What Is Ethereum (ETH)? How Does It Work?

Written by BTSE

November 23, 2022

Before You Invest: Ethereum (ETH)

Ethereum is a decentralized open-source blockchain project that aims to become a global platform for decentralized applications (dApps), a new form of applications that do not rely on centralized authorities to function. Powered by its native cryptocurrency Ether, more commonly known as ETH, the Ethereum network has become an integral part of non-fungible tokens (NFTs), decentralized finance (DeFi), decentralized autonomous organizations (DAOs), the metaverse, and more.

Every action on the Ethereum network, such as interacting with dApps, buying or selling NFTs, or trading tokens, is powered by the ETH token.


What is Ethereum (ETH)?

Ethereum is also known for its smart contract functionality. Smart contracts are code-bound agreements that are automatically executed according to predetermined conditions. Smart contracts have played a vital role in every project built on the Ethereum blockchain. These smart contracts aim to replace the traditional role of centralized institutions.

To become fully decentralized, Ethereum has thousands of independent computers running it. Once a program is deployed on the Ethereum network, these computers, also known as nodes, will execute all tasks as they are written. 

The Ethereum blockchain is made up of nodes from all over the world. Thousands of computers process a smart contract whenever it is executed to ensure that all the stated rules were adhered to. The nodes not only house transaction details but also account information for all wallets as well as smart contract code. All nodes follow the same rule set for verifying a transaction as they are all connected.


What can Ethereum do?

As the digital currency of the Ethereum blockchain, ETH can be accepted as payment for goods and services at a number of retail locations and online stores around the world, just like Bitcoin. The major difference between Ethereum and Bitcoin is that Ethereum users can build dApps that run on the blockchain, similar to how a computer can run software. These dApps can store and transfer data or process financial transactions. In order to interact with these dApps, users need to spend ETH to pay the gas fee for the transaction to be processed. Gas fees can cost US$1 to US$4 on the low end, but can rise significantly depending on how congested the network is at the time of the transaction.

A user’s Ethereum wallet functions as their “passport” to the ecosystem, allowing them to play a wide variety of games, lend money to other users, buy and sell cryptocurrencies and NFTs, and explore the metaverse with their friends.


Who created Ethereum?

Ethereum was first proposed by Vitalik Buterin, co-founder of Bitcoin Magazine, in a whitepaper in 2013. Inspired by Bitcoin, Buterin envisioned a cryptocurrency alternative that would go beyond financial use cases and allow developers to create their own dApps across a variety of fields using a new programming language, Solidity.

After the release of this whitepaper, more individuals joined Buterin in the creation of this new blockchain network. In late 2013, entrepreneurs Charles Hoskinson, Anthony Di Iorio, and Mihai Alisie joined the project as its earliest co-founders. As the project began to grow, three other key figures joined as co-founders shortly thereafter, namely, computer scientists Gavin Wood and Joseph Lubin as well as programmer Jeffrey Wilcke.


What Affects the Price of Ethereum? 

Predicting the price of any coin or token is difficult, but there are several factors to take into account when it comes to the price of ETH.

First, during the second half of 2021, the Ethereum network made a drastic change. Previously, the supply of Ethereum was unlimited, but after the Ethereum London Hard Fork in August 2021, the Ethereum blockchain began burning the fees from users. This deflationary measure will likely cause the price of ETH to grow over time as the circulating supply is gradually limited. In the month following the launch of this deflationary measure, the price of ETH jumped almost US$1,000.

On September 15, 2022, Ethereum completed its transition to proof-of-stake consensus via the launch of Ethereum 2.0, officially departing from proof-of-work and reducing energy consumption by around 99.95%. In the days leading up to what has become known as “The Merge,” this monumental shift in Ethereum’s blockchain caused the price of ETH to rise to US$1,775.98 before a drop to US$1,251.57 one week later. Any major news involving big changes to Ethereum’s Mainnet can cause price fluctuations.

Another point to keep in mind is the continuing rise of NFTs. As the NFT market continues to expand, the amount of trades taking place on the Ethereum blockchain is also expanding. As each NFT transaction on Ethereum requires ETH, an increasing amount of trades will almost certainly affect the value of ETH.

Furthermore, the rise of DeFi has also had massive impacts on the price of ETH. Many DeFi tokens and projects are built on the Ethereum blockchain, and their users are also required to pay gas fees in ETH. As more DeFi projects aim to create an alternative financial system for users, more transactions will be made on dApps, resulting in a growing need for ETH.


Where and how to buy Ethereum?

ETH is listed on the world’s top cryptocurrency exchanges.

Swapping for ETH on BTSE’s exchange is an easy 5-step process:

  1. Log in to your personal account on BTSE. If you do not have a BTSE account, you can register here.
  2. In the “Spot” section, choose “ETH” as one element of your trading pair.
  3. Choose the other element in the trading pair — you can define the stablecoin, fiat currency, or cryptocurrency that best fits your trading strategy.
  4. Select the type of order you want to place — limit or market — then enter the amount of ETH you want to buy.
  5. Click “Buy Order.”

And then you’re done! Your new ETH balance will be displayed in your wallet.


Closing Thoughts

As the Ethereum ecosystem continues to grow and evolve, users and developers worldwide are finding new applications and services to build on this decentralized blockchain network. After the successful launch of Ethereum 2.0, Ethereum remains committed to improving its features and technology to create a stronger and more secure network. Currently, ETH is the second-largest cryptocurrency in terms of market capitalization, and it’s not hard to imagine a world where Ethereum can overtake Bitcoin in terms of price as the number of use cases continues to rise.


Any data, text, or other content on this page is provided as general market information and not as investment or financial advice. Past performance is not necessarily an indicator of future results.


Our aim is to create a platform that offers users the most enjoyable trading experience. If you have any feedback, please reach out to us at feedback@btse.com or on Twitter @BTSE_Official.

Note: BTSE Blog contents are intended solely to provide varying insights and perspectives. Unless otherwise noted, they do not represent the views of BTSE and should in no way be treated as investment advice. Markets are volatile, and trading brings rewards and risks. Trade with caution.

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