Ethereum is the second-largest cryptocurrency in terms of capitalization, with 700 projects running on its blockchain. In order to truly appreciate its popularity, it is important to delve into the technical solutions that have propelled ETH to its current status, understand the rationale behind the developers’ decision to modify its blockchain algorithm, and learn the best practices for securely storing ETH.
What is Ethereum?
Ethereum is a crypto project that encompasses its own blockchain, and the cryptocurrency associated with it is known as Ether. This digital asset is traded on exchanges under the ticker ETH.
A ticker is the short name for a tradable instrument presented on an exchange.
The developers describe the project as "the community-run technology powering the cryptocurrency Ether (ETH) and thousands of decentralized applications. Ethereum is a technology that's home to digital money, global payments, and applications".
One of the most notable contributions of Ethereum is its role in fostering the decentralized finance (DeFi) market and the hype surrounding Initial Coin Offerings (ICOs). Let's delve into the factors that have influenced this transformative journey.
DeFi revolution
Ethereum is a blockchain network that pioneered the introduction of smart contract technology within the digital asset market. Smart contracts are a digital equivalent to traditional (paper) contracts that enable the automation of different tasks inside the system, i.e. timely coin tranfers, token conversions, and even the distribution of cryptocurrency to specified wallets.
By providing developers with access to applications based on smart contracts, Ethereum empowered them to establish rules for the decentralized exchange, game operations, etc. This advancement marked the inception of the DeFi revolution initiated by Ethereum.
DeFi are financial instruments (services and applications) created within the blockchain.
One way to evaluate the demand for Ethereum is by examining the volume of blocked assets, which is called Total Value Locked (TVL). TVL represents the total amount of money that users invest in DeFi projects for staking or lending purposes with the goal of earning money.
Here is how it works:
1️⃣ DeFi project provides users with an opportunity to earn money by issuing loans;
2️⃣ in order to make a profit, users need to block assets within the project;
3️⃣ by doing so, the project gains the ability to issue loans with interest and start sharing the income with users.
As of the current writing, ETH’s DeFi TVL amounts to $26 billion. For comparison, Tron’s DeFi TVL amounts to $5.73 billion, and BSC’s (Binance Smart Chain) DeFi TVL is $3.42 billion.
The chart shows that Ethereum’s TVL began to grow only in 2020.
ICO hype
When engaging with projects built on Ethereum, users can conduct settlements using the native ETH token or create their new tokens based on ETH.
Ethereum supports several token standards:
ERC-20 is for fungible tokens such as voting tokens, tokens for staking, or virtual currencies.
ERC-721 is for non-fungible tokens (NFTs). You can wrap art, for example, pictures, videos and audios.
ERC-777 is for additional token features. For example, ERC-777 can be used to increase the transaction’s privacy.
ERC-1155 simplifies Ethereum's fungible and non-fungible token creation.
ERC-4626 is a tokenized vault standard. It improves the security of asset storage by unifying the vault's technical parameters.
The most popular one is ERC-20. The standard was proposed by developer Fabian Vogelsteller in 2015. The introduction of ERC-20 provided users with tools to create their own tokens on top of ETH. This development subsequently fueled the hype surrounding Initial Coin Offerings (ICOs) in 2017 and 2018.
ERC-20 eliminated the need of creating a new blockchain from scratch and instead allowed projects to leverage the existing Ethereum blockchain. These changes greatly simplified the process of launching a new project.
The amount of funds raised by crypto projects through ICOs in different years. In the first quarter of 2017, the results showed $950 million, while the first quarter of 2018 witnessed a surge, reaching nearly $7 billion ($6.880 million). By the first quarter of 2019, the volumes had declined to $120 million.
Here’s what the standard ICO scheme looked like in 2017:
👀 the developers would present the project.
🪙 to attract funds for project development, they would create Ethereum-based tokens.
💰 subsequently, they would proceed to sell these coins during the ICO. In most cases, ETH often served as the preferred payment currency.
A bright example of the ICO hype’s enduring impact is the Tron crypto project. Initially, TRX tokens were released as ERC-20 tokens on the Ethereum blockchain. However, as the Tron developers launched their own blockchain, they transferred the tokens to their own standard known as TRC-20. Today, Tron is one of the primary Ethereum competitors.
Ethereum timeline
The project was created in 2013 by Russian developer Vitalik Buterin. Here is a short overview of the most significant events that have shaped Ethereum:
🕐 In 2013, Vitalik Buterin, after being inspired by reading the Bitcoin white paper, laid the groundwork for Ethereum and assembled a team of developers.
🕑 On July 22, 2014, the Ethereum team launched the ETH token sale through the ICO.
🕓 In June 2016, scammers hacked the Ethereum decentralized autonomous organization (DAO).
The DAO is a decentralized venture fund for financing young promising projects.
The scammer exploited a bug in the Ethereum code, leaked through the security system, and gained unauthorized access to funds. Although the developers promptly detected the fraudulent withdrawal, the scammer had already managed to take 5% of all ETH ($6.8 billion at the current exchange rate). He converted a part of the stolen coins into 282 bitcoins through ShapeShift, but the exchange marked the wallet, resulting in the confiscation of $100 million worth of coins.
This incident posed a risk to Ethereum’s stability. The developers decided to carry out a hard fork— change the project’s code—in order to continue running the project on the new blockchain according to the new rules.
However, not everyone agreed with this decision. Dissenters opted to remain on the original blockchain with the original coin. To differentiate between the two versions and avoid the confusion, the developers renamed them as follows:
☝️ The original version of Ethereum continued under the name Ethereum Classic (ETC).
✌️ The new version retained the name of Ethereum (ETH). Currently, it is considered the primary one.
🕙 On September 15, 2022, Ethereum moved from Proof-of-Work to Proof-of-Stake.
Proof-of-Work (PoW) is an energy-consuming algorithm that negatively affects the environment and has slower transaction speed. In 2022, as the ETH network speed lagged behind and transaction fees scored, the developers decided to switch the chain to Proof-of-Stake (PoS). The transition successfully achieved its intended goals, enhancing the speed of Ethereum while reducing fees.
In May 2021, Ethereum fees peaked at $70 per transaction. However, by December 2022, these fees decreased to $0.7.
In the Proof-of-Work model, coins are mined by connecting computing equipment, such as computers, to the network. Conversely, in the Proof-of-Stake model, cryptocurrency is mined through staking. As Ethereum shifted to PoS, numerous miners opted to switch their focus to Ethereum Classic, which still operates on the PoW algorithm.
ETH tokens
Ethereum currently maintains the second position in the ranking of the most capitalized cryptocurrencies. As of the time of writing, ETH’s market capitalization stands at $229 billion, while Bitcoin, the only coin surpassing Ethereum in the rankings, holds a capitalization of $584 billion.
ETH occupies 20% of the entire cryptocurrency market, with Bitcoin maintaining dominance at 50–51%. The third position in terms of dominance belongs to stablecoin Tether (7.81%).
Back in January 2017, BTC held 80% of the market share. However, by the following year, it dropped to 30%. Despite this, Bitcoin has always remained the dominant player. Ethereum, on the other hand, has consistently secured the second position since 2016. The last notable attempt to surpass ETH was made by XRP at the end of 2018.
The all-time high for Ethereum was recorded on November 16, 2021, when it reached a value of $4891 per coin. Currently, the coin is trading at 60.99% lower, at $1905.
In November 2021, Bitcoin reached its all-time high, causing a significant surge in the entire cryptocurrency market. At that time, Ethereum experienced substantial growth as well.
Ethereum's behavior largely depends on Bitcoin as ETH often mirrors the movements of BTC. This correlation is indicated by the Pearson correlation matrix. The table below displays the correlation between different cryptocurrencies (Ethereum, Litecoin, BNB, Dogecoin) and Bitcoin, ranging from -1 (indicating no correlation) to +1 (indicating a strong correlation). Notably, ETH holds the highest correlation in the table, at 0.86.
How to store Ethereum?
Ethereum, being one of the most popular cryptocurrencies, offers many storage options. To become an expert in this topic, read our ultimate guide to crypto wallets. As a reminder, there are hot and cold coin storage options in the market. Hot wallets provide constant network access, while cold wallets store assets offline.
All wallets can be categorized based on their format, including mobile, desktop, browser, and even physical wallets.
Consider your goals when choosing a storage method.
📊 For trading exchange wallets are suitable. You can easily get one just by registering on popular trading platforms, such as Binance, Bybit, OKX, MEXC, Gate.IO.
💰 For investments you need cold storage. The most popular cold storage options are hardware wallets by Ledger and Trezor. Both companies provide budget and professional models. The prices range from tens to hundred of dollars. The main advantage of cold wallets is the high level of security, but at the same time they can be really expensive.
💳 For regular cryptocurrency payments the deal is a non-custodial hot wallet with constant access to the network and full control over the assets in the owner's hands. Popular options are Ever Surf, MetaMask, ZenGo, and Trust Wallet.
Is Ethereum a good investment?
Ethereum is a highly regarded crypto project with a decent history, offering tools for businesses to enter the crypto industry and providing investors with opportunities to earn. Despite facing competition over the years, ETH remains the leader in terms of capitalization, TVL, and dominance (second to Bitcoin only).
When looking to buy Ethereum, use licensed European platforms like itez. For convenient purchases, itez allows using bank cards and supports national currencies such as peso, zloty, and manat. Itez offers a more favorable exchange rate compared to other platforms as we do not convert money into dollars or euros. Make sure to register an Ethereum wallet before purchasing.
💌 Telegram, Twitter, Instagram, Facebook
This article is not an investment recommendation. The financial transactions mentioned in the article are not a guide to action. Itez is not responsible for possible risks. The user should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.
