Ethereum

An open-source distributed computing platform that executes smart contracts, and the base network of Ether (ETH), the cryptocurrency with the second-largest market capitalization.

Ethereum

Overview

Ethereum is an open-source blockchain platform whose whitepaper was published in 2013 by Vitalik Buterin and others, and whose mainnet went live on July 30, 2015. Unlike Bitcoin, which specializes in simple value transfer, it aims to be a "distributed computing environment (world computer)" capable of executing smart contracts written in a Turing-complete language. Its native cryptocurrency, Ether (ETH), is used to pay network fees called Gas and as collateral for proof-of-stake staking, and it maintains the world's second-largest market capitalization after Bitcoin.

Key Details

Background and History

In 2013, Vitalik Buterin published a whitepaper pointing out the limitations of Bitcoin Script (Turing incompleteness, limited scalability), and in 2014 a crowdsale raised approximately $18 million worth of BTC. Beginning with "Frontier" in July 2015, it has evolved through successive hard forks: Homestead (2016), Metropolis (2017), Constantinople and Istanbul (2019), Berlin and London (2021), Paris (2022), Shanghai/Capella (2023), Dencun (2024), and Pectra (2025). The 2016 "The DAO" hack remains a major event that resulted in a chain split (ETH/ETC).

Ether and Gas Economics

Ether is subdivided into units where 1 ETH = 10^18 wei. Every computation and storage operation consumes gas, and the gas price consists of a tip (priority fee) and a base fee. EIP-1559, introduced in the 2021 London upgrade, created a structure that burns the base fee, turning ETH supply into deflationary pressure. In other words, the more the network is used, the more ETH is burned.

Smart Contracts and the EVM

At the core of Ethereum is the EVM (Ethereum Virtual Machine). Developers write contract logic in Solidity, Vyper, and others, compile it into bytecode, and deploy it to the blockchain. Deployed contracts cannot be changed, and when called, every node verifies the same result. This "deterministic state transition" allows financial primitives such as decentralized exchanges, lending protocols, and stablecoins to operate in a trustless environment.

Account Model and Consensus Algorithm

Instead of Bitcoin's UTXO model, Ethereum uses a balance-based account model (EOAs and contract accounts), which makes state storage and programming easier. Consensus switched from proof-of-work (PoW) to proof-of-stake (PoS) with "The Merge" on September 15, 2022. Validators deposit 32 ETH and are randomly selected to participate in block proposal and attestation. This transition reduced energy consumption by about 99.95% and greatly reduced new ETH issuance. The slashing mechanism imposes economic penalties for malicious behavior such as double signing or going offline.

Scalability and Layer 2

Ethereum L1 has limitations of roughly 15 transactions per second throughput and high fees. To address this, rollup-based Layer 2s have developed. Representative examples include optimistic rollups (Arbitrum, Optimism, Base) and ZK rollups (zkSync, StarkNet, Scroll), and the EIP-4844 (proto-danksharding) of the 2024 Dencun upgrade created "blob" data space that greatly lowered L2 fees. The sharding and data availability (danksharding) roadmap is the central axis of the Surge stage.

Token Standards and Ecosystem

Standards such as ERC-20 (fungible tokens), ERC-721 (NFTs), and ERC-1155 (multi-tokens) made Ethereum the de facto standard platform for token issuance. In addition, ERC-4337 (account abstraction) and ERC-7702 (EOA code delegation) extend wallet UX and the gas sponsorship (Paymaster) model. Applications range widely from DeFi (Uniswap, Aave, MakerDAO), NFTs, DAOs, stablecoins (USDC, USDT) to real-world asset tokenization (RWA).

Roadmap and Governance

Ethereum presents a six-stage roadmap: Merge, Surge, Scourge, Verge, Purge, and Splurge. Core development coordination takes place through the Ethereum Foundation, consensus and execution client teams, as well as EIP (Ethereum Improvement Proposal) and ACD (All Core Devs) calls. It also maintains a "multi-client" philosophy of running multiple clients (Geth, Nethermind, Besu, Erigon, Lighthouse, Prysm, Teku, Nimbus) in parallel.

Criticisms and Challenges

High fees and complex usability, controversies over the Foundation's centralization, validator concentration due to MEV (maximal extractable value), concentration in staking services (such as Lido), the maturity of ZK technology, and regulatory uncertainty remain ongoing points of debate. L2 fragmentation, which disperses liquidity and UX, has also emerged as a new challenge.

Latest Trends (2024-2025)

  • Dencun upgrade (March 2024): EIP-4844 introduced blob data, cutting L2 transaction fees by dozens of times and setting the rollup-centric scaling strategy in full motion.
  • Spot Ether ETF launch (2024): The U.S. SEC approved a spot ETH ETF in May 2024 and trading began in July, opening a channel for institutional capital inflows. Discussions about ETFs including staking followed.
  • Pectra upgrade (2025): Including EIP-7702 (based on account abstraction), EIP-7251 (raising the validator maximum effective balance to 2,048 ETH), and EIP-7691 (expanding blob throughput), it improved staking operational efficiency and L2 scalability.
  • Fusaka and PeerDAS: The next upgrade scheduled for the second half of 2025 aims to lay the foundation for danksharding by introducing data availability sampling (PeerDAS, EIP-7594).
  • L2, RWA, Account Abstraction: The Base, Arbitrum, and OP Stack ecosystems are growing, and demand is expanding in the RWA market such as tokenized government bonds and funds, as well as in social and gaming areas.

Related Topics

  • [[Bitcoin]]
  • [[Blockchain]]
  • [[Smart Contract]]
  • [[Decentralized Finance]]
  • [[NFT]]
  • [[Proof of Stake]]
  • [[Layer 2]]