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What is Ethereum (ETH)?

Ethereum is a cryptocurrency and the market-leading smart contract platform. Vitalik Buterin is the founder and the frontman of Ethereum. Ethereum’s success has been driven by three megatrends: ICO, DeFi, and NFT. The Merge, which took place in September 2022, was the most significant update of Ethereum.

Ethereum is built as an operating system for smart contracts and decentralized applications. Ethereum scales with Layer 2 solutions. Ethereum’s greatest strength is its network effect. Ethereum’s native token is Ether (ETH).

The future of Ethereum looks bright!

What is Ethereum (ETH)?

Ethereum is a cryptocurrency and the market-leading smart contract platform. It is an operating system for smart contracts and decentralized apps. Ethereum has been the most significant and best-known cryptocurrency after Bitcoin for years. Its competitors include Solana, Cardano, and BNB Chain.

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

Ethereum initially used the Proof of Work consensus like Bitcoin, i.e., it was a mineable cryptocurrency. In 2022, Ethereum moved to Proof of Stake consensus with The Merge update.  Ethereum’s native token is Ether (ETH). It is used on the Ethereum platform for staking and paying for transactions.

Basic information about Ethereum:

Founder Vitalik Buterin
Category Smart contract platform
Ticker in exchanges ETH
Circulating supply 120 million ETH
Max supply No limit
All-Time High (date) $4890 (16-Nov-2021)
All-Time Low (date) $0.42 (20-Oct-2015)

Follow the price of Ethereum from here: Ethereum price.

Ethereum’s challenge has historically been its poor scalability. This area has improved significantly with Layer 2 solutions. Arbitrum, Optimism, and Base are the most well-known Layer 2s. They have shifted considerably the transaction load off the Ethereum blockchain and scaled the Ethereum ecosystem.

This article is the Ethereum beginner’s guide. We’ll cover Ethereum’s history, technology, and prospects as an investment.

Ethereum’s history

Vitalik Buterin is the founder and the frontman of Ethereum. He described Ethereum’s white paper at the end of 2013. A group of individuals founded Ethereum, 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 Bitcoin’s limitations and possibilities.

Buterin argued that Bitcoin needs its programming language to build 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 challenging to make. This drove Buterin to create his 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 hundreds of millions of dollars.

The Ethereum blockchain was launched in July 2015. The project took off in 2016 when it faced its most severe crisis. The ambitious project known as The DAO crashed after hackers exploited a vulnerability in the program code.

The DAO hack caused much more than just monetary losses. The biggest debate was about the case’s aftermath. Should the losses be compensated by rewinding the Ethereum blockchain? The case was so significant that the community and the Ethereum blockchain split. This is how Ethereum Classic was born.

Ethereum quickly recovered from The DAO hack. Next, let’s go through the most essential stages in Ethereum’s history.

The ICO, DeFi, and NFT booms

Ethereum’s success has been driven by three megatrends: ICO, DeFi, and NFT. These booms strengthened Ethereum’s market status and changed the entire crypto industry.

The ICO boom (2017-2018)

Ethereum got broader 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 Bitcoin market cap. Bitcoin’s market share fell from about 85% to 37% in 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 previously dominated by Bitcoin.

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)

In the DeFi boom, applications built on Ethereum gained millions of users for the first time. The DeFi boom can be divided into two phases, the first starting in spring 2020. This means that after the end of the ICO boom, there was a lull of about two years (from spring 2018 to spring 2020) both on the Ethereum platform and in the broader crypto market.

DeFi stands for decentralized finance. It’s about decentralized financial services, such as lending, exchanges, and various other protocols related to the financial world. These apps operate independently with the help of smart contracts. The end user communicates with the DeFi app directly through their Web3 wallet.

The first DeFi bubble burst in the fall of 2020, but the sector revived in early 2021. At that time, there was also a significant change in Ethereum’s dominance. Competing platforms started entering the market, and many popular DeFi apps were launched, e.g., in the BNB Chain.

Ethereum’s market share in the DeFi sector fell from around 97% to 60% during 2021. The DeFi sector has continued its steady growth on the Ethereum platform ever since. Ethereum’s market share in the DeFi sector has stabilized between 50 and 60 percent.

The NFT boom (2021)

NFT collections on the Ethereum platform became a phenomenon in 2021. NFT (Non-Fungible Token) refers to technology that enables the creation of unique tokens. Digital art is a good example: 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 occurred in the spring of 2021, but the sector exploded again at the end of 2021. Investors have paid millions for Cryptopunks and Bored Apes Yacht Club NFTs. You can view the most popular collections at

bored apes

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 on the Ethereum platform. Ethereum has a well over 90% market share in the NFT sector.

The ICO boom brought much 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.

The Merge

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

The most visible change in The Merge was Ethereum’s transition from Proof of Work consensus to Proof of Stake consensus, which means that Ethereum mining ended. In addition to mining, The Merge has another significant impact: Ethereum’s inflation has turned negative after the update, resulting in deflation.

The graph below shows the evolution of Ethereum inflation. As you can see, the number of ETH tokens in circulation is currently lower than at the time of The Merge update. The supply of Ethereum has been reduced by over 380,000 ETH.

eth supply

The more Ethereum is used, the more transaction fees (ETH tokens) are burned. If this burning exceeds the staking rewards paid to the validators, the amount of Ether in circulation will decrease. You can follow the live data at

It’s important to understand that giving up mining and switching to Proof of Stake consensus is not yet the key to scalability. Ethereum’s transaction capacity did not change with The Merge. This was just an update on the consensus layer. Ethereum scaling is described in detail later in this article.

Ethereum and smart contracts

Ethereum is built as an operating system for smart contracts and decentralized applications. Its purpose is to provide a framework for application developers to create apps. Blockchain apps are called decentralized apps or dapps.

In theory, any app can be built on top of Ethereum. The question is, what type of applications are best suited for blockchains? DeFi is currently the most active sector. In addition to financial applications, various games are examples of Ethereum apps. Decentralized social apps are growing in popularity, too.

Smart contracts are at the core of Ethereum. These program snippets can be stored in the blockchain to perform different functionalities. Decentralized applications (dapp) are built using smart contracts. Ethereum’s smart contracts are built using the Solidity programming language developed specifically for this purpose.

ethereum smart contracts

A smart contract is a distributed and transparent program that cannot be modified. It executes commands with one hundred percent certainty. Also, no one can delete or destroy a smart contract, as it is stored decentralized on thousands of Ethereum network nodes worldwide.

Other smart contract platforms work on a similar principle. Ethereum’s advantage is its network effect. Most blockchain app developers build smart contracts on the Ethereum platform.

Ethereum scaling

Ethereum scales with Layer 2 solutions. As the name suggests, Layer 2 is an additional processing layer built on Ethereum. The purpose of Layer 2 solutions is to move transactions off the Ethereum MainNet (Layer 1). Ethereum’s Layer 2s are EVM compatible, so it is easy to clone decentralized applications from Ethereum to these layers.

In addition to cheap transactions, Layer 2’s selling point is Ethereum’s security. Layer 2s periodically save their transaction data to the Ethereum blockchain. Transactions performed on Layer 2 are also paid with Ethereum’s native token (ETH). If a Layer 2 has a token, it is of the administrative token type.

Layer 2 solutions started to gain more popularity in 2022. The most famous of them are Optimism and Arbitrum. Base, launched by Coinbase in 2023, is also a popular Layer 2. All of these projects utilize the Optimistic Rollups technology.

Below is a list of the biggest Ethereum Layer 2s.

NameTechnologyTokenMarket share
Arbitrum Optimistic Rollups ARB 41 %
Optimism Optimistic Rollups OP 17 %
Base Optimistic Rollups - 15 %
Blast Optimistic Rollups BLAST 7 %
Mantle Optimum MNT 3 %
Linea ZK Rollups - 2 %
Starknet ZK Rollups STRK 2 %

The Dencun update in 2024 further improved the competitiveness of Layer 2, as it dropped their transaction fees to a fraction of what they were before. One Layer 2 transaction costs less than $0.01, while Ethereum MainNet transactions cost between $5 and $10, even during quiet times.

The next megatrend in the Layer 2 sector is ZK Rollups technology. You can read more about this topic in our Layer 2 guide. With future updates, Ethereum will also improve the scalability of its Layer 1.

Ethereum vs. competitors

Ethereum’s greatest strength is its network effect. As the first smart contract platform, Ethereum has gained a considerable advantage. For example, Ethereum’s market share in the DeFi sector was more than 90 percent until 2021.

It is practically impossible for competitors to overcome this lead without a catastrophic collapse of the Ethereum ecosystem. That is because Ethereum’s popularity continues to grow more than the popularity of competing projects. The gap between Ethereum and the rest widens every day.

The popularity of Layer 2s has further strengthened Ethereum’s position. Layer 2s offers fast and cheap transactions, an advantage only Ethereum competitors used to have. Now, these features can also be found in the Ethereum ecosystem.

Below is a list of the largest smart contract platforms in the DeFi sector.

PlatformNative tokenTVLMarket share
Ethereum ETH $50.3 billion 57.0%
Tron TRX $9.5 billion 10.7%
BNB Chain BNB $5.7 billion 6.3%
Solana SOL $4.6 billion 5.2%
Arbitrum ARB $3.2 billion 3.6%
Blast BLAST $1.3 billion 1.5%
Avalanche AVAX 1.2 billion 1.4%
Base - 1.2 billion 1.3%

Ethereum’s market share stabilized between 55 and 60 percent after 2021. As more Layer 2 solutions rise to the top of the list, they will eat up competitors’ market share, which is good for the broader Ethereum ecosystem.

ethereum ecosystem

Competing platforms will likely specialize more and more in a particular sector. One competitor may gain a strong position in, for example, the GameFi sector. One deciding factor is the programming language.

Ethereum smart contracts are built using the Solidity programming language. Many consider alternative languages to be much better options. Rust, used by Solana, and Move, used by Aptos, are good examples.

Ethereum’s position has remained stable in recent years, and there is no indication that Ethereum is losing ground. The spot Ethereum ETFs approved in the US in 2024 will also secure Ethereum’s regulatory position further in the US.

The ETH token and staking

Ethereum’s native token is Ether (ETH). It entered the market in July 2015, when Ethereum’s MainNet was launched. Ether was born in an ICO, where 17% of the supply was distributed to the Ethereum Foundation and the project’s core team. The remaining (83%) supply was allocated to public sale.

The Ethereum supply increased until September 2022 due to the block rewards distributed to miners. Hence, Ethereum was inflationary for the first seven years. The situation changed after The Merge update and the EIP-1559 update.

The EIP-1559 update introduced a token-burning mechanism; the more ETH is used, the more ETH tokens are destroyed. The Merge update, on the other hand, changed Ethereum’s consensus algorithm to Proof of Stake, which affected the amount of block rewards. Ethereum has been deflationary since September 2022.

Below is a graph of the Ethereum supply. Up-to-date data can be found at As written in The Merge chapter, the Ethereum supply has decreased by more than 380,000 ETH since September 2022.

eth supply growth

Ether initially had only one function; it was used to pay transaction fees on the Ethereum network. The situation changed after The Merge update when Ethereum became a Proof of Stake cryptocurrency. Now, Ether is also needed for staking.

Ethereum staking can be done in two different ways:

  1. Solo staking: You can set up an Ethereum node and become a validator of the Ethereum network. In this case, you must stake at least 32 ETH, an investment of more than $100,000 at the current price.
  2. Staking via services: A small investor can use crypto exchanges or DeFi apps to stake the desired amount of Ether. In this case, you must give part of the yield to the service provider.

Liquid staking app Lido has become the largest DeFi app on Ethereum. If you stake Ether through Lido, you get stETH tokens in exchange for your staked ETH, which can be used further in other DeFi applications.

EigenLayer, launched in 2024, has made the term restaking popular. With EigenLayer, you can restake the stETH tokens from Lido to earn more yield. Restaking is growing fast in popularity.

The Future of Ethereum

The future of Ethereum looks bright! There is no indication that Ethereum’s position in the market will weaken anytime soon. Let’s analyze Ethereum’s prospects from an investor’s perspective.

Ethereum’s biggest strength is its popularity and longevity. The Ethereum blockchain has been in operation for almost 10 years, and the Ethereum network is highly decentralized. Ethereum is also arguably the most famous crypto brand after Bitcoin. It’s hard to see any other project coming close.

Ethereum’s development is also progressing year by year. Of course, technical updates take time, but “a big oil tanker does not turn around instantly,” as the expression goes. The Merge in 2022 was the most significant update ever seen in the crypto industry. After years of preparation, it went through without a hitch.

With The Merge, Ethereum also became a Proof of Stake cryptocurrency. Ethereum’s staking has further increased its popularity among institutional investors. It offers a yield, which you can’t get from holding Bitcoin. Liquid staking protocols, such as Lido, have also become very popular.

ethereum staking

Ethereum’s scalability has been the central talking point in the 2020s. Its competitors have gained market share by offering fast and cheap transactions. However, Ethereum Layer 2s have significantly eaten into the competitors’ advantage, and soon, the Ethereum MainNet will also receive scaling updates.

Ethereum also received significant recognition from the US administration when the SEC, which oversees the securities market, approved spot Ethereum ETFs in the summer of 2024. This raises Ethereum’s status even more and makes it even easier for people to invest in ETH.

If you want to buy Ethereum, check out this article: How To Buy Ethereum (ETH)? You will find detailed instructions on how to buy Ethereum quickly and safely.

Antti Hyppänen

Antti Hyppänen is the founder and editor-in-chief of Antti has written articles about cryptos since 2017. He follows the crypto market every day of the year and is responsible for the daily operations of AboutBitcoin. Antti is not a maximalist regarding any cryptocurrency but looks at the industry objectively. Antti’s investment profile is “buy & hold,” i.e., he does not trade or use leverage. His crypto portfolio consists of mainly Bitcoin and Ethereum. Antti also follows macroeconomic events. In addition to cryptos, his interests include gold, silver, and the US stock market.