What is Ethereum?

An in-depth guide to the token ecosystem’s top smart contract network, covering how it works, its expansive ecosystem, and our dedicated Collection.

Token Takeaways ✍️

✨ Ethereum is a blockchain network that uses smart contracts to host decentralised applications.

✨ Ethereum has an expansive ecosystem of DeFi and NFT applications.

✨ The Ethereum Ecosystem Collection features some of the key token projects affiliated with the network.

Ethereum is the world’s most used blockchain. Created by Canadian-Russian programmer Vitalik Buterin and launched in 2015, it was one of the earliest “Layer 1” blockchains that arrived after Bitcoin. But unlike the number one cryptocurrency, which offers a way to store and transfer value, Ethereum runs smart contracts—programmable lines of code that can be used for a range of activities beyond exchanging value alone. Ethereum has previously been compared to a smartphone that can run multiple applications at once, and over the last few years, it’s proven that it could one day become as widely adopted as the iPhone. This piece explains how it works.

What is Ethereum? ⛓️

Ethereum is the token spaces leading smart contract network. Launched by early token adopter Vitalik Buterin in 2015, Ethereum pioneered smart contract technology at a time when Bitcoin was the only dominant blockchain project in the ecosystem. It hosts powerful applications supporting a variety of different use cases and has found early success in the DeFi and NFT spaces. Ethereums goal is to create a decentralised equivalent to the Internet where applications can run free from the control of any centralised entity.

Ethereum creator Vitalik Buterin (Photo: David Paul Morris/Bloomberg via Getty Images)

Ethereum has seen rapid growth since it launched. Today it processes over 1 million transactions daily, and is home to some of the world’s most essential crypto projects. Due to its popularity, it’s faced some challenges, including high congestion and transaction fees. This has led to the rise of several other “alternative Layer 1” networks and highlighted the urgency for Ethereum to complete its roadmap. Ethereum completed its biggest technological update to date in September when it shipped The Merge to Proof-of-Stake, and while it still has several updates to complete before it is ready for 1 billion users, it’s widely viewed as a core pillar of the token economy. 

Ethereum daily transactions (Source: Etherscan)

A hub for token activity 

In many senses, it’s easier to think of Ethereum as an ecosystem rather than a blockchain alone. While alternative networks such as Bitcoin serve one purpose with great efficacy, Ethereum thrives from the wide variety of activities made possible by its advanced smart contract technology. 

As smart contracts allow for the launch of applications, Ethereum has become a hub for a wide range of powerful protocols catering to different use cases. Arguably the biggest of these has been in the decentralised finance sector, otherwise known as “DeFi.” Ethereum paved the way for decentralised applications to offer financial services such as lending and borrowing on the blockchain. Ethereum’s DeFi ecosystem is powerful partly because it allows for anyone with an Internet connection and some of Ethereum’s native ETH currency to participate and get access to services without going through a third party such as a bank. DeFi has grown at a rapid rate over the past few years and helped many users grow their savings by offering enhanced yields on their assets. 

Besides DeFi, Ethereum has also emerged as the central home for NFTs. Thanks to a boom in interest in digital art and other forms of tokenized collectibles that kicked off in 2021, NFTs have exploded into the mainstream and welcomed tens of thousands of new users into The Ethereum Ecosystem. NFTs offer a way to tokenize any type of content, such as art, music, or video, on a blockchain so that its ownership can be proven. Although there is still some misunderstanding surrounding the value of NFTs, they could be particularly disruptive for the creator economy. While NFTs are still in their infancy as an asset class, they have already succeeded in shining a light on Ethereum’s world-changing potential. 

“The First 5,000 Days” by Beeple (Source: Beeple)

As much as Ethereum has found success mainly through DeFi and NFTs, it has also faced challenges surrounding scaling. As the network has grown in popularity, it’s become increasingly congested. Demand for its native currency, ETH, has also risen, which has increased the price and costs of paying for transactions (Ethereum users need to pay in ETH to send a transaction). Ethereum hopes to overcome its scaling issues and set itself up for mass adoption by developing shard chains, which will spread the network’s traffic across different chains. Several Layer 2 solutions are also building on Ethereum, offering a way to access the benefits of the Layer 1 on a new network at a higher speed and lower cost without compromising on security. If Ethereum can successfully roll out sharding and gain adoption in the Layer 2 space, it could continue to grow over the coming years. 

The Ethereum Ecosystem Collection 🌌

As The Ethereum Ecosystem is the token economy’s most active network, features a Collection giving exposure to some of Ethereum’s most vital projects. 

The Collection includes ETH, the asset used to pay for transactions on the Ethereum network. ETH is considered as the base asset for DeFi and NFTs and is also used to secure the network through staking. Additionally, it experiences deflationary pressure due to EIP-1559, which burns a portion of ETH with every transaction. This makes ETH a scarce asset, adding a monetary premium that few other tokens have. 

The Collection also includes Ethereum Name Service’s ENS token. Ethereum fans use Ethereum Name Service to create readable names for their Ethereum address, similar to website URLs. In the future, Ethereum Name Service could help every Web3 user register their own identity on the blockchain. 

As ETH staking became core to Ethereum with the blockchain’s move to Proof-of-Stake, Lido and Rocket Pool have become two of the ecosystem’s key projects. Both projects offer “liquid staking” service, allowing ETH stakers to earn more rewards by issuing staking rewards and a token they can put to work elsewhere in the token ecosystem. They also feature in The Ethereum Ecosystem. 

DeFi is at the core of The Ethereum Ecosystem, and the Collection features some of its most time-tested and widely used protocols. They include Aave, Curve, Maker, Uniswap, and Yearn Finance, projects often described as “blue chips” of Ethereum’s DeFi ecosystem. 

Many applications running on Ethereum rely on Chainlink, an oracle service that provides essential “real-world” data such as price feeds for blockchain applications. Chainlink helps power many of Ethereum’s most used DeFi projects and also features in The Ethereum Ecosystem Collection. 

While the Ethereum community works to achieve scalability, several key projects focused on building out Layer 2 and other scaling approaches have emerged. One of Ethereum’s top Layer 2 projects today is Optimism, an Optimistic Rollup solution that bundles transactions and submits carries computation off Ethereum to reduce costs. Another is Loopring, which leverages a technology called ZK-Rollups to allow for high-speed transactions at a low cost. Polygon is another popular scaling network that hosts many Ethereum-native protocols. It has its own Proof-of-Stake chain and offers full compatibility with Ethereum. Both Loopring and Polygon feature in The Ethereum Ecosystem Collection. 

Discover more 💫

Now that you’ve checked out our primer to The Ethereum Ecosystem, you’ll be familiar with some of the key aspects of the network, including DeFi, NFTs, and Layer 2. Next, why not dive into the ecosystem with our curated Collection? The Ethereum Ecosystem has been created to provide you with easy access to every key facet of Ethereum’s fast-growing network and will be expanded over time as the ecosystem grows. Check it out for yourself and become an Etherean today. 

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