereum price crossed that line was three years later!

The DeFi boom (2020-2021)

During the DeFi boom of 2020 and 2021, decentralized apps built on Ethereum gained millions of users. The DeFi boom can be divided into two stages. The first one lasted just a couple of months in the spring of 2020. This means that there was a period of almost two years of silence (Q2/2018 – Q2/2020) in the market after the previous bubble (ICOs) burst.

DeFi comes from the words decentralized finance. The term is an umbrella that covers all decentralized financial applications. These include lending protocols, decentralized exchanges, and many other financial protocols. They operate independently through smart contracts. The end-user communicates with the apps using a Web 3 wallet like MetaMask.

The first stage of the DeFi boom raised a major problem for Ethereum: transaction fees (gas fees) went up significantly. This was due to massive traffic caused by the DeFi apps. Ordinary cryptocurrency transactions cost up to tens of dollars and transactions in decentralized exchanges were in the 100-200 dollar region.

The first DeFi bubble burst in the autumn of 2020, but the sector came to life again in early 2021. At that time, there was also a significant change in Ethereum’s dominance. Competing platforms began to eat its market share. Many popular DeFi apps were launched on BNB Chain and other platforms. Ethereum’s market share dropped from around 97% to 60% in the DeFi sector during 2021.

The table below shows the ranking of smart contract platforms in terms of liquidity (TVL).

PlatformNative tokenTVLMarket share
Ethereum ETH $27.8 billion 57.8%
Tron TRX $5.8 billion 11.9%
BNB Chain BNB $4.5 billion 9.5%
Arbitrum ARB $2.4 billion 4.9%
Polygon MATIC $1.0 billion 2.1%
Optimism OP $0.9 billion 1.9%

The data above is from It shows the state of the DeFi sector in March 2023. TVL stands for Total Value Locked. It tells how much liquidity is stored in different applications, measured in dollars. Ethereum clearly dominates the market, but there are currently at least half a dozen viable alternatives to it.

The NFT boom (2021)

NFT collections on the Ethereum platform became a real phenomenon in 2021. NFT (Non-Fungible Token) refers to technology that enables the creation of unique tokens. Digital art is a good example, which can be an image or a video. Each work of art is a unique NFT, which can be stored in a cryptocurrency wallet just like regular cryptocurrencies.

The first part of the NFT boom took place in the spring of 2021, but the sector exploded again at the end of 2021. Investors have paid millions of dollars for Cryptopunks and Bored Apes Yacht Club NFTs. You can view the most popular collections at


The NFT boom has also boosted the popularity of alternative platforms. Their selling point is low transaction costs compared to Ethereum. However, the market is dominated by the OpenSea marketplace which is on the Ethereum platform. Ethereum has a well over 90% market share in the NFT sector.

The ICO boom brought a lot of attention to Ethereum, but it was mainly about raising money and speculating. The DeFi sector introduced useful apps that millions of people use every day. NFTs brought in a lot of speculative money, but the technology is also related to the gaming world and metaverses.

Ethereum is a smart contract platform

Ethereum is built as an operating system for smart contracts and decentralized applications. It could also be described as an operating system, meaning you can compare Ethereum to Android, iOS, or Windows. The main function of an operating system is to provide a framework for developers to build applications. These are called dapps in the blockchain world.

Although Ethereum was the first known smart contract platform, the situation is different today. There are about 20 significant projects competing in the sector. New ones are constantly being launched. All smart contract platforms basically offer the same thing, but differences arise from the technology used, the background team, and the programming languages.

Ethereum needs to attract as many application developers as possible. This group then builds dapps that end users are happy to use. The more developers there are, the more likely a “killer app” will be developed. In addition, the Ethereum platform itself must be developed further.

You can program almost anything on a platform like this. The question is more about what kind of applications are best suited for the blockchain environment. DeFi apps described above are the best examples. In addition, games built on Ethereum can take advantage of NFT technology and bring in a new kind of play-to-earn mechanism compared to traditional games.

Smart contracts are at the heart of decentralized applications. These are pieces of the program stored in the blockchain that can be assigned different functionality. The video below explains how smart contracts work.

smart contract

The point of a smart contract is that it is a decentralized program that cannot be manipulated or altered. This piece of code carries out the orders given to it with 100% certainty. No one can delete or destroy a smart contract, as it is stored in a decentralized manner on thousands of nodes on the Ethereum network.

Other smart contract platforms operate on a similar basis as Ethereum. However, Ethereum has the advantage of the network effect. Most of the world’s app developers build apps on the Ethereum platform.

It is important to understand that Ethereum does not compete with Bitcoin. Ethereum is made to solve completely different problems. If you want to compare Ethereum to something, compare it to other smart contract platforms.

Ethereum vs. competitors

Ethereum’s greatest strength is its network effect. Ethereum has gotten a huge number of developers and investors behind it over the years. Over time, the gap with the competitors grows even more. Ethereum has even more app developers than Bitcoin.

Although other alternatives have entered the market, Ethereum still has a massive lead. Most of the development is done continuously on the Ethereum platform. Competing projects are called 3rd generation solutions. This means platforms that scale to thousands of transactions per second.

The image below: Solana is one of Ethereum’s biggest competitors.

solana vs. eth

The main difference between Ethereum and third-generation platforms used to be the consensus algorithm. Ethereum’s Proof of Work required physical miners to run the block production, but this changed in September 2022 when Ethereum transformed to Proof of Stake consensus. We’ll go through the impact of this upgrade (The Merge) in the following chapter.

Even if Ethereum is a PoS platform it still has limited transaction capacity. The network can only process about 15 transactions per second, while competitors have the capacity to handle hundreds or even thousands of transactions per second. This will change in the near future with scalability upgrades. In the meantime, Ethereum is using Layer 2 solutions. Bitcoin has made the same choice with its Layer 2 technology called the lightning network.

There are also differences in programming languages. All Ethereum smart contracts must be written in Solidity, which was developed for this purpose only. Some platforms support other programming languages.

If we forget the technical differences, the main question is of getting developers. You can think about the difference between Android and iOS operating systems. After all, it’s a matter of which platform has the most popular applications.

Each platform strives to attract the best developers and provide them with support in application development. In addition, a huge number of coders are developing the actual system. Ethereum has currently four times more developers than the next project. Which is Bitcoin, by the way.

The Merge

The Merge, which took place in September 2022, was the most important update of Ethereum. It had been prepared for years, and The Merge was also the most significant event of 2022 in the world of cryptocurrencies.

The most visible change in The Merge was Ethereum’s transition from Proof of Work consensus to Proof of Stake consensus. In other words, Ethereum mining was completed. We have published a separate article on the effects of The Merge if the topic interests you in more detail.

In addition to mining, The Merge has another significant impact. Ethereum’s inflation has dropped to negative after the update, i.e. on the side of deflation! You can follow the exact numbers on the website.

The graph below shows the evolution of Ethereum inflation at the end of February in 2023, i.e. 165 days after The Merge. As you can see, the number of ETH tokens in circulation is currently lower than at the time of The Merge update.

eth ultrasound

The more Ethereum is used, the more transaction fees are burned. If this burning exceeds the staking rewards paid to the validators, the amount of Ether in circulation will decrease.

It is important for investors to understand that giving up mining and switching to Proof of Stake consensus is not yet the key to scalability. Ethereum’s transaction capacity or block time did not change with The Merge.

There are still many important steps left in Ethereum’s roadmap. The scaling update is coming next, so this will finally be improved during 2023. Before that, the transaction bottleneck is widened with Layer 2 solutions. The most popular L2s are Optimism and Arbitrum. Polygon Pos Chain, built as Ethereum’s sidechain, has also a significant impact on scaling Ethereum.

Ethereum as an investment

Ethereum’s future looks very bright after major technical updates done in the 2020s. It has dominated the smart contract platform niche so far with outdated technology. The Merge update and the subsequent hard forks bring Ethereum technically to the level of its competitors.

In addition to the Ethereum “base layer”, there is massive development going on at Layer 2 platforms and sidechains. Optimism and Arbitrum have become the most popular Layer 2s and both have also launched their own native tokens. Polygon is a sidechain of Ethereum and it has already become a top 10 cryptocurrency on the market.

Until 2022, the so-called Ethereum killers have gained popularity with more advanced technology (transaction capacity). Soon, the biggest selling point of competing options will be gone. We believe that the combined market share of Ethereum plus its Layer 2s and sidechains will keep growing further.

We are likely to see specialization in the smart contract platform sector. Some of the projects can focus on games or the NFT sector, for example. Smart contract platforms tend to offer a little bit of everything right now. This is not sustainable in the long run.

Axie Infinity (pictured below) is a good example of specialization. It runs on the Ronin blockchain built specifically for the game, which is also a sidechain of Ethereum.

axie infinity

The Merge update makes Ethereum an even more attractive investment for institutions. Ethereum is now ESG compatible, and the 4-5% yield from staking is a significant advantage compared to Bitcoin. Bitcoin mining receives also a lot of criticism from the public, and holding BTC does not pay any yield like holding ETH does.

It is possible to invest in Ethereum more and more with the help of other instruments. For example, as many as three Ethereum ETFs were approved in April 2021 in Canada. Ethereum also receives institutional investment through Grayscale’s funds. It is the only cryptocurrency with Bitcoin that gets significant investments from institutional investors.

The future of Ethereum looks bright. The Merge update has been completed, Layer 2 solutions help the scalability and Ethereum’s position as a leading platform is stable.

How to buy Ethereum

You can buy Ethereum from all major cryptocurrency exchanges. The best option is the market leader Binance. It has the best liquidity and most trading pairs.

Buy Ethereum from Binance

Coinbase is a great option for newbies. It has a very user-friendly interface and it’s easy to deposit money with a bank transfer or credit card. If you are already a slightly more experienced investor and need more trading tools and exchange services, you should check out Bitget

Buying Ethereum is the first step. The next step is to store your ETH tokens safely. If you are a beginner, you can keep a small amount of Ether in the trading platform you use. The Norwegian platforms can be considered safe and reliable. However, we recommend holding all cryptocurrencies in your own wallet.

You can store Ether securely in the Exodus desktop or mobile wallet. Practically every desktop or mobile wallet that supports altcoins (e.g. TrustWallet ) supports Ether. You’ll get the ultimate protection with the Ledger Nano X hardware wallet.

How to find Ethereum news

An active Ethereum investor should follow Ethereum news daily. At least this is what we recommend. The bigger the investment, the more you should follow what’s happening to your hard-earned money.

There is certainly no shortage of Ethereum news. All major news sites such as Coindesk, Decrypto, and Cointelegraph report on Ethereum daily. Ethereum also has tons of unofficial social media channels run by hardcore fans.

We recommend all crypto investors become active on Twitter. It is the best and fastest information source for cryptos. Follow the accounts @Bankless and @TheDailyGwei and you won’t miss anything significant related to Ethereum. The Bankless channel also produces material for YouTube almost every day. is also a good source for Ethereum news. We report on the most important events related to Ethereum in our weekly roundups. You can find the project’s official page at The official Twitter handle is @ethereum.

Where does the Ethereum discussion take place?

There are hundreds of different social media channels for Ethereum fans. As the saying goes, the crypto market never sleeps. Somewhere in the world, there are always Ethereum fans awake. So where does this conversation take place?

Twitter is generally the best place to follow the crypto world. You can follow the handles @sassal0x, @thedailygwei, @econoar, @TrustlessState, and @BanklessHQ first. You can find more discussion with the hashtags #Ethereum and #ETH.

Twitter’s algorithm is quite good at recommending new followers. After a couple of weeks of using it, you’ll certainly have a few dozen names on your list.

Another popular channel is Reddit, where you can find discussion areas for each cryptocurrency project. Ethereum’s official Reddit page is at On the right side of the page is a list of Ethereum subreddits, which also have hundreds of thousands of people discussing.

If you want to chat with people go to Telegram and Discord! There are dozens of Ethereum channels open 24/7.