Ethereum: Beginner Basics

The Ethereum price is up 908% in the last twelve months, with the new Ethereum 2.0 on the horizon and a craze of NFT projects running on the Ethereum blockchain for the APES and Degenerates to obsess over, Should I Buy Ethereum in 2021?

The Scale

The price of Ethereum has increased 908% in the last twelve months to trade at today’s price of $3,865 and a market capitalization of $453billion. This makes ETH the second-largest cryptocurrency by market cap.

Ethereum unlike Bitcoin does not have a fixed amount of coins (coin-cap) however has other deflationary measures in place to control circulating supply.

Summary Statistics

• Asset: Ether (ETH)
• Inception of Network: 30th July 2015
• Current Price (USD): $3,865
• Coin Market Cap (USD): $453billion
• Circulating Supply (As of Writing): 117,394,131 ETH
• Current Mining Block Reward: 2 ETH
• Is Fixed Supply (Coin-Cap): No
• Level of Decentralization: Top 2 hold > 50% hash rate

About The Project

Ethereum is a blockchain product that can essentially be described as an operating system for the blockchain. Ethereum is primarily used to build decentralised applications (Dapps) the project achieves this by combining the blockchain with a complete Turing programming language.

Ethereum is based on the concept of “Smart Contracts”, which essentially means that if certain conditions are met then a certain code can be run on the platform. This differs from its competitor bitcoin where a coin can typically only be ‘spent or unspent’ with only basic ‘smart contract’ functionality.

ETH Uses

• Token Systems (Such as NFT’s)
• Financial Derivitives and Stable-Value Currencies
• Identity and Reputation Systems
• Decentralised File Storage (DropBox but cheaper and decentralised)
• Decentralised Anonymous Organisations
• Insurance based contracts systems
• Peer-to-peer gambling protocols

ICO- Initial Coin offering

Upon network creation, 72million ETH was created and allocated based on approximately $18million USD that was raised in their ICO sale. Around 83% of ETH were sold to the public at this point in time, with developers (85 individuals) and the Ethereum Foundation maintaining the 17%.

Ethereum Mining Reward History

At creation 72million Ethereum tokens were created. The token includes a key deflationary mechanism to control the rate at which new ETH is issued. The rate of issuance is currently capped at a 16million per year, however, over time this will continue to become smaller as the difficulty and computing power required to mine will increase.

The block reward for miners who successfully confirms a transaction on the Ethereum blockchain started at 5ETH back in 2015. After several hard-forks increasing the difficulty of mining the block reward now sits at 2ETH.

Deflationary Mechanism of Ethereum

On August 5th 2021 EIP-1559 (London Hard Fork) was released the update will introduce a minimum payment – the base gas fee- for Ethereum transactions, aiming to stabilise transaction fees. Depending on the network congestion, the base fee may adjust by up to 12.5%.

After EIP-1559, every Ethereum block burns part of the transaction fees.

Ethereum Classic Vs Ethereum Vs Ethereum 2.0

What is Ethereum Classic? Ethereum Classic was the original token created back in 2015, however, after a vulnerability that was discovered in 2016 and $60million of ETH was stolen the community produced a hard fork to remove the vulnerability from the code base and essentially created an ETC and ETH fork. Both of which still co-exist today.

What is Ethereum 2.0? Ethereum 2.0 is the name given for a series of major updates to the code base which will be implemented in several phases to transition Ethereum from a proof-of-work (PoW) system (similar to how bitcoin works) to a proof-of-Stake (PoS) protocol. Currently, ETH 2.0 is expected to start rolling out sometime in 2022.

What is the Difference Between Proof of Work and Proof of Stake? Both systems are consensus mechanisms used to confirm transactions on the blockchain.

Proof of work requires significant amounts of energy due to the exponentially increasing computing power required to solve the cryptographic proof to confirm a transaction on the blockchain (Mining). Proof of stake requires miners to hold a stake of ETH on the blockchain and use this ‘guarantee’ to secure the network of transactions (Staking).

The difference is that Proof of Stake should over time become a more economical and faster model for confirming transactions on the blockchain.

Should I Buy Ethereum NFTs

Ethereum NFT’s seem to be the buzzword of the crypto space in 2021, mainly due to the success of a number of NFT projects such as the Bored Ape Yacht Club and others such as Crypto-Kitties.

In August of 2021, one of the Bored Ape Yacht Club NFT tokens sold for over $12million at an auction at Sotheby’s which seems to validate the demand for Ethereum based products.

Ethereum NFTs projects can be purchased using a leading exchange such as OpenSea.IO and linking your ETH based wallet such as Coinbase Wallet, or MetaMask. However, be aware that there are Fake NFT’s out there so be sure you know what you are buying!

Summary and Closing Statement

The crypto space at the moment is highly speculative and people buying should ensure they are investing in projects which are inside their circle of competence to make a judgment on if they are good or poor investments.

I hope you enjoyed my Ethereum Report for beginners, if you're interested in reading the full guide here's the resource: Should I Buy Ethereum 2021? :)