DeutschEthereum has held the second rank after Bitcoin for several years now. Many observers consider the project to be the most promising cryptocurrency of all. Why is that? Coinpro takes a look at the special features and capabilities of ETH.
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Ethereum Explained: the Basics
Unlike Bitcoin, Ethereum is not just a digital means of payment, but also a so-called smart contract platform. The option to execute scripts without a middleman is intended to provide users with even more self-determination and freedom.
What is Ethereum?
Ethereum (ETH) is the world’s first blockchain operated by a network of users that provides smart contract functionality. These so-called “smart contracts” can execute scripts based on the blockchain. In this way, ETH established decentralized finance (DeFi). The symbol of the project is Ξ.
In addition to a blockchain, there is a cryptocurrency of the same name, which is often simply referred to as Ether. It serves as the native means of payment within the ecosystem. All transactions must be paid for with Ether, even when NFTs or ERC-20 tokens are sent via the blockchain.
NFTs, ERC-20 tokens and similar standards are also based on smart contracts. Independent developers can use it to create their own currency based on ETH or issue certificates that serve as proof of ownership.
Although NFTs have so far mainly been used as a gimmick, as proof of ownership they can even be linked to physical assets such as real estate. This could eliminate the need for intermediaries such as notaries. The role of the state is also decreasing.
Many users see the wide range of capabilities as an indication that Ethereum will one day be the largest cryptocurrency of all.
Who Invented Ethereum?
The inventor of Ethereum is Vitalik Buterin. The programmer, who was born in Russia, conceived ETH as early as 2013. He then looked for supporters with whom he began working on the project.
Together with Charles Hoskinson, Gavin Wood, Anthony Di Iorio, Mihai Alisie, Amir Chetrit, Joseph Lubin and Jeffrey Wilcke, Buterin founded Ethereum in the spring of 2014. Some of the people involved are still active in other crypto projects today and are among the crypto celebrities. The first publication of the blockchain took place on July 30, 2015.
What is Ether (ETH)?
Ether is a synonym for the native cryptocurrency of the Ethereum blockchain. The term can be used to indicate linguistically that the term in question is not the blockchain, but its currency.
Just like Bitcoin, Ether can serve as a P2P means of payment. However, it gains its greatest significance through dApps and tokens that are used as semi-dependent projects via Ethereum.
If a user wants to make a transaction via Ethereum, they must always have Ether to pay the network fees that the nodes receive for providing the network. They are also called Gas Fees in the Ethereum network.
This rule also applies if they want to send another token instead of the native currency, such as an NFT or a stablecoin. The sending of such a token cannot be paid for with the token itself.
Ether is also the largest unit of account of the cryptocurrency. This can be divided into the smaller parts Wei, Kwei, Mwei, Gwei, Twei and Pwei. In reality, these units usually have no meaning. Usually, a small amount of ETH is simply specified with decimal places in Ethereum itself. The namesake for the unusual units of account is the Chinese programmer Wei Dai.
How Does Ethereum Work? – Possible Ethereum Use Cases
Ethereum’s functions are what make the crypto project special, but what exactly can the blockchain achieve through its smart contracts? We take a look at specific use cases and find out why ETH managed to establish the most popular sector in the crypto industry.
Ethereum Virtual Machine (EVM) and Gas
The Ethereum Virtual Machine is usually encountered in its abbreviated form, the EVM. The EVM is the programming layer of Ethereum. It processes all smart contracts and accounts on the blockchain. The Ethereum Foundation defines its significance as follows:
The Ethereum Virtual Machine is the environment in which all Ethereum accounts and smart contracts live.
When processing data, ETH distinguishes between two different account types. On the one hand, there is the Externally Owned Account (EOA) and on the other hand, the Contract Account.
Both account types have the same basic functions. They can receive, send and hold Ethereum and ETH tokens. In addition, they can interact with smart contracts.
An EOA is used by all normal users. It can be created free of charge and has the option of initiating payments. Coins and tokens can only be received without creating a new smart contract. The user who has power over the private key has control over an EOA.
Within the Ethereum network, users pay gas fees when they commission transactions. In other blockchain networks, similar fees are simply called network fees. Users pay these fees to the validators of the network, who are responsible for processing the transactions. The price of gas fees is denominated in Gwei. One Gwei is one millionth of an ether.
Since the London upgrade of 2021, the fee has consisted of two parts. A fixed portion, the so-called base fee, is not distributed to validators but is burned and thus permanently removed from circulation. During high network load, this can result in more ETH being burned than newly issued, which reduces the supply.
Smart Contracts and the Ethereum Blockchain
A contract account costs money and, unlike the EOA, is therefore not free. Depending on the type and functions, the price per contract account varies between several tens of thousands of Gwei. The costs are incurred because the program code stored in the contract takes up storage space that the network must provide.
Such a contract account contains the smart contracts for which ETH is essentially known. Thanks to these scripts, processes can run automatically and avoid an intermediary, for example when providing loans.
The buyer must, of course, pay the price of the contract account in the native currency of the blockchain – ETH. Other currencies such as stablecoins or fiat currencies cannot be used for this.
A smart contract cannot initiate an initial money transfer. A transaction is only possible once a payment has been received. A contract account contains smart contracts that can be triggered by deposits.
When the program code is started, a token is paid out, for example, or a new smart contract is created, which then in turn follows new, predefined conditions.
Contract accounts are not under the control of a person with a private key. There is no private key for a contract account. Instead, it follows the logic of smart contracts. This makes it possible to use these scripts as a decentralized platform for applications.
What are Ethereum dApps?
Smart contracts then form the backbone of so-called dApps. The word dApp stands for decentralized application. Unlike today’s mostly common centralized applications, a central instance does not have the decision-making power over the processes in a dApp.
Instead, these processes are processed automatically by smart contracts. This methodology is intended to ensure neutrality towards users. The aim is to prevent censorship. Well-known dApps on Ethereum are the DEX Uniswap, the stablecoin marketplace Curve Finance or the NFT trading platform OpenSea.
DApps resist the injustice that arises from centralized apps. There, the responsible companies (e.g. Facebook, Google or other Big Tech companies) have absolute power and can do as they please. DApps are intended to bring more freedom to the individual user.
Many crypto enthusiasts hope that Web3 will be able to replace the current Web2 in the future. Web3 is the latest version of the Internet and is based on decentralized applications instead of centralized apps.
What Can Ethereum be Used for? – Possible Use Cases
Ethereum, just like Bitcoin, can be used as a censorship-resistant, free currency. However, the focus of the crypto project is on its function as a DeFi blockchain – i.e. as a platform for smart contracts. Ether serves as a means of payment there. Actions on the blockchain must be paid with it.
Independent developers can develop their own applications, which then live on ETH and therefore function as decentrally as the blockchain itself. There are no limits to the imagination.
So far, financial applications are particularly popular. However, social networks such as Facebook, Instagram or Twitter are also conceivable on the basis of Ethereum. This idea has already been implemented with the Lens Protocol.
In the future, a growing interest in NFTs can be expected. These are digital ownership certificates that have so far mainly been used in digital worlds or for digital artworks. However, they can also appear as proof of ownership for a physical object such as a house or a piece of land.
What are Ethereum ICOs?
Ethereum itself conducted an Initial Coin Offering (ICO) in the summer of 2014. During this, the developers of the cryptocurrency sold 60,102,215 ETH to investors at a price of 31 US cents per coin. In total, the Ethereum Foundation and the founding community were able to secure a financial injection of 16 million US dollars.
A few months later – in 2017 – the so-called ICO Boom developed. Independent developers created their own tokens, which Ethereum’s ERC-20 standard had made easier than ever before.
They equipped these mostly pointless tokens with the wildest promises. In some cases, they expanded their marketing with advertising campaigns. Many of the projects generated millions through the ICOs.
This ICO boom, also known as Ethereum ICOs, primarily produced scams that damaged the public image of pre-sales. Gullible investors therefore acquired tokens that had no use. Most of those responsible intentionally did not keep the promise of building a benefit in the future.
The Ethereum ICOs were the responsibility of third parties. The developers of Ethereum themselves did not participate in this. The name is due to the fact that Ethereum served as the basis, as most of the cryptocurrencies offered were based on the ERC-20 standard.
Ethereum Staking
For a long time, Ethereum relied on the proof-of-work process, similar to Bitcoin. New Ether coins were mined in an energy-intensive process. With Ethereum mining, you could strengthen the Ethereum network and received new Ether coins as a reward. With the switch to proof-of-stake in 2022, Ethereum mining is no longer possible.
Instead, new blocks are created through a so-called proof-of-stake; from now on, we call the process itself Ethereum staking. Owners of Ether coins can act as validators with a balance of 32 ETH or more and thus secure the network. Since the Shapella upgrade in 2023, staked ETH can also be withdrawn again. To participate in staking as an average Ethereum owner, you can also stake Ethereum via crypto exchanges or use so-called liquid staking providers.
All details about Ethereum Staking
Ethereum’s Upgrades After The Merge
For a long time, the restructuring of Ethereum was discussed under the term “Ethereum 2.0.” The Ethereum Foundation no longer uses this term today. Instead of a single event, the network is further developed through successive upgrades, known as hard forks.
The most important step was the Ethereum Merge in September 2022. With this, Ethereum switched from proof-of-work to proof-of-stake and reduced its energy consumption by around 99.95 percent. Since then, Ethereum mining is no longer possible; new blocks are created via staking. In April 2023, the Shapella upgrade followed, allowing staked ETH to be withdrawn. The Dencun upgrade in March 2024 introduced so-called blobs, a cheaper data channel for Layer 2 networks. The Pectra and Fusaka upgrades followed in 2025, and the Glamsterdam and Hegotá upgrades are in development for 2026.
When it comes to scaling, Ethereum is now pursuing a different path than originally intended. Instead of increasing throughput on the main chain alone, the majority of transactions are outsourced to Layer 2 networks, which secure their data in bundles on Ethereum. The main chain serves as the consensus and security layer. Concepts like danksharding further expand this approach by providing Layer 2 networks with cheap data space.
The Future of Ethereum: Forecast for the further ETH Course
Ethereum is considered one of the crypto projects with the greatest potential. More and more users believe that ETH will one day even overtake the eternally first-placed Bitcoin – this hypothetical event is called Flippening.
However, shortcomings in scaling meant that Ethereum lost more and more market share in the DeFi sector over a long period of time. The currently second largest cryptocurrency itself founded this. Today, the DeFi sector is the most competitive sector within the crypto industry.
In the meantime, besides ETH, there are several other projects in the top 20 cryptocurrencies alone that provide smart contract functionality. Many of these projects are only a few years old. Since they are considered particularly promising for the future, they managed a rapid rise.
For Ethereum to prevail against this major competition, the ongoing development of the network is crucial. You can read about the development CoinPro predicts for the next few years in our Ethereum price prediction.
How Can I Buy Ethereum?
Just like any other cryptocurrency, Ethereum can be purchased via crypto exchanges. For most users, the most convenient trading venue is a centralized crypto exchange like Bitvavo or Bitpanda.
In the guide, where can you buy Ethereum, CoinPro provides a detailed guide for buying the digital investment. In short, the creation and identification of an account is necessary. Swiss francs or another fiat currency can then be deposited using conventional methods such as a bank transfer or card payment.
With this fiat money, users can then purchase the cryptocurrency of their choice. Since Ether is the second-largest cryptocurrency, the investment can be purchased on almost every crypto marketplace.
Users who place more value on their personal privacy can use P2P exchanges to purchase ETH without identification and without a middleman. The fees are higher here.
Ether can also be purchased with another cryptocurrency via a DEX. Cross-chain swaps like THORChain even make this option possible across blockchains.
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