Countless cryptocurrencies have come and gone, but Ethereum has grown, leading to an explosing of projects leveraging the technology. At the time of writing, Ethereum's Ether coin (ETH) has the second-largest market cap after Bitcoin (BTC). Current estimates suggest there’s around $27 billion total value locked (TVL) in Ethereum projects (at the time of writing), representing 60% of the entire DeFi (decentralized finance) ecosystem. For comparison, the next largest blockchains—TRON and the BNB Smart Chain—each have $4 billion in TVL.
Although the history of Ethereum is shorter than traditional assets, it has been an eventful ride. Given Ethereum's central role in Web3 development, learning about ETH's past is essential for understanding the history of cryptocurrency.
Unlike Bitcoin, the founders of Ethereum didn't hide their identities. This makes tracing the origins of the Ethereum blockchain more straightforward than recording BTC's history.
According to the Ethereum Foundation's official timeline, Ethereum's history began in 2013 when computer scientist Vitalik Buterin published his Ethereum Whitepaper. In this document, Buterin outlined many innovations that would set Ethereum apart from other cryptocurrencies and explained how Ethereum would let developers use blockchain tools such as smart contracts to build dApps (decentralized applications). The introduction of self-executing smart contract code helped expand the possibilities for blockchain technology. Instead of solely using blockchain to record financial transactions, Ethereum set out to decentralize the internet.
Before working on Ethereum, Buterin had already been a significant figure in the early crypto space. For instance, he co-founded Bitcoin Magazine and wrote multiple research papers on new crypto technologies, such as colored coins.
Because Buterin wrote the Ethereum Whitepaper, he's often credited as the developer who founded Ethereum. However, there were many other computer scientists involved. Famously, Dr. Gavin Wood helped create Ethereum's Solidity coding language. Charles Hoskinson was also a key influence in Ethereum's early development. Today, Wood and Hoskinson run the competing Ethereum projects Polkadot and Cardano, respectively.
To turn the Ethereum Whitepaper into a reality, Buterin explained his vision for a new blockchain at 2014's North American Bitcoin Conference. The Ethereum team offered an ICO (initial coin offering) for ETH to early investors later that year. At the time, estimates suggest the Ethereum Foundation raised about $18 million in BTC.
The Ethereum blockchain launched in July 2015 under the codename "Frontier." This first iteration of Ethereum used the same proof-of-work (PoW) consensus mechanism on the Bitcoin network. In this system, computers have to solve complex algorithmic problems to post new transactions on the blockchain. Whichever computer solves this puzzle first receives crypto rewards in the form of ETH.
Although Ethereum's consensus mechanism was the same as Bitcoin's, there's no maximum cap supply on ETH coins. Until the 2022 Ethereum Merge, ETH was an inflationary cryptocurrency. Buterin set the initial block reward for mining Ethereum at five ETH per block.
Also, Ethereum miners didn't need to use the large ASIC rigs that were commonly used to mine coins such as Bitcoin and Litecoin. Throughout its early history, Ethereum miners used computers with graphics processing units (GPUs).
Just one year after its launch, the Ethereum community faced a major controversy called the "DAO hack." In crypto, DAO, short for decentralized autonomous organization, refers to a community-driven open-source protocol. From voting to executing orders, all actions in a DAO use autonomous smart contracts.
The DAO at the heart of the 2016 hack was a specific smart contract protocol on Ethereum that raised $150 million in ETH. Everyone who had a stake in this DAO could have a say in how to use the crypto treasury. However, hackers noticed a few bugs in the DAO's code and stole roughly $50 million worth of ETH.
After news of the DAO hack broke, the Ethereum community split into two camps. The first group of developers wanted to create a new Ethereum chain to reimburse DAO investors. The second group argued that any outside influence on the Ethereum blockchain would go against the decentralized nature of cryptocurrency. Those who favored this second "code is law" approach said it would be best to leave the Ethereum chain as is.
Eventually, most of Ethereum's developers created an offshoot chain (aka a fork) to erase the DAO hack. This new project became today's mainstream Ethereum chain. However, the original "hacked" Ethereum Classic chain is still operational.
Following the DAO hack, Ethereum introduced new governance proposals and upgrades to its blockchain. For instance, the Byzantium Fork of 2017 reduced the block reward from five ETH to three ETH. This upgrade introduced new technology that made it easier for blockchains to build on top of Ethereum. These layer-2 blockchains (e.g., Polygon) have become an increasingly significant aspect of the Ethereum ecosystem.
Ethereum NFTs (non-fungible tokens) also made headlines in 2017. Thanks to the NFT game CryptoKitties, activity on the Ethereum blockchain hit record highs. The trading volume for CryptoKitties was so high that the game's developers decided to create their own “Flow” blockchain. The 2017 CryptoKitties craze highlighted the growing interest in NFTs and Ethereum's speed and scalability concerns.
The 2019 upgrades, Istanbul and Constantinople, focused on optimizing Ethereum's gas fee structure and introducing further scalability solutions. In addition to launching new solutions for layer-2 blockchains, the Constantinople upgrade paved the way for a smooth transition to the proof-of-stake (PoS) consensus mechanism.
Unlike PoW, PoS requires validators to lock (or "stake") a native cryptocurrency on the blockchain. Anyone who stakes their crypto can confirm new blocks and claim crypto rewards. Buterin believed moving Ethereum to a PoS consensus would benefit the blockchain in many ways. Not only could PoS potentially lead to scalability upgrades, but it would also significantly reduce Ethereum's carbon footprint.
At the end of 2020, Ethereum introduced a PoS blockchain called the "Beacon Chain." Eventually, the Beacon Chain replaced Ethereum's PoW blockchain in an event called the Merge. Before this transition, anyone with 32 ETH could lock it on the Beacon Chain to start earning staking rewards. The Ethereum Foundation won't release any funds locked on the Beacon Chain's smart contract until it launches the Shanghai upgrade.
After countless tests and years of anticipation, the Ethereum team announced it would "merge" the PoW blockchain into the Beacon Chain in 2022. On September 15, at 6:43 AM UTC, Ethereum successfully transitioned to a PoS blockchain.
Although the Merge was one of the most significant upgrades in crypto history, it didn't directly impact Ethereum's transaction speeds or fees. Instead, the PoS consensus laid the groundwork for further upgrades that could make Ethereum faster and cheaper. The most immediate effect of the Merge was a reduction in Ethereum's carbon footprint. Since there's no more need for GPU miners, Ethereum cut its electricity and net emissions by an estimated 99.95%. Thanks to Ethereum's PoS consensus, it went from being one of the biggest polluters to an eco-friendly blockchain.
The Merge also changed Ethereum's daily issuance. The Ethereum Foundation claimed approximately 1,700 ETH would enter circulation each day post-Merge. In contrast, Ethereum had a daily issuance rate of 13,000 ETH per day on the PoW network.
Besides the Merge, Ethereum made headlines in traditional finance in 2022. In a press release, the Chicago Mercantile Exchange (CME Group) announced it would offer Ethereum futures trading. In 2017, the CME Group first introduced Bitcoin futures trading to derivatives investors. The launch of Ethereum derivatives gave more institutional investors access to ETH's price action.
Buterin outlined four critical stages in Ethereum's post-Merge development. While there are few concrete details on these upgrades, they serve as a blueprint for Ethereum's future.
Although dozens of ETH competitor blockchains exist, Ethereum continues to dominate the crypto space. Many innovations such as DeFi, NFTs, and smart contracts wouldn't be possible without Ethereum's initial contributions. While it's unknown how Ethereum 2.0 will evolve, it’ll significantly impact cryptocurrency’s future.
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