An Intro to Ethereum
Crypto Basics

An Intro to Ethereum

Created 2yr ago, last updated 1yr ago

A beginner's guide to understanding Ethereum and how it works.

An Intro to Ethereum

Table of Contents

History Of Ethereum

The Ethereum project was founded in late 2013 by Vitalik Buterin through a whitepaper. It marks a remarkable development, as Buterin was working on the Mastercoin project at the time. Together with Mihai Alisie, Anthony Di Iorio and Charles Hoskinson, Buterin initially presented Ethereum at a Miami Bitcoin conference in late January 2014.

A crowdsale was conducted to fund the development of this project, The campaign ran from July to September 2014, selling over 60 million Ether — created through the Genesis issuance of 72 million ETH. Investors could acquire 2,000 ETH for one Bitcoin during the first two weeks of the sale, dropping to 1,339 ETH per BTC afterward. Almost 90% of the tokens sold during the first two weeks. Ultimately, the presale raised $18.3 million to fund development and other activities pertaining to Ethereum. It was the largest cryptocurrency crowdsale at that time, the second by Maidsafe coming in at $6 million. General crowdsales-wise, it was a huge success — it was the second-largest crowd-funded project in internet history, and Ethereum only took 42 days.

Ethereum has seen three crucial phases of development:

  • Frontier (July 2015) — Transaction activity, virtual machine usage for smart contracts, mining feasiiblity, and stress testing the network.
  • Homestead (March 2016) — Ethereum Improvement Proposals integration, faster transactions, Ethereum Foundation begins accepting ETH donations from external parties
  • Metropolis (October 2017) — A double upgrade with Byzantium (October 2017) and Constantinopple (2019) for enhanced scalability, transaction processes, and security. Decreasing mining reward.
The next big upgrade is Serenity, which transitions Ethereum from proof-of-work to proof-of-stake, also termed "the merge." There is no official launch date for this upgrade, but it is scheduled to occur in Q2 2022.

What Is Ethereum and What Is Ether?

The terms Ethereum and Ether get mixed up regularly, because they are entwined in many ways. Ethereum is the network powering the use of smart contracts and transactions, whereas Ether, or ETH, is the currency used to provide transaction value and cover network fees.
All services, protocols and products running on the Ethereum network make use of Ether as the currency. Like Bitcoin has BTC, Ethereum has Ether.

There is no supply cap on Ether at this time.

How Does Ethereum Work?

Several crucial aspects make up the Ethereum network as it is used today. They include:

  • Smart contracts: self-executing computer program that automatically execute a set of rules once certain conditions are met. It can be used to determine when funds change ownership on the network and under which conditions that can occur. Smart contracts power many decentralized purposes, including NFTs, DeFi and others.
  • The Ethereum blockchain: An immutable record of Ethereum’s transaction and activity history
  • Consensus mechanism: Currently, Ethereum uses proof-of-work to validate and record information on the blockchain. However, that algorithm will change to proof-of-stake during the Serenity upgrade.
  • Ethereum Virtual Machine (EVM): A crucial cog in the Ethereum machine to execute network rules and enforce those roles on all transactions and smart contracts.
  • Ether: The native currency of the Ethereum network
  • Solidity: The programming language of the Ethereum network, used to write smart contracts, build protocols and decentralized applications, and more. Solidity is object-oriented and influenced by C++, JavaScript, and Python.

When all these components come together, developers can make exciting things happen on the Ethereum network.

Check out our guide on how to learn Solidity for beginners.

Future Roadmap Of Ethereum

The primary focus for Ethereum is the upgrade to Ethereum 2.0, which will occur at some point in the next 18-24 months. Switching to Ethereum 2.0 will change the network’s consensus algorithm to proof-of-stake and further scalability, security and sustainability upgrades.
The first part of this upgrade involves the Beacon Chain. It is the necessary infrastructure to enable staking on Ethereum and serves as a solid foundation for future upgrades. The Beacon Chain lies on the Ethereum 2.0 network today, but it runs separately from the mainnet, proof-of-work version of Ethereum.
Eventually, the two will merge, enabling staking for the entire network and putting an end to supporting proof-of-work.
Afterward, the developers still need to implement shard chains. Shards will ensure Ethereum has a much bigger capacity to process transactions and store data, two crucial aspects for this developer-oriented ecosystem. Shards will gain more features as the developers roll out upgrades through multiple phases. The implementation of shard chains will not occur prior to 2023.

How to Invest in Ethereum?

As global interest in cryptocurrencies increases, the demand to invest in currencies like Ethereum becomes more outspoken. Ethereum (ETH) is a cryptocurrency one can acquire from centralized exchanges and trading platforms or through decentralized platforms if you own cryptocurrency already.

Before you open your wallet to invest in Ethereum, it is essential to get the basics right. You will need a crypto wallet that supports Ethereum to store the ETH you're buying. Additionally, you need to find the right cryptocurrency exchange for your needs. Some trading platforms do not operate in all countries, which is something to be wary of.

Both centralized and decentralized exchanges will let you sell Ethereum too.

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Investing in Ethereum: Centralized Exchanges

Almost every cryptocurrency exchange in the world helps users acquire currencies like Ethereum. Options to explore include:
  • Binance
  • Coinbase
  • Bitfinex
  • Kraken
  • OKEx
  • Huobi
  • And many others

All of these exchanges will require you to create an account and verify your identity. Doing so is crucial for these companies as they adhere to strict regulatory requirements. Creating an account is free of charge.

After your account has been verified, it is time to add funds to it so you can invest in Ethereum. Most exchanges will let users fund their account with a bank transfer, although some companies accept credit cards or even cash deposits too. Make sure to explore the different options at your disposal and use the one that feels right. Using a bank transfer can take several business days to complete, although same-day deposits may be possible depending on the platform you use.

When you have funds in your account, navigate the exchange interface to find the trading pair for Ethereum and the currency your account is denominated in. Convert [part of] your balance to Ethereum by placing a buy order at the price you are willing to pay. Once completed, the Ether balance will be in your exchange wallet. You can either leave it there or move it to an Ethereum wallet only you know the private key or seed phrase of.

Investing in Ethereum: Decentralized Exchanges

If you already own cryptocurrency, investing in Ethereum is a matter of trading [part of] your existing cryptocurrencies to Ethereum. For those who prefer to do so through a decentralized exchange, make sure to check out these platforms:
  • Uniswap
  • Sushiswap
  • 1Inch
  • And many others

Unlike centralized platforms, a decentralized exchange does not require users to create an account. Instead, users can directly trade from their crypto wallet, creating a more streamlined experience.

The trading revolves around converting an asset you own to Ethereum. Submit the buy order to the decentralized exchange and, once completed, the ETH balance will be sent to your wallet directly.

Check out our roundup of the top 10 decentralized exchanges in 2022.

How to Use an Ethereum Wallet

Now that we know which platforms to use to invest in Ethereum, the next step is setting up an Ethereum wallet. Without it, you would not be able to store your Ether in a safe and secure manner. Although centralized exchanges help users store crypto funds through custodial solutions, they also ensure the user always needs their approval to access funds, which is not ideal.

An Ethereum wallet lets users store Ethereum and tokens adhering to the ERC-20, ERC-721 and other network token standards.

There are several types of Ethereum wallets one can use. Some users prefer a software solution they can access on their computer or mobile devices. Others prefer a bit more security and control and opt for a hardware wallet. A hardware wallet is a USB device protected by encryption that needs to be plugged into a computer or connected to a mobile device via Bluetooth to use.

Examples of hard wallets include:
  • Ledger Nano S/X
  • Trezor
  • Satochip
For those who prefer a software solution, the following options are popular and secure:
  • MetaMask (computer and mobile)
  • MyEtherWallet
  • MathWallet
  • Argent
  • Numio
  • Opera Browser (iOS and Android)
  • And Many Others

Finding the right wallet for you will depend on what you expect from the wallet itself. The functionality will differ between the different options, and not everyone needs unnecessary bells and whistles. Sending and receiving functionality is the most important when investing in Ethereum. However, some people may want to explore the broader landscape, such as interacting with NFTs, decentralized applications, DeFi platforms, and more.

Using a software wallet is straightforward. Install the software on your favorite device and go through the setup process. If the wallet creates one for you, make sure to back up the seed phrase. This set of words represents the private key to the wallet, ensuring you are the rightful owner of that address and any funds associated with it.

Backing up this information should be done on a piece of paper by writing it down. Storing the information digitally makes it vulnerable to hackers, especially if the text file is stored online.

Once the setup is complete, you will be given an overview of your wallet address(es) and given the option to create a new one if you so desire. This address will be used when you invest in Ethereum and send funds to your wallet.

Regardless of using a centralized or decentralized exchange, make sure to always move the Ethereum you bought to your wallet. The wallet you control ensures you can spend the funds without requiring third-party approval.

It is worth noting the seed phrase associated with your Ethereum wallet is not tied to a specific piece of software or hardware. Therefore, if you ever decide to explore a different wallet, you can easily import your existing addresses and balances. Feel free to play around with the different options, but always protect your account information.

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