What is Ethereum?

Introduction to what is known as the second-biggest cryptocurrency in the world.

Updated over a week ago

Ethereum, like Bitcoin, is an open-source, decentralized computing project that is not owned or administered by a single person. This implies that anybody, wherever in the world, may download the program and start participating in the network.

Unlike Bitcoin, Ethereum is not aiming to function as a digital currency only, but to allow anyone that is engaging with the Ethereum Network to create and run smart contracts without the need of some third-party or a middleman.

It's important to note that the cryptocurrency/platform is called Ethereum and the individual unit is called an Ether. People use computers to solve mathematical problems which confirm each transaction on the network and add new blocks to the blockchain. These participants receive tokens as an incentive which is Ether (ETH) we mentioned previously. If you'd like to learn more about how blockchain works, please click on the following link: What is Blockchain?

Who created Ethereum?

Ethereum was created by a Russian-Canadian programmer by the name of Vitalik Buterin. He first argued that Bitcoin needs to be more than just a currency and that it needed a scripting language so people can do application development on top of it. Unfortunately (or lucky for him) he failed to receive agreement from the community, so he proposed the development of a new platform that will serve as a currency but will also have a more general scripting language so people can develop apps on top of it.

In late 2013, Buterin published a blog post named: "Ethereum: The Ultimate Smart Contract and Decentralized Application Platform" in which he explained the concept, and later in 2014, the project was crowdfunded and development work has started. The Ethereum network went live on 30 July 2015.

Why is Ethereum valuable?

There are a lot of advantages that Ethereum has to offer and it can power different applications with a variety of functions:

  • Digital currency: You can send and receive Ether if you have a cryptocurrency wallet or you can even pay for products and services where Ether is accepted as a form of a payment option.

  • Digital apps (dApps): Ethereum enables digital programs that allow users to invest, send money, play games or buy art. In short, dApps are smart contracts with a front-end user interface and are built on the Ethereum network.

  • Smart contracts: Smart contract is a self-executing contract in which the conditions of the buyer-seller agreement are encoded into lines of code. Smart contracts allow trustworthy transactions to be done between individuals without the requirement of a centralized authority or legal system. You can learn more about smart contracts by clicking here: What are Smart Contracts?

  • NFT's: Short for Non-Fungible Tokens which can be powered by Ethereum, allows artists and other people to sell art, images, or other digital items to buyers with the help of smart contracts.

  • Decentralized: Anonymous as well, people are able to put behind centralized third-party control like banks of their assets and their transactions.

What is Ethereum 2.0?

If you already know a bit about Ethereum, we are sure that you also heard about the Ethereum 2.0 upgrade the team is planning for the network. If you haven't, Ethereum 2.0 is the biggest upgrade yet for the entire Ethereum Network since it will involve using the Proof of Stake consensus mechanism instead of the current Proof of Work one. You can also read more about what is different between Proof of Work and Proof of Stake in the following article: Proof of Work vs Proof of Stake: What's the difference?

The upgrade will also introduce Sharding and the beacon chain which we will explain. This upgrade will not be done all at once and it will be released in three phases.

The beacon chain

The beacon chain is the new Proof of Stake blockchain that will combine with the current Ethereum chain. This chain will play a major role in the Ethereum 2.0 upgrade and without it, shard chains and scalability would not be possible. The beacon chain is also the first phase (or Phase 0) of the major Ethereum 2.0 upgrade.

Shard chains

In an effort to increase Ethereum efficiency and scalability, one of the improvements will use a processing mechanism called sharding. Currently, in the Ethereum blockchain, all the data contributed to the chain must be verified by all participating nodes. Because of this, the speed of the system is a bit slower, it causes bottlenecks and it can raise transaction costs.

By adding this shard chain, Ethereum 2.0 can significantly improve the efficiency of its resources. This will be achieved by dividing data verification tasks across groups of nodes, with each node accountable for just checking the data it receives. This enables the whole blockchain to leverage parallel processing, which could potentially increase overall capacity.

To put it simply, shard chains are similar to other blockchains except they only hold certain sections of the whole blockchain.

Three phases of the Ethereum 2.0 upgrade

Phase 0: This first phase (known as Phase 0) will include the release of the beacon chain. Sharding will not be included just yet, and the beacon chain will only make staking ETH available. The beacon chain upgrade happened on December 1, 2020.

Phase 1: This next phase will introduce shard chains which would allow validators to create blocks on the blockchain by using Proof of Stake. Phase 1 (which is also known as "the merge") would start the transition from Proof of Work to Proof of Stake and it should launch sometime in the first half of 2022.

Phase 2: In the final phase, sharding will become fully functional and compatible with smart contracts which will complete the Ethereum 2.0 upgrade.

Ethereum: Pros and Cons

With all being said about Ethereum, let's go over the main benefits and disadvantages the network offers:


  • The network itself: It has been fully tested through the years of its existence and Ethereum has possibly the largest ecosystem in all cryptocurrencies.

  • Variety of functions: As we mentioned, Ethereum is not just a currency and it's so much more than that. It can process different types of transactions and offers the ability to execute smart contracts on the network.

  • No third-party involvement: Since it's decentralized and anonymous, users are free of third-party involvement like banks or any other financial institutions for the transactions they are making.


  • High transaction fees: The downside of being the most popular network is the high transaction fees, or also known as gas. Ethereum requires the users who are participating in the transaction itself to cover the fee and those can get really high, depending on how busy the network is at the moment. You can click here to learn more about Gas fees: What are Gas fees?

  • Future: With the upcoming Ethereum 2.0 upgrade with the promising new features and improved efficiency, everybody is expecting Ethereum's price to go sky-high, however, this is also creating a bit of uncertainty about if the upgrade will be done smoothly and if the new migration would actually work properly.

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