What is Ethereum?

Introduction

Compared with Ethereum, most people may be more familiar with ETH (ether). They have similar names but different meanings.

Ethereum is an open-source and programmable blockchain that allows developers to build decentralized applications such as IC0 (2017), DeFi (2020), non-fungible tokens (NFTs), EVM, and Layer2 Rollups with Solidity. In the crypto world, most innovative projects were established on Ethereum. ETH or ether is the gas fee to be paid when initiating a transaction on the Ethereum blockchain. The gas fee varies with the current demand. After merging the Ethereum network with the Beacon Chain proof-of-stake system, ETH will also become the staking currency of the new consensus mechanism PoS.

Ethereum is a new application based on the innovation of Bitcoin. The biggest difference between the two is that Ethereum is programmable. Therefore, Ethereum can be used as a platform for decentralized applications, bringing together financial services, games, artworks, and various other applications.

What is Ethereum?

Vitalik Buterin, the founder of Ethereum, was born in Russia in 1994 and moved to Canada after his parents divorced. He is gifted and passionate about mathematics, programming, and economics. His interest in decentralization, or rather, his dislike of centralization, came from Blizzard nerfing his favorite World of Warcraft character. At that time, he awakened to the “horrors centralized services can bring.”

After Vitalik Buterin went to university, he realized that traditional education could not give him what he wanted. He also became even more fascinated by decentralization and blockchain technology. The idea of decentralization means being free from the intervention of a central institution. Although, at that time, the significance of Bitcoin was still controversial, it attracted Vitalik Buterin so much that he founded Bitcoin Magazine and published lots of articles.

In 2012, he devoted all his time to blockchain-related projects, such as Dark Wallet, Marketplace Egora, and Kryptokit.

In 2013, Vitalik Buterin chose to drop out so that he could focus on blockchain development and travel around the world to meet like-minded people, which laid the foundation for the future development of Ethereum.

2014 was an important year because it was when Vitalik Buterin, at 19, introduced Ethereum, an open-source public blockchain with smart contracts. Ethereum was officially launched in 2015 and is now the most widely used blockchain.

Vitalik believes that Ethereum is an innovation that applies some of the technologies and concepts of Bitcoin to the computing field. But now Ethereum has found its way and made many dApps possible. Vitalik Buterin promoted the development of blockchain technology and started the era of blockchain 2.0. Vitalik has gained many supporters because of his outstanding contributions to the blockchain industry, his well-recognized competence, and his unique insights into decentralized development. Therefore, the Chinese crypto community refers to him as “V神” (literally “God V”).

What is Ether?

ETH

Ether or ETH is the native token on Ethereum that can be used for transfers, trading, paying fees, etc. It is the only recognized and licensed circulating currency on Ethereum. Ether is the pass on the Ethereum blockchain because any activity on Ethereum, including transfers, transactions, or the creation of new applications, charges ether.

ETH Oil 2.0

If Bitcoin is digital gold, then Ether is digital oil. If you think of Ethereum as a highway and smart contracts as cars, then ETH is the digital oil that provides energy for those cars.

How Ethereum Works

On DeFi Llama, we can observe that the total value locked (TVL) on Ethereum’s blockchain peaked at the end of 2021, exceeding $120 billion. On Ethereum, there are various applications other than peer-to-peer payments, such as financial services, artworks, and games. Why are so many people willing to put their assets on Ethereum? Maybe the answer will be self-evident as we closely examine how Ethereum works.

Source: DeFi Llama

The Blockchain

Ethereum is similar to Bitcoin for relying on the blockchain to store and secure transactions. Both transaction records and smart contracts are on the Ethereum blockchain. We can think of Ethereum as a ledger that keeps track of all activities on the network. This ledger is open and completely transparent to everyone.

Copies of this ledger are distributed across a global network of computers called “nodes.” Nodes perform various tasks, including validating and keeping track of transactions and smart contract data. This structure allows participants to own a copy of the distributed ledger and jointly verify transactions, ensuring the validity of content added to the blockchain.

Why use decentralized nodes to verify transactions and store data?

• No single point of failure (SPOF)
• Transparent, reliable, immutable
• Censorship-resistant

What do nodes store?

• Accounts: Everyone can have their own account on Ethereum. Accounts usually have a certain amount of ether.
• Smart Contract Code: Ethereum stores smart contracts. Smart contracts set up the rules that must be met to unlock or transfer funds.
• Smart contracts Status: The status of smart contracts.

Compared with Bitcoin, Ethereum adds smart contracts to the blockchain technology and allows users to create various DApps (decentralized applications). This is the biggest difference between Ethereum and the Bitcoin network. They are on two completely different paths of ecosystem development. Next, let’s learn about the technology that drives all innovations - Solidity smart contracts.

Solidity Smart Contracts

Smart contracts go beyond the first generation of blockchain and expand the applications of the second generation. Solidity smart contracts allow the blockchain to operate like a computer instead of only having payment functions as before, facilitating people to complete more complex transactions through smart contracts.

In 1994, Nick Szabo, a blockchain expert, explained the concept of smart contracts. He described smart contracts as “automatic vending machines.” People can use vending machines to choose what they want to drink without supervision from a third party.

Smart contracts are not subject to third-party supervision. Code, once deployed to Ethereum, will be permanently stored and cannot be tampered with (even by the project team). Therefore, smart contracts are more credible than traditional finance if the code is carefully audited. But please note that this does not mean that smart contracts are safe.

DApps deploy new code to Ethereum, but they may still risk being hacked. When programs are running smoothly, it isn’t easy to detect loopholes. A small error can lead to irreversible consequences. Participating in early innovation is a good thing, but at the same time, people must have a good understanding of the risks as well.

A Brief Introduction of DApps

DApp is the abbreviation for “Decentralized Application.” Because the code and transaction data on Ethereum are fully open and transparent, how a DApp was built and whether there are loopholes can be verified by everyone, which is very different from most mobile and desktop apps.

We can explain DApps by referring to the operating system of smartphones.
The current two mainstream mobile operating systems are Android and iOS. Different blockchains also represent different operating systems. Developers must use a programming language that suits the operating system. Since they are different operating systems, their user base and ecosystems are also different.

Ethereum is currently the most popular operating system with development tools, documents, and tutorials. With abundant resources and applications, Ethereum is the first choice for many Web2 developers when they step into the blockchain world and start building DApps.

Gas Fee

Ethereum charges a fee when users try to initiate a transaction or call a smart contract, which is called Gas.

Gas is paid to nodes/miners that assist in validating transactions. They act as a helper in keeping the ledger, providing their own resources and earning income in return.

How to Calculate Gas

Gas Used and Gas Prices are essential for calculating gas. Gas Used can be compared to the fuel required for driving the car. Gas Price is the unit price of fuel, and Gwei is the unit of value used to express the gas price. The smallest unit of ether is Wei (1 ether = 10^18 Wei). It should be noted here that Wei is the smallest unit but not the only unit.

The following is the formula for calculating gas:

Gas Price * Gas ​​Limit = Gas Fee (transaction fee)

Normally, when a smart contract is executed, the gas limit is 21,000.

Suppose we execute a trade today with a gas price of 20 and a gas limit of 21,000. Then we need to prepare 20 * 21,000 = 420,000 Gwei, that is, 0.00042ETH. Please note that this refers to the maximum fee that needs to be paid. If the transaction can be completed without spending that much, the excess will be returned to the user.

ETH unit conversion:

EIP 1559 Fee Adjustment Mechanism

Compared with Bitcoin’s supply limit of 21 million, there is no limit for the issuance of ETH. However, Ethereum has this deflation mechanism of burning ether, which restrains the circulation and maintains the price.

Another major event related to gas fees is the EIP-1559 London hard fork upgrade implemented in August 2021. The biggest change is to split the transaction fee into “base fee” and “tips.”

Base Fee: The minimum fee needed to maintain the smooth operation of the blockchain. The amount of base fee charged varies with the block capacity. Base fees will be burnt directly and not rewarded to miners.

If users want to speed up their transactions, EIP-1559 allows users to pay additional tips to the miners in addition to the base fee. EIP-1559 affects the income of miners and has caused their dissatisfaction. This proposal introduces a new economic system for Ethereum, in which some base fees will be directly burned. This upgrade also allows gas fees to be more easily predicted, improving the transaction experience. In the case of high network demand, base fees are higher, and more ETH will be burned, which will cause a certain degree of deflation. However, as market sentiment remains subdued, transaction fee revenue decreases, resulting in fewer tokens being burnt and limited deflationary effects.

Ethereum Virtual Machine (EVM)

The Ethereum blockchain doesn’t simply store data but also runs codes and applications. Smart contracts are compiled and interpreted by EVM.

As the name suggests, the Ethereum Virtual Machine is built on the Ethereum blockchain. Programs running on Ethereum are isolated from each other on EVM and the main chain.

EVM is an Ethereum-native processing system that allows developers to create smart contracts and allow nodes to interact with them. Ethereum developers use a programming language called Solidity. Humans can read solidity code but cannot be understood by machines, so it needs to be converted into instructions that the EVM can read and execute.

When a person sends a transaction to a smart contract deployed on Ethereum, each node runs it through its own EVM. In this simulation, each node can see the result and whether a valid transaction is produced. If all nodes achieve the same valid result, the blockchain will update the record.

Important Developments in Ethereum’s History

From 2013 to 2014: From white paper to ICO

At the end of 2013, Vitalik Buterin wrote the Ethereum white paper on his blog, outlining the imagination of various applications. After nearly a year of preparation, they had their first fundraising, ending with over 31,000 bitcoins. The initial sale price of ETH was about $0.3. About 12 million ether were allocated to the Ethereum Foundation and early supporters. Sixty million ether were sold to investors.

2015: Ethereum Mainnet Launch

At the end of July 2015, the update named Frontier launched the Ethereum mainnet. One week later, ETH was listed on the exchange Kraken. Due to the high price of nearly $3 on the first trading day, a very high short-term return caused many early investors to sell their ether. The price fell by almost 50% within a week and dropped to around $0.5. The price didn’t stabilize until the mainnet update in September.

In October 2015, the Ethereum Foundation held the Devcon-1 Developer Conference, attracting much attention. After several months of price fluctuations, the price of ETH climbed from $1 to $10 when the update named Homestead took place in March of the following year. The total market capitalization also broke $1 billion.

2016: Hard fork

Homestead contains several protocol and network changes in preparation for other future upgrades. Then, one month later, the experimental project DAO was established. DAO is a decentralized autonomous organization similar to venture capital, using a self-executing smart contract. The creation of DAO attracted more than $150 million in fundraising.

However, within three months, DAO was found to have a loophole in the smart contract, and $60 million worth of ether was stolen, which led to the DAO hard fork. Ethereum also experienced a DDos attack soon after. A series of negative events made the price of Ethereum hover around $10 for more than a year. The market cap of 1 billion seemed to be the ceiling for Ethereum.

2017: ERC20-driven ICO

At the beginning of 2017, Ethereum was listed on the social trading investment platform eToro. Bitcoin met the problem of network congestion after the halving event. So people were talking about a possible replacement. Soon the price of ETH soared, starting from $10 and going all the way to $300. But then ETH followed the fall of bitcoin and went back down to $150. However, this was not the end of the rally, but only a temporary correction. The Byzantium upgrade in October caused a shortage of ETH supply. With the catalysis of the Bitcoin price hitting new highs and a large number of IC0 projects, the strong demand for ETH led to strong FOMO in the market. The second wave brought ETH above the $1,000 benchmark, reaching a record high of $1,400 in January of the following year. The market cap of Ethereum also reached $100 billion, making it the second largest cryptocurrency after Bitcoin.

From 2018 to 2019: The Silent Bear Market

2018 was a difficult year for Ethereum. After the market cooled down, there was still a large influx of Bitcoin and Ethereum miners, causing the price to fall from more than $1,000 to less than $100 within a year, and hover between $100 and $300 until Bitcoin’s next halving. The number of ethers in circulation on the market increased to 100 million.

The price performance of ETH in 2019 was not excellent. After the upgrade called Constantinople in February, the price rallied back to $300 but was soon affected by the fall of Bitcoin. The Istanbul upgrade at the end of the year bettered the expansion plan of Layer 2, added interaction with Zcash and improved smart contracts. Then the price of ETH gradually stabilized.

2020: DeFi Summer

In October 2020, Ethereum deployed a staking contract in preparation for the transition to proof-of-stake (PoS). With the recovery of the crypto market and the record high price of Bitcoin, funds started flowing into Ether. The substantial increase of DeFi applications on Ethereum had also increased the market demand for Ether. As the on-chain staking causes a short supply of ETH, the ETH price hit new highs one after another, which had only stopped at $4,300 the following year, increasing its market value by as much as 10 times.

2021: NFT Explosion

In the summer of 2021, with China’s ban on crypto mining and exchanges withdrawal from the Chinese market, the price of ETH fluctuated violently - the price halved to below $2,000 and then rose with the good news of the listing of Bitcoin ETFs. Due to the boom for blockchain games and NFTs, the Ethererum’s London upgrade (EIP-1559) in August has made Ether a deflationary currency, with a total circulation of about 120 million on the market and a new high of $4,800 in early November.

2022: Scaling Solutions

In December, as the Federal Reserve announced to shrink its balance sheet, and Russia’s war in Ukraine broke out in February 2022, funds were pulled out of the high-risk crypto market. The collapse of the algorithm stablecoin Luna in May and the liquidation of leveraged products by many institutions also increased the selling pressure. ETH began to drop from $3,300 earlier this year and fluctuates around $1,000 at the time of writing, making its market capitalization fallen from nearly $500 billion at its peak to $100 billion. Despite the downturn, the ETH 2.0 mainnet upgrade expected to be completed by the end of the year and the growing number of DApps may still drive Ethereum to an ever brighter future.

2023: Shanghai Upgrade and the Blossoming of Layer 2

In 2023, Ethereum completed two technical upgrades, the “Shanghai Upgrade” and the “Capella Upgrade.” One of the major effects of this upgrade was to allow stakers who deposited ETH during the consensus mechanism change (users needed to stake their ETH to receive rewards after the mechanism change) to withdraw their funds from the chain. It also successfully implemented changes to the previous consensus mechanism.

On June 12, Ethereum co-founder Vitalik Buterin pointed out in his latest blog post that for Ethereum to achieve long-term sustainability, the expansion of Layer 2 is one of the important technological transformations. If Ethereum is likened to a kingdom, then Layer 2 is like the cities under this kingdom, and the development of these cities is closely related to the rise and fall of the kingdom. Layer 2 is like building a viaduct on a highway to solve traffic congestion. By this time, Layer 2 solutions like Optimism and Arbitrum have accumulated rich ecosystems and applications, including DeFi and NFTs. With the popularity of the Layer 2 concept, more and more Layer 2 solutions are emerging.

2024: The ETH ETF Receives Attention, and the Cancun Upgrade Promotes the Prosperity of Layer 2

The BTC spot ETF was approved in the US in 2024. It brings cryptocurrency into the mainstream financial market, providing individuals and institutional investors with an easy way to access it. People are paying close attention to whether the ETH spot ETF can also be approved.

In 2024, Ethereum also underwent a technical upgrade called the “Cancun Upgrade”. After the upgrade, the fees on Ethereum Layer 2 are expected to be significantly reduced, attracting more users to Ethereum to enjoy a cheaper and faster trading experience.

Essential Ethereum Applications

DeFi (Decentralized Finance)

DeFi is a global financial service system born in the Internet era, which can be regarded as an alternative to the non-transparent, highly-regulated traditional financial market. Anyone who has access to the Ethereum network can use DeFi. No one can prevent others from accessing or being banned from certain DeFi services. You can borrow, lend, and trade cryptocurrencies anytime. The market is always open to all. Some don’t even need to provide identification to borrow millions of dollars.

Since no third-party intervention is required, service costs can be further reduced. And as the DeFi architecture follows previously built smart contracts, it reduces the evaluating time by humans and enables faster asset transactions.

NFT

NFTs (non-fungible tokens) are unique and indivisible, meaning that each NFT has a unique identification code that cannot be tampered with. NFTs mark ownership, which is public for anyone to review on the chain.

Different from NFTs, fungible tokens are what we know as cryptocurrencies, such as ETH, USDT, and BTC. All BTC are exactly the same in nature and functionality.
Although both NFTs and cryptocurrencies are a type of token, they have completely different attributes. At present, the most common token standard for NFTs is ERC-721, while most other cryptocurrencies use ERC-20.

You can imagine NFTs as computers, fans or sofas, which are unlikely to be used as a medium of exchange because of their uniqueness. However, cryptocurrencies are homogeneous, which is determined by their prices. For example, ETH can be exchanged for USDT and vice versa. However, the value of two NFTs may be different, because they may be affected by personal preferences, rarity, etc.

NFTs are applied in a variety of scenarios, such as membership cards, music, game characters, art paintings, etc. It allows artists to give full play to their talents. In addition to that, many clubs issue membership cards in the form of NFTs.

The most well-known NFT project is the Bored Ape Yacht Club (BAYC) created by Yuga Labs. Yuga Labs has further expanded its influence by acquiring the two leading crypto native IPs, CryptoPunks and Meebits, launching $APE token airdrops to BAYC holders, and releasing the Otherside Metaverse later on.

Every move taken by Yuga Labs is closely watched by the public. For those who want to know more about NFTs, following Yuga Labs will be a good way for you to dive deeper into this sector.

Source: OpenSea

Many crypto influencers believe that NFTs are still early in development, and the relevant financial services, such as NFT lending and NFT fragmentation, have yet to be fully developed.

Layer 2

Layer 2, or L2 for short, is a separable blockchain that inherits the security of Ethereum.

Why do we need L2? To answer this question, we must first understand the “impossible triangle” of blockchain: decentralization, scalability, and security. Most blockchain systems can only meet two of the three characteristics at the same time. If a blockchain enjoys excellent decentralization and security, it will inevitably lose certain scalability, which is also the necessary part that Ethereum needs to upgrade.

We can see a steady increase of new addresses on Ethereum from Etherscan.

Source: Etherscan

The layer 2 scaling solutions are the most anticipated solution and are most likely to be implemented. Currently, the major scaling solutions include Optimistic Rollup, ZK Rollup, Validium and Plasma.

At present, the two most popular layer 2 projects, Arbitrum and Optimism, both use Optimistic Rollup.

In June 2022, Optimism conducted its first airdrop to early adopters, attracting a large number of users and market attention. As a result, the total value locked (TVL) on the chain rapidly grew to over $6 billion.

Source: L2Beat

Its competitor, Arbitrum, has not issued tokens yet. With Optimism’s lesson, many people have also begun to explore the ecological application of Artiturm.

Arbitrum adopts a different strategy. It launched the Odyssey on June 22, 2022, which allows users to win NFT airdrops by participating in different on-chain projects including cross-chain bridges, NFT, DeFi, and more within a specified period.

Source: L2Beat

DAO

Unlike traditional organizations, the Decentralized Autonomous Organization (DAO) uses smart contracts to make itself automated and trustless. To trust anyone in the organization, you just need to trust DAO’s code, which is 100% transparent and open to all.

Once the code is successfully deployed on Ethereum, the DAO’s funds cannot be used by any single person, nor could its rules be changed unless it is approved through voting. This means that decisions in DAOs are not made by a centralized organization but by the community, because of which, some regard DAOs as the form of future organizations.

A famous DAO is MakerDAO, the issuer of the stablecoin DAI, which currently has the highest DeFi TVL. Holders of its governance token MKR can participate in protocol governance, and the voting rights will depend on the amount of MKR tokens you hold.

Source: MakerDAO

Lido (Liquidity Staking)

Lido is a liquidity staking protocol founded in October 2020. It emerged to address limitations and liquidity issues associated with ETH 2.0 staking. One of the notable achievements of ETH 2.0 is the transition of Ethereum from Proof of Work (PoW) to Proof of Stake (PoS) consensus. Before this transition, ETH staked by users couldn’t be withdrawn (early user stakes were placed in the Ethereum Beacon Chain). Therefore, liquidity staking protocols like Lido emerged, allowing users to deposit ETH and receive stETH in return as proof. Lido allocates the staked ETH to Ethereum nodes. Users can freely trade stETH on decentralized exchanges (DEXs) and centralized exchanges (CEXs) without worrying about the inability to withdraw ETH. With approximately 3% annual yield from ETH staking, and the ability to use stETH for liquidity provisioning (LP) or as collateral for borrowing, users have opportunities for multiple income streams and greater capital efficiency. More projects similar to Lido have emerged, such as Rocket Pool and Puffer Finance. Various staking tokens like rETH and mETH have also appeared. This staking method mentioned is liquidity staking, and the obtained stETH is a Liquidity Staking Derivative (LSD), also known as a Liquidity Staking Token (LST).

As of May 7, 2024, according to DeFILlama data, Lido has a Total Value Locked (TVL) of up to $28.9 billion, ranking first among DeFi applications.

EigenLayer (LRT)

EigenLayer is a protocol built on the Ethereum blockchain. It introduces a concept called the “Re-Staking Set,” allowing ETH stakers to support applications within the Ethereum ecosystem. Similar to staking ETH to ensure the security of the Ethereum network, staking LST and ETH can also provide some economic security for other chains. This means that in cases where the network is insecure, a portion of the deposits will be deducted to maintain security. The process of staking LST to EigenLayer in exchange for project rewards is called Re-Staking.

In addition to staking, EigenLayer also offers EigenDA services, which is a data availability service that provides a place for various Ethereum Rollups to publish data.

As of May 7, 2024, EigenLayer’s TVL has reached $15 billion, second only to Lido, the LST protocol.

AltLayer (Raas)

The mentioned EigenDA is actually a product of modular blockchain. Modular blockchain can be understood as layering blockchain, with each layer responsible for specific tasks. This design optimizes each component for its specific task, ensuring efficient execution.

Source: Celestia

Under the influence of modular thinking, building a blockchain no longer requires starting from scratch. Developers can use different components like building blocks to “piece together” a blockchain. During this process, developers can choose different service providers according to their actual needs. Thus, Rollup-as-a-Service (RaaS) providers have emerged in the market, with AltLayer being one of them. AltLayer is a highly scalable application-specific execution layer system. It provides a versatile rollup stack integrated with many mainstream modular technology stacks to meet various rollup requirements.

Future Upgrades — Ethereum Roadmap

In the section on significant development trajectories, we detailed Ethereum’s upgrades and ecosystem innovations from its inception to 2024. Similar upgrades will continue in the future. In 2021, Ethereum founder Vitalik already proposed an Ethereum roadmap, which categorized the future development paths of Ethereum. This also showcases the advantages of Ethereum, which continuously evolves through regular upgrades to enhance scalability, security, or sustainability. One of the core strengths of Ethereum is its ability to evolve with novel ideas as research and development progress. This adaptability enables Ethereum to flexibly meet emerging challenges and keep pace with the latest technological breakthroughs.

Each upgrade brings significant changes to Ethereum. For example, the London upgrade in 2021 implemented EIP-1599 (Ethereum’s technical proposal standard becomes EIP/ERC), which aimed to improve Ethereum’s fee market mechanism, optimizing transaction fees and managing network congestion. Simply put, EIP-1559 made gas fees “predictable,” with a public base fee. If a user wishes to have their transaction confirmed sooner, they can pay a tip to prioritize their transaction in the miners’ queue. As of May 3, this proposal has been activated for 1,001 days, during which 4,285,373.45 ETH have been burned, valued at over 12.8 billion USD.

There are many similar upgrades, and Ethereum’s core upgrade plans have been documented in the complete roadmap shown in the figure below. After completing the Cancun upgrade in 2024, Ethereum officially entered The Surge phase.

Source: Vitalik Twitter

Overall, Ethereum’s future goals are to achieve lower transaction fees, a more secure network state, an enhanced user experience, and the ability to adapt to future technological developments and user needs.

Ethereum’s Competitors

Bitcoin and Its Layer 2 Networks

Bitcoin was initially designed to establish a decentralized peer-to-peer payment system, serving as the earliest prototype of blockchain technology. Being non-Turing complete (meaning it is not suitable for establishing smart contracts and performing automated computations), Bitcoin, despite being the most well-known blockchain project with a strong community, is limited by its native design flaws, making it challenging to create dApps and other applications directly on its blockchain. However, as technology has evolved, many developers have designed innovative solutions that allow Bitcoin to serve as a foundation for application development. The most notable of these is the Bitcoin Layer 2 networks, similar to Ethereum’s Layer 2 solutions. These Layer 2 protocols process transactions outside of the main chain, offering enhanced scalability, programmability, and the ability to support various DApp functionalities, thereby expanding Bitcoin’s potential applications.

Solana

Solana was launched in 2020, developed by Solana Labs, which was founded in 2018 by Anatoly Yakovenko and Raj Gokal. The platform is designed to support smart contracts and decentralized applications (dApps) through its unique consensus mechanism—a novel combination of Proof of Stake (PoS) and Proof of History (PoH). This hybrid consensus model offers greater scalability and faster transaction times compared to traditional blockchain systems. Since its public debut on March 16, 2020, Solana has experienced significant growth, attracting a large number of developers and projects. This growth underscores its potential as a strong contender in the blockchain space, particularly for applications requiring high throughput and quick transaction processing.

Cosmos

Cosmos is a pioneering project in the blockchain domain, often referred to as the “Internet of Blockchains.” It aims to address some of the most pressing issues in the blockchain industry, such as scalability, usability, and interoperability. The core of Cosmos is a decentralized network composed of independent, scalable, and interoperable blockchains, with the primary purpose of enabling different blockchains to communicate with each other in a decentralized manner while maintaining security, scalability, and their respective sovereignties.

A distinctive feature of the Cosmos architecture is that it consists of multiple independent blockchains called “Zones,” which are connected to a central blockchain called the “Cosmos Hub.” This design elevates scalability to a new level because each Zone can independently process transactions, thereby reducing the load on the central Hub. The Cosmos Hub acts as a mediator for communication between the Zones, maintaining the security and interoperability of the network.

Cosmos utilizes the Inter-Blockchain Communication (IBC) protocol, a key innovative technology that facilitates secure and reliable transactions between blockchains. Different blockchains within the Cosmos network can seamlessly exchange data and tokens through this protocol. This represents a significant step towards addressing the challenges of interoperability in the blockchain sector, allowing blockchain networks to expand and interact without bottlenecks.

Near

The Near Protocol is a leading blockchain platform designed to address some of the issues faced by other blockchain platforms, such as scalability, speed, and user-friendliness. The architecture of the Near Protocol is significantly different from traditional blockchain systems. It utilizes a unique consensus mechanism called Nightshade, which helps it process transactions at an extremely high speed. This mechanism allows the network to process transactions in parallel, significantly increasing throughput. For a blockchain platform, this is a crucial feature as it ensures the system neither sacrifices speed nor security when handling a large volume of transactions.

The Near Protocol also places a strong emphasis on usability, for both developers and end-users. For developers, it provides a friendly environment along with tools and resources that simplify the process of building and deploying dApps. For end-users, the Near Protocol offers a seamless experience, reducing the common friction associated with using blockchain applications. This user-centric approach is a key differentiator for the Near Protocol in the bustling field of blockchain.

In addition to these projects, Cardano, Avalanche, and Polkadot are all potential competitors to Ethereum. Despite such competitive pressures, Ethereum’s ability to maintain the highest number of users and the most extensive application ecosystem indirectly demonstrates the strength of the Ethereum community.

Conclusion and Recommendations

Ethereum is undoubtedly a major hub of innovation with the richest experience and the most diverse ecosystem in blockchain technology today. The advent of Solidity smart contracts has unlocked limitless possibilities in the decentralized world, leading to the emergence of numerous groundbreaking applications and concepts. This has set the stage for a golden era of DApps, with key developments in DeFi, NFTs, and Layer 2 technologies primarily evolving from Ethereum before expanding to other public blockchain ecosystems.

Faced with various blockchain competitors, Ethereum has strategically chosen to focus on Rollups—essentially understood as a technology used by Layer 2—as its core developmental pathway. Although Ethereum’s mainnet is somewhat congested and unable to meet the fast transaction needs of all applications, Layer 2 significantly enhances transaction capacity and speed through off-chain processing techniques. This not only increases transaction speeds but also reduces transaction fees to below $0.01, greatly advancing the development of the Ethereum ecosystem.