Ethereum: A Next-Generation Smart Contract and Decentralized Application Platform

Hello, friend! I’m excited to introduce you to one of the most important projects in the blockchain world—Ethereum (ETH). You can think of it as the “supercomputer” or “public ledger” of the blockchain universe, but it’s much more powerful than a regular ledger because it not only records transactions, but also runs all kinds of complex programs and applications.

What is Ethereum

Ethereum is not just a digital currency; it’s a decentralized, open-source blockchain platform. You can think of it as a “world computer”—a global, decentralized platform that anyone can use, where developers can build all kinds of applications without needing permission from any centralized authority.

One of the core features of Ethereum is the smart contract. You can imagine smart contracts as “self-executing agreements,” with the terms written directly into code. Once the preset conditions are met, they execute automatically, without any intermediaries. For example, if you make a bet with a friend that if a certain football team wins, your money will automatically be transferred to your friend. This “agreement” can be written as a smart contract, eliminating the need for trust.

Ethereum’s target users are very broad, including those who want to issue their own digital assets (such as ERC-20 tokens, which you can think of as “digital stocks” or “points” on Ethereum), create decentralized finance (DeFi) applications (like lending or trading platforms), develop non-fungible token (NFT) art and collectibles, and build other types of decentralized applications (DApps) for both developers and users.

A typical usage flow looks like this:

1. Acquire Ether (ETH): First, you need Ethereum’s “fuel”—Ether, to pay for various operational fees on the network (known as “Gas fees”).
2. Choose a wallet: You need a digital wallet to store your ETH and digital assets created on Ethereum, and to interact with decentralized applications.
3. Interact with DApps: You can connect your wallet to various DApps, such as trading on decentralized exchanges or buying digital art on NFT marketplaces. When you perform actions, ETH is deducted as Gas fees to ensure your operations are processed on the network.

Project Vision and Value Proposition

When Ethereum’s founder Vitalik Buterin proposed Ethereum in 2013, he had a very clear vision: it’s not just a digital currency, but an open software platform that leverages blockchain technology to make it easy for developers to build decentralized applications. He hoped Ethereum would become the “ultimate abstract base layer”—a blockchain with a Turing-complete programming language (meaning it can run any program), allowing anyone to write smart contracts and decentralized applications and customize their rules.

Ethereum aims to solve the core problems of centralization in traditional internet, such as data being controlled by a few companies, censorship, and privacy leaks. It addresses these issues through decentralization, censorship resistance, openness, and data ownership.

Compared to Bitcoin, which is more like a “calculator that can only add and subtract money” and focuses on digital gold, Ethereum is like a “full computer” that can run all kinds of programs and applications. Its “smart contract” feature is the biggest difference from Bitcoin.

Ethereum’s long-term vision is to become a more scalable, more secure, and still decentralized platform. It aims to evolve from a platform powering only crypto applications to a global critical infrastructure supporting finance, governance, and even digital identity.

Technical Features

Ethereum’s technical architecture is complex yet elegant. Its core components include:

• Blockchain: This is a distributed ledger that records all transactions and smart contract interactions. It’s maintained by nodes across the network, ensuring transparency and security, and is immutable.
• Ethereum Virtual Machine (EVM): Think of this as Ethereum’s “brain” or “global computer.” The EVM executes smart contract code, ensuring that all programs running on Ethereum are executed identically on every node, guaranteeing deterministic operation.
• Smart Contracts: As mentioned earlier, these are self-executing agreements.
• Accounts: Ethereum has two types of accounts: externally owned accounts (controlled by user private keys) and contract accounts (controlled by smart contracts deployed on the EVM).
• Gas Mechanism: To prevent infinite loops and resource exhaustion, Ethereum introduced the Gas mechanism. You can think of Gas as the “fuel” you pay to execute operations; every computation step consumes Gas, and Gas is paid in ETH.

Ethereum’s consensus mechanism has also undergone significant evolution.

• Proof of Work (PoW): Before September 2022, Ethereum used PoW like Bitcoin. In simple terms, miners validated transactions and packaged blocks by solving complex computational puzzles, earning rewards. This consumed a lot of electricity.
• Proof of Stake (PoS): In September 2022, Ethereum transitioned from PoW to PoS through “The Merge.” With PoS, miners are replaced by “validators” who stake a certain amount of ETH and are randomly selected to validate transactions and create new blocks, earning rewards. This greatly reduces energy consumption and increases network security.

Tokenomics

Ethereum’s native token is Ether (ETH). It’s the “fuel” of the Ethereum ecosystem and plays multiple roles:

• Digital Currency: ETH itself is a digital asset traded on crypto exchanges.
• Transaction and Computation Fees (Gas): Any operation on the Ethereum network, such as sending tokens or executing smart contracts, requires Gas fees paid in ETH.
• Network Security Staking Asset: Under PoS, validators must stake ETH to participate in network security and earn rewards.

About ETH’s supply and issuance mechanism:

• No Fixed Total Supply: Unlike Bitcoin’s hard cap of 21 million, ETH does not have a fixed supply limit.
• Issuance Mechanism: During the PoW era, ETH issuance was constant, with about 13,000 ETH issued daily. After transitioning to PoS, daily issuance dropped sharply to about 1,700 ETH—a decrease of about 88%.
• Burn Mechanism (EIP-1559): In August 2021, Ethereum introduced the EIP-1559 proposal, changing how Gas fees work. A portion of the base transaction fee is “burned” (permanently removed from circulation) instead of being paid entirely to validators. This means ETH can become deflationary during periods of high network activity, with more ETH burned than issued, reducing total supply.

Initial Distribution: At launch, about 60 million ETH were distributed to participants via crowdsale. Another 12 million ETH were reserved for the Ethereum Foundation, early contributors, and developers to bootstrap the network.

Token distribution and unlocking mainly relate to PoS staking. ETH staked by validators is locked for a period, but after “The Merge,” the Shanghai upgrade allows validators to withdraw staked ETH.

Team, Governance, and Funding

Ethereum was conceived by developer Vitalik Buterin in 2013. Other co-founders include Gavin Wood, Charles Hoskinson, Anthony Di Iorio, and Joseph Lubin. Development began in 2014, funded by a crowdsale, and officially launched on July 30, 2015.

Ethereum’s governance model is decentralized; no single person or organization owns or controls the Ethereum protocol. This means protocol changes require broad community coordination.

Governance Process: Ethereum’s governance is mainly conducted through “Ethereum Improvement Proposals” (EIPs). Anyone can submit an EIP, which is then discussed, reviewed, and tested by core developers, validators, node operators, application developers, and ETH holders, ultimately forming community consensus. This “off-chain” soft governance requires high coordination to ensure any changes to Ethereum are safe and accepted by the community.

Ethereum Foundation: This is a non-profit organization playing a key role in the Ethereum ecosystem, mainly funding protocol development, research, education, and grants to promote Ethereum’s growth. Note, however, that the Foundation does not directly “control” Ethereum, but guides and supports its development.

Roadmap

Ethereum’s roadmap is a dynamic, evolving plan aimed at improving network security, scalability, and efficiency. It has gone through several major historical milestones and has clear plans for the future:

Key Historical Milestones:

• July 30, 2015: Genesis Block (Frontier) Launch, officially starting the Ethereum network.
• 2016: The DAO Incident and Hard Fork. A large VC fund (The DAO) was hacked, leading to a controversial hard fork that split Ethereum (ETH) and Ethereum Classic (ETC).
• October 2017: Byzantium Hard Fork. Reduced block mining rewards and delayed the difficulty bomb.
• 2019: Istanbul Hard Fork. Optimized transaction fees, improved resistance to denial-of-service attacks, and better supported Layer 2 networks.
• December 2020: Beacon Chain Launch. The first step in Ethereum’s transition to PoS, introducing the PoS consensus mechanism and allowing ETH staking.
• September 2022: The Merge. Ethereum successfully transitioned from PoW to PoS consensus—a historic milestone that greatly reduced energy consumption.
• April 2023: Shanghai Upgrade. Enabled withdrawal of staked ETH on the Beacon Chain, completing the PoS transition.
• March 2024: Dencun Upgrade. Marked the start of “The Surge” phase, introducing technologies like “proto-danksharding” to lower Layer 2 transaction costs and improve data availability.

Future Key Plans:

Ethereum’s future roadmap, as proposed by Vitalik Buterin, consists of six main phases collectively known as “The Surge,” “The Scourge,” “The Verge,” “The Purge,” and “The Splurge.” These upgrades are not strictly sequential.

• The Surge: Aims to use sharding (splitting the blockchain into smaller pieces to process transactions in parallel) and Layer 2 solutions to scale Ethereum to over 100,000 transactions per second.
• The Scourge: Focuses on solving centralization issues in Ethereum’s PoS design, especially risks related to MEV (Maximal Extractable Value) and liquid staking.
• The Verge: Focuses on introducing advanced data storage solutions, such as Verkle Trees, to simplify block verification and improve network efficiency and scalability.
• The Purge: Aims to simplify the protocol, eliminate technical debt, and lower the cost of network participation by clearing historical data.
• The Splurge: This phase is a broad goal to “fix all other issues,” covering various improvements and optimizations.

Common Risk Reminders

Investing in any crypto project comes with risks, and Ethereum is no exception. Here are some common risk reminders:

• Technical and Security Risks:
  • Protocol Complexity: The Ethereum protocol is very complex; any code errors or vulnerabilities can lead to security issues.
  • Smart Contract Vulnerabilities: While smart contracts are self-executing, if the code itself has bugs, it can lead to loss of funds. Such incidents have occurred in the past (e.g., The DAO incident).
  • Centralization Concerns: Although Ethereum strives for decentralization, there are concerns about validator centralization (especially with liquid staking protocols) and concentration of development power (Ethereum Foundation and core developers).
• Economic Risks:
  • High Gas Fees: During network congestion, Gas fees can be very high, which may limit participation by ordinary users and push some activities to Layer 2 solutions or other blockchains.
  • Market Volatility: As a crypto asset, ETH’s price is affected by market supply and demand, macroeconomics, regulatory policies, and other factors, leading to high volatility and potential investment losses.
  • Staking Withdrawal Congestion: Currently, Ethereum’s validator withdrawal queue can be long, meaning staked ETH may take a long time to be withdrawn, posing liquidity risks.
• Compliance and Operational Risks:
  • Regulatory Uncertainty: Global regulatory policies on cryptocurrencies are still evolving, and future changes may impact Ethereum’s operation and adoption.
  • Intensifying Competition: As other blockchain platforms and Layer 2 solutions develop, Ethereum faces competitive pressure and must keep innovating to stay ahead.

Verification Checklist

• Block Explorer (Etherscan): etherscan.io (Think of it as Ethereum’s “search engine,” where you can look up all transactions, blocks, smart contracts, and more.)
• GitHub Activity: Ethereum is an open-source project, and its core codebase can be found on GitHub. Active code updates and community contributions are key indicators of project health.
• Official Website: ethereum.org (An important source for the latest project news and official information.)

Project Summary

Ethereum is a groundbreaking blockchain project that expands blockchain technology from simple digital currency to a programmable “world computer.” By introducing smart contracts, it laid the foundation for decentralized applications (DApps), decentralized finance (DeFi), and non-fungible tokens (NFTs) in the Web3 space. With “The Merge” and the transition to Proof of Stake (PoS), Ethereum has made significant progress in energy efficiency and security.

Despite strong community support and ongoing innovation, Ethereum faces scalability challenges, potential centralization risks, and a complex regulatory environment. Its future roadmap, such as “The Surge,” aims to address these challenges through technologies like sharding and Layer 2 solutions. For anyone interested in Ethereum, it’s recommended to study its technical details, community governance, and future plans in depth, and always remember that crypto asset investment carries inherent risks. This introduction does not constitute investment advice; users should conduct their own research for more details.