Ethereum is a platform powered by blockchain technology that is best known for its native cryptocurrency, called ether, ETH, or simply ethereum. The distributed nature of blockchain technology is what makes the Ethereum platform secure, and that security enables ETH to accrue value.
A brief history of Ethereum
Vitalik Buterin, who is credited with conceiving the original Ethereum concept, published a white paper to introduce Ethereum in 2013. The Ethereum platform was launched in 2015 by Buterin and Joe Lubin, founder of the blockchain software company ConsenSys. The founders of Ethereum were among the first to consider the full potential of blockchain technology, beyond just enabling the secure trading of virtual currency.
One notable event in Ethereum’s history is the hard fork, or split, of Ethereum and Ethereum Classic. In 2016, a group of network participants gained majority control of the Ethereum blockchain to steal more than $50 million worth of ether, which had been raised for a project called The DAO.
The success of the raid was attributed to involvement by a third-party developer for the new project. While the majority of the Ethereum community opted to reverse the theft by invalidating the existing Ethereum blockchain and approving a blockchain with a revised history, a fraction of the community chose to maintain the original version of the Ethereum blockchain. That unaltered version of Ethereum permanently split to become the cryptocurrency Ethereum Classic, or ETC.
Since the launch of Ethereum, ether as a cryptocurrency has risen to become the second-largest cryptocurrency by market value. In 2022 it is outranked only by Bitcoin.
How does Ethereum work?
Ethereum, like other cryptocurrencies, uses blockchain technology. Imagine a very long chain of blocks linked together, with all of the information about each block known to every member of the blockchain network. With every member of the network having the same knowledge of the blockchain, which functions as an electronic ledger, distributed consensus can be created and maintained about the status of the blockchain.
Blockchain technology creates distributed consensus about the state of the Ethereum network. New blocks are added to the very long Ethereum blockchain to process Ethereum transactions and mint new ether coins or to execute smart contracts for Ethereum dApps (Decentralized Applications).
A vast network of computers worldwide maintains the Ethereum blockchain network, and the network requires distributed consensus—majority agreement—for any changes to be made to the blockchain. An individual or group of network participants would need to gain majority control of the Ethereum platform’s computing power—a task that would be gargantuan, if not impossible—to successfully manipulate the Ethereum blockchain.
The Ethereum platform can support many more applications than ETH and other cryptocurrencies. The network’s users can create, publish, monetize, and use a diverse range of applications on the Ethereum platform, and can use ETH or another cryptocurrency as payment.
How can I buy Ethereum?
Investors can use one of many cryptocurrency exchange platforms to buy and sell ether. Ethereum is supported by dedicated crypto exchanges, including Coinbase, Kraken, Gemini, and Binance, and by brokerages like Robinhood.
How does Ethereum make money?
Ethereum is not a centralized organization that makes money. Miners and validators who participate in operating the Ethereum network, usually by mining, earn ETH rewards for their contributions.
Ethereum vs. Bitcoin
Ethereum is often compared to Bitcoin. While the two cryptocurrencies have many similarities, potential investors should pay attention to some important distinctions.
Ethereum is described as “the world’s programmable blockchain,” positioning itself as an electronic, programmable network with many applications. The Bitcoin blockchain, by contrast, was created only to support the bitcoin cryptocurrency.
Ethereum isn't just for digital money. Anything you can own can be represented, traded and put to use as non-fungible tokens (NFTs). You can tokenize your art and get royalties automatically every time it's re-sold. Or use a token for something you own to take out a loan. The possibilities are growing all the time.