The Bankless Guide to Ethereum

Updated: Feb 2024
Feb 9, 20246 min read

Ethereum, initially proposed in 2013 by Vitalik Buterin, is a decentralized, open-source blockchain. It first went live in July 2015. 

Ethereum distinguishes itself from its forerunner, Bitcoin, in having pioneered smart contracts. Smart contracts are self-executing applications that run perpetually via code. These contracts can automate endless processes, expanding blockchain's utility beyond simple asset transfers.

Ethereum's native currency, Ether (ETH), is used as “gas” for paying for operations on the network, like interacting with a crypto app’s smart contracts. It’s also possible to “stake” ETH to help secure Ethereum and earn ETH staking rewards. 

How Ethereum works

Ethereum's foundations are its blockchain and the Ethereum Virtual Machine (EVM), which operate atop a Proof-of-Stake (PoS) consensus mechanism. This foundational structure allows for executing smart contracts and maintaining a decentralized, secure network. 

With Ethereum's shift towards a rollup-centric roadmap in recent years, scaling solutions have emerged as vital extensions of the network. Rollups and related technologies, also known as Layer 2s (L2s), extend Ethereum's block space and operate as external execution layers that offer fast and cheap transactions. A new wave of L3s is also rising, with these networks anchored to L2s that are themselves anchored to Ethereum. 

This modular shift signifies the Ethereum ecosystem’s strategic move towards solving the blockchain trilemma, prioritizing scalability without compromising on decentralization or security.

The use cases of Ethereum

💰 Internet Money

Ethereum’s native currency, ETH, is programmable digital money. It can be used as a medium of exchange, a store of value, and, when staked, as a yield-bearing capital asset. It’s useful for borderless 24/7 payments and paying for interactions with apps built on Ethereum.

♻️ Restaking 

Restaking on Ethereum allows ETH stakers to support multiple networks, thereby extending Ethereum's security as a service for additional earning potential. An example platform is EigenLayer, which acts as a marketplace for Ethereum's security. 

💻 Open Global Computer

Ethereum functions as an accessible global computer, enabling developers to build open applications and networks, including Layer 2 solutions, via smart contracts. This permissionless platform allows for innovative and varied use cases, extending Ethereum's utility beyond mere financial transactions.

💸 Stablecoins

Ethereum has become the leading home of stablecoins, digital currencies anchored to stable assets like the U.S. dollar. These tokens, like USDC and USDT, are designed to offer a shield against crypto market volatility and help facilitate everyday transactions. 

🧮 DeFi

Ethereum's decentralized finance (DeFi) ecosystem includes lending, borrowing, and trading platforms. They aim to revolutionize traditional financial services by removing intermediaries and supporting open composability. Popular projects here include Uniswap, Maker, and Aave.

🖼️ NFTs

Ethereum has become the leading platform for non-fungible tokens (NFTs), which are used to represent unique digital items and assets on the blockchain. NFT use cases have boomed atop Ethereum around art, digital collectibles, gaming, and beyond. An example project is Terraforms, whose NFT collection makes up a large 3D sculpture that exists entirely on Ethereum. 

🗣️ DAOs

Decentralized autonomous organizations (DAOs) on Ethereum are community-led entities with no central authority, operating through smart contracts. These smart contracts enforce the organization's rules and execute decisions based on the inputs of its members. An example here is Nouns DAO, which uses its infra to facilitate transparent, collective decision-making and project management. 

👋 Digital Identity

Services like the Ethereum Name Service offer blockchain-based digital identity solutions for simplifying and securing online identity management in the crypto space. More than 2.1 million ENS names have been created to date. 

👯‍♂️ Crypto Social 

Ethereum is home to a rising wave of crypto social platforms that are blending social media with blockchain tech. A prominent example here is Farcaster, which uses Ethereum wallets to underpin user accounts and manage in-app interactions. 

🎮 Onchain Games

Ethereum has become a popular hub for underpinning onchain gaming. These blockchain-based games offer crypto-linked gameplay, transparent rules, and a trustless environment, facilitating new types of gaming economies and player interactions that are not possible in traditional gaming settings. 

🤖 AI

Ethereum is also becoming a frontier playground for AI experiments, from AI agents operating onchain to DAOs coordinating to create their own AI models. This is a very nascent crossroads, but it’s one worth watching closely in the years ahead. 

The pulse of Ethereum

Ethereum currently boasts the largest number of active developers in crypto, with a significant lead over other networks. 

This substantial dev community and extensive tooling resources have translated into Ethereum achieving the most teeming DeFi and NFT ecosystems in the space. There are now more than 1,000 DeFi protocols, $70 billion worth of stablecoins, and many millions of NFTs deployed on the network.  

At the protocol level, Ethereum presently operates via +7,000 nodes around the globe. With more than 29 million ETH staked, Ethereum is also the most secure chain in crypto today. You can calculate its economic security by multiplying the amount of ETH staked (29M) by the current ETH price ($2,300), which presently makes the network’s security budget $69B—almost seven times higher than Bitcoin’s current $10B security budget. 

Additionally, the Ethereum scaling scene is larger than it’s ever been, with more than $22B in total value locked (TVL) spread out across dozens of different L2s and counting.

How to get started on Ethereum

To begin using Ethereum, you will need two things: ETH and an Ethereum wallet. 

The most straightforward way to acquire ETH is to purchase some on a crypto exchange platform like Coinbase or Kraken. You don’t have to purchase one whole ETH at a time and instead can buy fractional amounts as you please. For example, at the time of this guide’s latest update, $230 would fetch you 0.1 ETH per the current ETH/USD exchange rate. 

Once you have some ETH ready to go, you’ll want to deposit it into a personal wallet that you control so you can start making transactions and connecting to projects in Ethereum’s app scene. Some great wallet options for beginners include Coinbase Wallet, MetaMask, and Rainbow

For more tips on wallet safety practices and how to level up with hardware wallets, see the full Bankless wallet beginners guide

How to stake ETH

To stake ETH and participate in securing the Ethereum network, you have two main routes. For those technically inclined, running your own ETH validator involves setting up and maintaining hardware, requiring 32 ETH for staking directly on the Ethereum blockchain. 

This DIY avenue offers full control over your staking process and rewards and can be conducted through plug-and-go hardware devices like Dappnode and AVADO or custom-built setups. 

Alternatively, liquid staking tokens (LSTs) like Lido's stETH or Rocket Pool's rETH provide a simpler, more accessible way to stake ETH. By purchasing or minting LSTs, your ETH is pooled and staked on your behalf, allowing you to earn staking rewards without the complexities of running a validator. Both methods contribute to Ethereum's security while catering to different levels of technical expertise and involvement.

Ethereum apps to try

If you’re a newcomer to Ethereum, you’ll want to begin your journey here by trying some of the network’s top apps. A handful of great projects you might consider starting with include:

  • 🪪 Ethereum Name Service — Register an ENS name. 
  • 🦄 Uniswap — Make a crypto trade. 
  • 🪙 Maker — Borrow DAI stablecoins against ETH. 
  • 🐇 Hop — Bridge ETH to an L2. 
  • 🎴 Zora — Create and drop an NFT.

The future of Ethereum

Going forward, the Ethereum development roadmap is focused on significant upgrades like Danksharding, which will reduce L2 costs; Account Abstraction, which will simplify user interactions with smart contracts; and Statelessness, which will minimize node storage requirements for a more efficient network. These developments are aimed at ensuring Ethereum's adaptability, scalability, and user-friendliness for years to come. 

Zooming out

Ethereum's journey, marked by pioneering smart contracts and the world’s most trusted PoS model, has significantly expanded blockchain's utility. 

The network’s advances towards a more scalable, secure, and user-friendly future through its upcoming upgrades, alongside its minimal energy footprint, underlines its ecosystem’s commitment to innovation. 

As Ethereum continues to evolve, it’s positioned steadfastly at the forefront of the crypto-economy and is poised to continue driving forward the decentralization of art, finance, gaming, and beyond. 

Not financial or tax advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This newsletter is not tax advice. Talk to your accountant. Do your own research.

Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here.

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