About Ethereum (ETH)

Ethereum Frequently Asked Questions (FAQ)

What is the function of Ether within the Ethereum ecosystem?


Ether (ETH) is the native cryptocurrency of the Ethereum ecosystem, serving primarily as a means to compensate participants who perform computations and validate transactions on the Ethereum network. It is used to pay for transaction fees and computational services in a unit called gas, incentivizing miners to secure the network. Ether is also used for staking in the Ethereum 2.0 Proof of Stake consensus mechanism and can be traded as a digital currency or held as an asset.




How did Ethereum's Initial Coin Offering (ICO) perform financially for early investors?


Ethereum's Initial Coin Offering (ICO), which took place in 2014, was highly successful for early investors. It raised over $18 million, and the price per Ether during the ICO was approximately $0.31. Considering the subsequent rise in the value of Ether, early investors saw significant financial returns on their investment.




What are the key milestones in the development timeline of Ethereum?


Key milestones in Ethereum's development include the original white paper publication by Vitalik Buterin in 2013, the network's official launch in 2015, the DAO hack and resulting hard fork in 2016, several network upgrades like Byzantium and Constantinople, the introduction of Ethereum 2.0 roadmap to transition to proof-of-stake consensus mechanism, and the ongoing upgrades to improve scalability, security, and sustainability, such as the Beacon Chain launch in 2020 and the anticipated merge and shard chain implementation.




Who are the original co-founders of Ethereum, and what roles did they play?


The original co-founders of Ethereum are Vitalik Buterin, who proposed and wrote the original white paper, Anthony Di Iorio, who provided funding, Charles Hoskinson, who worked on the early establishment of the project, Mihai Alisie, who helped with Ethereum's development, and Amir Chetrit, who was part of the initial founding team. Other early contributors who were later labeled as co-founders include Joseph Lubin, who founded ConsenSys, a company focused on Ethereum applications, Gavin Wood, who wrote the Ethereum yellow paper defining the Ethereum Virtual Machine (EVM), and Jeffrey Wilcke, who was responsible for the Go implementation of Ethereum.




What are smart contracts, and how do they operate on the Ethereum blockchain?


Smart contracts are self-executing contracts with the terms of the agreement directly written into code. They operate on the Ethereum blockchain by automatically enforcing and executing the terms of a contract when predetermined conditions are met. These digital contracts run on the blockchain, which is a decentralized and distributed ledger, ensuring contracts are tamper-proof and transparent. Once a smart contract is deployed on the Ethereum blockchain, it cannot be altered, and its operations are trackable and irreversible.




How can Ethereum's blockchain host other cryptocurrencies and what is ERC-20?


Ethereum’s blockchain can host other cryptocurrencies in the form of 'tokens' through the use of smart contracts. These tokens can represent a wide variety of digital assets. The ERC-20 standard specifically defines a common list of rules and functions that an Ethereum token contract must adhere to, which allows seamless interaction with other smart contracts and decentralized applications on the Ethereum blockchain. This standardization facilitates the creation of interoperable tokens with consistent behavior across various services and platforms.




What is the Ethereum Name Service (ENS), and how does it improve user experience?


The Ethereum Name Service (ENS) is a decentralized, distributed naming system that translates human-readable names like 'alice.eth' into machine-readable identifiers such as Ethereum addresses, metadata, and content hashes. This simplifies the process of conducting transactions, as users can send cryptos to easy-to-remember names rather than long hexadecimal addresses, improving user experience by enhancing usability and reducing the chance of errors. There are viable alternatives to ENS such as Unstoppable Domains, which provides blockchain-based domains for Ethereum as well as other chains such as Polygon, BNB Chain, Avalanche, and Solana.




What are 'Ethereum Killers' and how do they propose to challenge Ethereum's platform?


Ethereum Killers are blockchain platforms that aim to surpass Ethereum in terms of scalability, security, and cost-effectiveness. They propose advancements like faster transaction speeds, lower fees, and improved consensus mechanisms. These competitors offer various technological enhancements, such as proof-of-stake algorithms, sharding, sidechains, and interoperability features to attract developers and users looking for alternatives to Ethereum's high gas fees and network congestion.




What is EIP-1559 and how does it modify Ethereum's transaction fee market?


EIP-1559, also known as the London Hard Fork, is an Ethereum Improvement Proposal (EIP) implemented to improve the blockchain's transaction fee market. EIP-1559 introduces a base fee for transactions, which is burned, and an optional tip to miners for priority inclusion. This system aims to make fees more predictable, reduce miner revenue volatility, and potentially decrease the overall issuance of Ether by burning part of the transaction fees, leading to a deflationary pressure on the cryptocurrency.




How does the supply mechanism of Ethereum differ from that of Bitcoin?


The supply mechanism of Ethereum differs from Bitcoin in that Ethereum does not have a fixed supply cap, whereas Bitcoin has a capped supply of 21 million coins. Ethereum initially started with an uncapped supply but has implemented several changes, including EIP-1559, which introduced a fee burn mechanism that can potentially reduce the overall supply over time. Ethereum's inflation rate is determined by protocol decisions and network usage, while Bitcoin's supply is controlled by periodic halving events that reduce the block reward and are predetermined.




What is the current security model of Ethereum and future plans for its consensus mechanism?


As of writing in 2023, Ethereum's current security model is based on a Proof-of-Stake (PoS) consensus mechanism, which was adopted with the upgrade to Ethereum 2.0. This followed a transition from the original Proof-of-Work (PoW) model. In the PoS model, validators are chosen to create new blocks and verify transactions based on the amount of cryptocurrency they hold and are willing to 'stake' as collateral, rather than performing energy-intensive computational tasks. The future plans for Ethereum's consensus mechanism aim to enhance scalability, security, and sustainability. This includes sharding to spread the computational load across multiple chains and continuous improvements to the PoS protocol to resist potential security threats and optimize the network's efficiency.




What are the implications of the Ethereum London hard fork for transaction fees and scalability?


The Ethereum London hard fork, implemented in 2021, introduced several EIPs (Ethereum Improvement Proposals), including EIP-1559, which significantly changed how transaction fees are calculated. EIP-1559 introduced a base fee for transactions that adjusts dynamically depending on network congestion, aiming to make transaction fees more predictable. Users can also include a tip to incentivize miners to prioritize their transactions. While this improves the user experience in terms of fee visibility, it does not directly increase scalability. However, indirectly, by making fees more predictable and introducing mechanisms for fee burning, it can promote more efficient use of the network and potentially pave the way for future scalability improvements.




How will the Ethereum Merge affect the overall security and economics of the Ethereum network?


The Ethereum Merge is the transition from Proof of Work (PoW) to Proof of Stake (PoS) for Ethereum's consensus mechanism. This shift enhances security by reducing the incentive for certain types of attacks, as validators now have a financial stake in the network. Additionally, it alters the economic model by significantly reducing the issuance of new ETH, potentially leading to deflationary pressure. The Ethereum Merge successfully compelted on September 15, 2022​. It marked a significant transition from proof-of-work (PoW) to proof-of-stake (PoS) for the Ethereum network, reducing its energy consumption by an estimated 99.95% and setting the stage for future scalability upgrades




What is the anticipated impact of the Shanghai Upgrade on Ethereum's staking mechanism?


The Shanghai upgrade, also known as Shapella, is a significant update for the Ethereum network that took place on April 12, 2023.The Shanghai upgrade is particularly notable because it enabled validators to withdraw their staked ETH from the Beacon Chain. This functionality was highly anticipated since validators had been able to stake their ETH since December 2020, but until the Shanghai upgrade, they couldn't withdraw it. The upgrade also introduced several Ethereum Improvement Proposals (EIPs), with the most critical being EIP-4895, which specifically dealt with the withdrawal of staked ETH. Other EIPs included in the upgrade aimed at reducing gas costs for developers but did not address the sharding of the Ethereum blockchain for scalability.