Lesson 3: An Overview of Ethereum

Welcome to lesson number three in Kriptomat’s Introduction to Cryptocurrencies: An Overview of Ethereum.

Let’s start by taking a look at Ethereum’s early days:

• Ethereum began in 2014 when a Russian-Canadian journalist and software engineer who had worked on the Bitcoin project published a white paper outlining a blockchain and cryptocurrency that would differ from Bitcoin in important ways.
  
• The engineer, Vitalik Buterin, went on to launch Ethereum with a handful of co-founders. He remains active in the cryptocurrency community. He is a popular speaker at conferences and he has achieved some notoriety outside the blockchain world as well.
  
• The Ethereum blockchain and cryptocurrency were launched in 2015.

What makes Ethereum different?

• Unlike Bitcoin, Ethereum was not created as a substitute for government-issued currency. It is a platform for building decentralized blockchain applications, or dApps. (We have a full lesson on dApps coming up later!)
  
• The creators of Ethereum understood that a blockchain could serve as the foundation for hundreds or thousands of different computer programs. Ethereum has everything developers need to create dApps that work with blockchain data.

• This is possible because in addition to transactions, the Ethereum blockchain is capable of holding simple programs that can be executed on the blockchain. These programs are known as “smart contracts,” and they can be stuck together like Lego blocks to build powerful software.
  
• Here’s a simple example: a dApp that transfers 10% of the Ethereum you receive into a wallet you’ve reserved for long-term savings. That application would be stored on the Ethereum blockchain along with the transaction data and other information that is always there. The app would monitor your address and route 10% of incoming Ethereum into your savings account automatically.
  
• Because it is stored on the blockchain, the automated savings app can be used by any Ethereum user. If you wrote the dApp, you could include a function to send 0.1% of every savings transaction to your blockchain address. If the program became popular, you could make a lot of money.

• Ethereum is home to thousands of decentralized applications. Most of them have their own cryptocurrencies that run on the Ethereum blockchain. Among the best-known are Dai (DAI), The Sandbox (SAND), Enjin Coin (ENJ), PlayDapp (PLA), and Celer Network (CELR).
  
• The Ethereum platform supports much of the worldwide blockchain economy, including decentralized finance (DeFi) applications, GameFi, and the metaverse.
  
• In addition to playing a central role in the cryptocurrency world, Ethereum has spawned a new market in non-fungible tokens, or NFTs. These tokens have created new digital marketplaces in collectibles, art, supply-chain tracking, customer loyalty programs, and games. (We’ll have much more to say about NFTs in future lessons.)
  
• Widespread use in multiple industries means that Ethereum’s daily transaction volume is often higher than Bitcoin’s even though Bitcoin remains much larger in terms of market capitalization.

Despite its widespread use, Ethereum is not an ideal solution

• The Ethereum ecosystem has grown very quickly. Ethereum is now the crypto world’s second-biggest currency.

• Very early, it became clear that Ethereum’s long-term mission would require fundamental changes to the blockchain initially implemented by Vitalik Buterin and his partners.

• For example, the worldwide Ethereum network supports only about 30 transactions per second. Visa says its VisaNet credit card network is able to process  65,000 tps.

• Ethereum’s widespread use has contributed to “traffic jams” as transactions pile up waiting their turn to be validated. This factor can temporarily drive transaction fees – “gas” charges – to thousands of euros.

How Ethereum is navigating the road ahead

• Vitalik and his partners have laid out a roadmap for upgrading the Ethereum blockchain to overcome the current network’s weaknesses and make the platform more widely useful. For example, the roadmap specifies a move away from the slow, climate-unfriendly proof-of-work transaction-validation model to a faster proof-of-stake model that consumes much less electricity.
  
• Upgrades have been made since 2015. The volunteer ethereum.org organization has charted future upgrades through 2024.

• That hasn’t prevented the teams behind projects like Solana, Cardano, and Polkadot from competing by delivering the advantages of future versions of Ethereum today.

So – what have we learned?

• Ethereum was never intended to be a replacement for government-issued currency.
• The Ethereum blockchain is a platform for developing decentralized applications.
• Ethereum is also the home of most non-fungible tokens (NFTs).

That’s the end of this lesson! Test your understanding and earn points toward a Kriptomat Academy certificate of achievement by taking the test.

What was Ethereum created to do?

Compete with Bitcoin for a share of the lucrative NFT market.

Support the development of blockchain-based decentralized applications.

Serve as a replacement for government-issued paper currency.

Serve as a backup in case the Bitcoin blockchain failed or succumbed to a hacker attack.

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Who wrote the white paper behind the Ethereum project?

Elon Musk

Satoshi Nakamoto

Changpeng Zhao (CZ)

Vitalik Buterin

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Why have competitors to Ethereum appeared on the market?

It was inevitable, since competitive coins and tokens can run on the Ethereum blockchain.

The current version of Ethereum doesn’t scale up to meet potential real-world challenges.

Entrepreneurs saw an opportunity for a blockchain that would host NFTs.

To get a share of Ethereum’s gas charges.

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Which of these cryptocurrencies are hosted on the Ethereum blockchain?

Bitcoin and Shiba Inu

Dogecoin and BNB

Dai and SAND

Tether and Solana

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How is it that Ethereum has such high transaction volume?

Each Ethereum transaction must be quite small, so it takes more transactions to perform the same amount of work.

To keep “gas” transaction fees flowing to the Ethereum Foundation and its founders.

Most widely used decentralized apps, including DeFi applications, blockchain games, and NFTs, are all hosted on Ethereum.

Ethereum has been named the default currency of several countries, including El Salvador.

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