Ethereum, Ether and Proof of Stake

Ethereum extends the idea of a shared ledger to a platform that can execute programs. ETH, also called Ether, is its native asset; Ethereum is the network and protocol. Those are related but different things. We will place its history in context, explain its current proof-of-stake system and separate issuance rules from stories about future prices.

Education only. Crypto assets can lose substantial value or become worthless. No lesson requires buying an asset, depositing money or sharing real passwords, private keys or recovery words.

Ask what Bitcoin was not built to do

Think about a pocket calculator and a smartphone. The calculator does one job very well. The smartphone runs apps its makers never imagined. Neither is "better"; they were built for different purposes.

Bitcoin is closer to the calculator. Its scripting language is deliberately limited, which keeps it simpler to check and harder to break. That suits a payment network, but you cannot easily build a lending app, a game or a voting system on top of it.

Ethereum asked a different question: what if a blockchain came with a general-purpose programming language, so anyone could write their own rules for how value moves without launching a new blockchain each time? The analogy stops working in one place. A smartphone app can be patched overnight by its company. Code on Ethereum is shared by thousands of computers, so changing it is much harder, as you'll see later in this lesson.

So who had this idea, and how did it become a working network? That story starts with a teenager who had been writing about Bitcoin.

Meet the people who started Ethereum

Ethereum was proposed by Vitalik Buterin in a whitepaper in late 2013. Buterin, born in Russia and raised in Canada, discovered Bitcoin as a teenager and co-founded Bitcoin Magazine with Mihai Alisie. He was 19 when he circulated his draft; the official Ethereum history page dates it to 27 November 2013.

No single person built Ethereum, though. It was co-founded by Vitalik Buterin with others including Gavin Wood, who wrote the Yellow Paper, the formal technical description of the system (April 2014), and helped develop Solidity, the language most smart contracts are written in. The eight co-founders usually named are Buterin, Wood, Joseph Lubin, Charles Hoskinson, Anthony Di Iorio, Mihai Alisie, Amir Chetrit and Jeffrey Wilcke. They announced the project in Miami in January 2014.

To pay for development, ether went on sale in July 2014 for 42 days, with buyers paying in bitcoin. Mainnet ("Frontier") launched 30 July 2015, as a bare-bones version meant mainly for developers. Today Ethereum has no CEO or owner. The Ethereum Foundation, a non-profit, funds research but does not control the network; changes happen when the people who write and run the software broadly agree.

Founders and dates tell you when Ethereum arrived. Next, separate the network, its native asset and the applications built on it.

Ethereum is the network that maintains state and executes permitted transactions. ETH is the native asset used for fees and other protocol functions. An account can be controlled by signing keys or implemented as a contract with programmed behaviour. An application may combine contracts, an interface, databases and outside services. A token on Ethereum is not automatically ETH.

Compare a city with its transport system, fare unit and shops. They interact, but owning a fare unit does not mean owning the city or every shop's profits. Likewise, holding ETH does not grant a claim on every application's revenue. When you research an application, identify its contracts and rights rather than assigning every Ethereum feature to every token built there. Network use and token-holder value require their own explanations.

People often mix up two names. Ethereum is the network: the shared computer and its record. Ether (ticker ETH) is the network's own currency. Think of a country's railway system and the tickets you buy to ride it.

Know the two kinds of Ethereum account

Ethereum has accounts with balances and other state. In the traditional model, an externally owned account, or EOA, is controlled by a signing key. A contract account follows deployed code when execution reaches it. A contract cannot independently wake up at midnight; someone or some system must initiate an action that reaches the code.

The boundary has evolved. Pectra's EIP-7702 allows an EOA to delegate to deployed code, enabling features such as batching or sponsored fees. A smart-account arrangement may also use different signing and recovery rules. It is therefore outdated to assume every EOA has no code or every account is governed only by the simple two-column model.

Imagine a recipe sent to ten thousand kitchens, each of which must follow every step in order and produce exactly the same dish. If one kitchen's result differs, everyone knows it made a mistake. Ethereum calls its shared execution environment the Ethereum Virtual Machine, or EVM. Nodes running it apply the same rules to the same transaction inputs. It is a software environment, rather than one physical computer owned by a company.

Proof of stake and validator responsibilities

Ethereum currently uses proof of stake. Validators commit ETH under protocol rules and participate in proposing or attesting to blocks. Rewards, penalties and slashing conditions help shape behaviour. Slashing concerns specified serious violations; ordinary missed participation and operator failures can have different penalties. Staking through a provider or pool adds that arrangement's own dependencies.

Bitcoin's proof of work relies on competing computational work, while Ethereum's proof of stake relies on committed stake and its consensus procedures. Both require validation rules; neither makes a dishonest transfer request wise. A simplified comparison is useful, but do not assume their confirmation and finality behaviour is identical. Ethereum has protocol finality under stated participation and security assumptions, and operational disruptions can still affect the timing and experience of settlement.

Understand what 32 ETH buys and what it risks

Ethereum's ordinary solo-validator activation minimum is 32 ETH. Operating a validator also requires appropriate software, availability and maintenance. After Pectra, validators with the relevant compounding withdrawal credentials can have an effective balance up to 2,048 ETH; this does not remove the 32 ETH activation minimum.

Other staking routes can combine funds or delegate operations through contracts and providers. A person with less than 32 ETH can therefore encounter pooled products, but these introduce their own operators, fees, recovery or exit mechanisms. They are not simply smaller versions of independent solo validation.

Penalties for missed participation and slashing for specified serious violations are different. ETH's price can fall regardless of rewards, and exits can involve queues. Level 6 examines these routes in detail using paper examples. No learner needs to buy 32 ETH, operate a validator or stake through a provider to complete this course.

The Merge and later upgrades

Ethereum originally used proof of work. The Merge on 15 September 2022 changed its consensus operation to proof of stake while preserving the existing transaction history. An old article describing current ETH mining can therefore be outdated. Other networks may still use mining, including networks with related names, but that does not change Ethereum mainnet's present consensus.

The transition did not give users permission to reveal recovery material or send assets to upgrade support. Protocol changes and software maintenance should be checked through verified sources. Whenever a research claim names a network upgrade, record the network and date. A description can be historically correct yet unsuitable as an instruction for today's system.

A historical proposal explains intent; a completed upgrade describes implemented changes. A later upgrade can make an older explanation incomplete. Verify the specific network and version.

Issuance fee burning and supply stories

ETH issuance and fee burning are separate mechanisms. Under current Ethereum fee rules, the base-fee component is burned, while other fee components can be paid to participants. New issuance relates to proof-of-stake operation. The net supply change depends on these mechanisms and actual activity; ETH does not follow Bitcoin's fixed maximum-supply schedule.

If more ETH is burned than issued over a period, net supply can fall in that period. That observation is not a promise that every later period will do so or that price must rise. Demand, liquidity, application use, security and market expectations still matter. State the measured period and source when discussing supply, and avoid turning a temporary observation into a permanent guarantee. The next lessons explore the programs that create Ethereum activity and the fees required to execute them.

Try the following questions aloud or on paper before opening the worked answers. Compare your reasoning as well as your final answer.

References and further reading