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Definition: Ethereum


(1) For networks, see Ethernet.

(2) For a comparison of the two dominant blockchain platforms, see Bitcoin vs. Ethereum.

(3) Ethereum is the most popular blockchain-based network after Bitcoin. Whereas Bitcoin is digital money, Ethereum is "digital everything," including money, lending, borrowing, certification, non-fungible tokens (NFTs) and more.

The Ethereum architecture was conceived in 2013 by Vitalik Buterin, and with the support of four other founders, Ethereum was launched in 2015. Ethereum's native cryptocurrency is ether (ETH), and it is traded just like Bitcoin. However, Ethereum is a general-purpose platform that hosts smart contracts, which are programs that provide endless functionality. See blockchain.

Smart Contracts, Cryptos and dApps
Ethereum smart contracts are used to create other digital currencies in the form of tokens, and there are way too many (see ERC-20). As of 2023, CoinMarketCap showed nearly 9,000 different crypto tokens, and there are estimates that ten thousand others have come and gone.

Smart contracts ushered in a new world of "decentralized finance" (DeFi) and "decentralized apps" (dApps). Theoretically, every financial system controlled by a centralized entity can be replaced entirely or in part by a smart contract on Ethereum. Games and virtual worlds run on Ethereum as well as ownership of art and collectibles (see NFT)."

Programmed in Solidity or other language, smart contracts execute specific functions activated by transactions generated in a user's crypto wallet or application. Ethereum is a programmable blockchain, often called "the world computer," as grandiose as that sounds. See Solidity.

Fees (ETH, Wei and Gas)
Fees are paid in ether (ETH) for trading ether and for every transaction that executes a function in a smart contract. Transactions include deploying the smart contract onto Ethereum in the first place by the developer and any contract action executed thereafter.

The fees in Ethereum are called "gas." One quintillionth of an ETH is a "wei" (pronounced "way") and a billion wei are a "gwei" (gigawei). Gwei are used to pay the fees to the Ethereum proposer that adds the next block of transactions to the blockchain. Proposers were known as "miners" in the previous incarnation of Ethereum, which changed in 2022 (see Ethereum 2.0).

Simple Accounting Compared to Bitcoin
Known as the "account model," a user's ether balance on Ethereum is maintained like a bank checking and savings account (see Ethereum account model). In contrast, Bitcoin uses a unique approach (see UTXO).

A Teenager Conceived Ethereum
Co-founder of Bitcoin Magazine at the age of 17, Russian-Canadian programmer Vitaly Buterin saw the difficulty developers had creating their own blockchains from scratch. In 2013, he published a white paper on a general-purpose blockchain, and a development team began working on Ethereum the following year.

An Early Spinoff
In 2016, Ethereum was split into two blockchains. The original protocol was given the ETC symbol, while the new protocol retained ETH (see Ethereum hard fork).

2018 - A Roller Coaster Ride
Like Bitcoin, 2018 was the year cryptocurrency values dropped precipitously. Ethereum's price started the year at $1,400 and ended at $117. However, in 2021, one ETH nearly reached $5,000, only to fall substantially in 2022.

A Dramatic Structural Change in 2022
In September 2022, Ethereum switched its consensus mechanism from proof-of-work to proof-of-stake, which dramatically reduced electricity consumption and the way blockchain nodes process transactions (see Ethereum 2.0). See Bitcoin vs. Ethereum, crypto glossary, Ethereum token, EVM, proof-of-work algorithm and blockchain.




DeFi Pulse - Ethereum's Scope
The Defi Pulse website lists the decentralized finance protocols running on Ethereum (this shows the first 15 of 99 as of May 2021). DeFi Pulse is an excellent source of information about the breadth and depth of Ethereum applications. DeX means "decentralized exchange."








Essential Reading for New Developers
To learn how to develop Ethereum applications, these two books are indispensable.





To explore the variety of topics in this reference, see What's in this encyclopedia.