Ethereum : what it is, how it works and what is the price of ETH

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What is Ethereum (ETH)?

Ethereum is an open-source, decentralized blockchain platform that lets anyone build smart contracts and decentralized applications with just a few lines of code. Beyond being a protocol, Ethereum hosts thousands of other tokens and has its own native cryptocurrency: ether, known as ETH.

Vitalik Buterin, the creator of Ethereum

Unlike Bitcoin, Ethereum has a known founder: Vitalik Buterin, a programmer and writer born in Russia and raised in Canada. Recognized early as a child prodigy for his exceptional math skills, he began developing the platform in 2013, at just 19. By then, Buterin was already deeply involved in the Bitcoin world, which he had discovered through his father, also a programmer.

The idea behind Ethereum is closely tied to a personal experience. Buterin used to play World of Warcraft until, in 2010, Blizzard Entertainment removed a game feature he relied on. That was when he realized how much power centralized systems hold over their users.

What is Ether and what is it used for?

Ether (ETH) is Ethereum's native cryptocurrency. It powers this distributed application platform: users spend it to pay other people or machines for executing the operations they request. It also rewards the participants who secure the network and gives developers an incentive to build quality applications.

Some of its benefits are shared with other protocols. Because it is decentralized, it is a transparent platform that no central government controls. It is also open source and requires no intermediaries, so you are the sole owner of your funds.

However, Ethereum also offers advantages that other cryptocurrencies do not. Its defining feature is smart contracts, which run directly on the network without the need for external software. It also confirms transactions faster than many other blockchains, and it can be used to build financial applications securely and transparently, with cryptographic protection for assets and agreements.

Key features of Ethereum

As we have seen, ETH has features that make it unique and different from BTC. Let's review them to better understand the second-largest cryptocurrency by market capitalization.

From mining to staking

Ethereum originally used Proof of Work (PoW), the same consensus mechanism as Bitcoin, with miners running graphics cards (GPUs) to validate blocks. In September 2022, an upgrade known as The Merge switched the network to Proof of Stake (PoS). Instead of miners, Ethereum is now secured by validators who lock up ETH as collateral. This change cut the network's energy consumption by more than 99%.

Issuance

Unlike BTC, ETH has no hard cap on total supply. New ETH is issued as a reward to validators, but since 2021 part of every transaction fee is burned, that is, permanently removed from circulation. Depending on network activity, the total supply can grow slowly or even shrink.

The network is continuously upgraded to improve performance and scalability, with a strong focus on lowering costs through layer 2 networks built on top of Ethereum.

Cost measured in gas

Gas is the unit that measures the computational work required to perform an action on the network. In other words, it is the price of running operations on Ethereum. This cost protects the blockchain from spam and attacks, since flooding the network with transactions becomes prohibitively expensive.

Part of the fees paid in gas also goes to validators as a reward for processing transactions.

Block size and block time

Ethereum block size is dynamic: blocks can hold more or fewer transactions as long as they stay within the gas limit.

Since the move to Proof of Stake, a new block is produced every 12 seconds. Compared with Bitcoin, where a block is generated roughly every 10 minutes, Ethereum is a strong option for payments that need faster confirmation.

Smart contracts

A traditional contract is an agreement between two or more parties that defines what can be done, how, and what happens if the terms are not met. These contracts are subject to local laws and jurisdictions and sometimes require notaries, which means costs, time and third parties. And no matter how carefully they are written, their interpretation may end up in the hands of a judge.

A smart contract, by contrast, is an agreement that executes and enforces itself automatically, without intermediaries. How? The terms are translated into code that defines what happens when each condition is or is not met. On Ethereum, smart contracts run on the network itself, beyond the control of any single user, and their execution depends solely on how they are programmed.

How does Ethereum work?

Validators are responsible for verifying transactions and proposing new blocks. To take part, they must stake ETH; if they act dishonestly, they can lose part of it. In return for their work, they receive rewards in ETH.

As with other cryptocurrencies, every transaction is recorded on the blockchain, which is publicly accessible.

What moves the price of Ethereum?

As with almost every cryptocurrency, the price of ETH changes constantly. Let's look at some of the factors that determine how much an Ethereum is worth.

Supply

ETH is constantly being issued and burned, and its circulating supply shifts with network activity. The amount of ETH staked by validators also reduces the supply readily available on the market.

Regulation

Ethereum is still a young network. As adoption grows, governments around the world are defining regulations that can affect its price.

Reputation

When cryptocurrencies first appeared, the media largely rejected them, and reliable information was scarce. Today their reputation has changed radically: they are seen as a financial revolution that deserves close attention. Media coverage still influences, to a greater or lesser extent, how people perceive cryptocurrencies.

Technological advances

The full potential of blockchain technology is still to be discovered. So far, its uses focus mainly on financial transactions, but the wide range of possible applications can draw attention and increase its value.

Advantages and disadvantages of ETH

This new way of transferring value offers many benefits to its users. It is a highly disruptive technology that is likely to change the financial system as we know it. While its advantages clearly outweigh its disadvantages, it is worth reviewing both.

Advantages of ETH

• Security: ETH is stored in wallets, which have proven to be a secure way to hold it.

• Smart contracts: Ethereum allows agreements between two or more parties to execute automatically.

• Decentralization: ETH is not controlled by any central authority, so its value depends on supply and demand.

Disadvantages of ETH

• Volatility: it is a relatively new asset and its price can change sharply.
• No supply cap: unlike Bitcoin, there is no fixed limit on the total number of ETH that can exist.

Ethereum price history

Ether is still a young asset in a growing market, which is why its price shows large swings. As we mentioned, supply and demand determine how much an Ethereum is worth, along with factors specific to the network.

Thanks to the benefits of this technology, its value has grown dramatically: each ETH was sold for about $0.31 in its initial token sale in 2014, and it reached nearly $4,900 in November 2021.

Ethereum forecast and outlook

Ethereum's growth has been remarkable, and many expect it to keep growing. The range of possibilities the network offers, together with its ongoing upgrades, supports a positive outlook for Ethereum and its token. Faster and cheaper transactions could also drive its adoption as a means of payment in the near future.

Ethereum - Frequently Asked Questions

What backs Ethereum?

The network is secured by validators, who confirm transactions and receive rewards in ETH for their work.

Who controls Ethereum?

Although its creator, Vitalik Buterin, is known, Ethereum is a decentralized network. This means no single person or entity controls it.

How many ETH are there?

Ethereum's native token is ETH. There are currently around 120 million ETH in circulation.

Which network is used to transfer Ethereum?

ETH is transferred on the Ethereum network itself, and also on layer 2 networks built on top of it.

What is the difference between Ethereum and Bitcoin?

The main difference lies in their purpose: Bitcoin was created as a decentralized means of payment, while Ethereum is a decentralized platform for running smart contracts and applications.

How much does one Ethereum cost?

You can check the current price of ETH, and that of many other cryptocurrencies, on our platform.