Ethereum: A Brief History

The beginning

It may come as a surprise to anyone new to the cryptocurrency space that Ethereum was nothing more than a concept 10 years ago. We had Bitcoin in 2008, but that was really it as far as working blockchains. Bitcoin came along as a peer to peer digital cash system, that aimed to do nothing more than facilitate monetary transactions in BTC in a decentralized fashion. Of course, there's more to it than that, but at the base layer... Bitcoin was just a cash alternative at conception. A decentralized, distributed ledger system.

One man realized that we needed a decentralized system like this, but that would be capable of running applications, or decentralized applications (dApps). This young man was Vatalik Buterin, who proposed Ethereum in a whitepaper in 2013. As a programmer and cryptocurrency enthusiast, Vitalik had a grand vision of a blockchain capable of doing much more than just financial transactions. He envisioned a blockchain capable of acting as a sort of decentralized operating system which anyone could build upon. A smart contract blockchain that could run dApps and facilitate all kinds of transactions.

By early 2014, the Ethereum project had started to gain a huge audience of enthusiasts and supporters. It was time to try to bring this thing to life, but it would not be cheap. Not only would it be incredibly expensive, but it would also be extremely difficult. Vitalik had a vision, and planned to make it a reality. The Ethereum Foundation was formed in Switzerland to oversee the development of Ethereum, as well as promotion of the project. It was time to fund it.

They decided to conduct a crowdfunding campaign to kickstart the development of the project, but this wouldn't just be another crowdfunding campaign. This would be the first ever crowdfunding campaign that would offer a cryptocurrency in exchange for Bitcoin. The first ever Initial Coin offering, or ICO, lasted for roughly 42 days. The Ethereum Foundation raised over 31,000 BTC (roughly $18million at the time), and it was time to bring this blockchain to life.

After the conclusion of the ETH sale, they started a crazy development journey and went through tons of different stages to get to working product. ETH was distributed to all users who contributed BTC in the ICO, and we now had the first ever working smart contract blockchain. The first version went live in 2015, dubbed Frontier, and it was the MVP (minimum viable product) that was mainly for testing. It worked, though, and that's all the community needed.

Growing pains

Launching Ethereum was just the first step in a long saga of ongoing development, and the proof of concept the world needed for this kind of technology. There were tons of small upgrades to enhance the scalability, security, and stability of the chain before the launch of the Homestead upgrade. This upgrade took Ethereum from an unstable, experimental network to something the masses could start to interact with. This was the transition that everyone had been waiting for. Not just individual enthusiasts, but businesses looking to take advantage of this amazing new technology.

The DAO was launched in 2016 as a decentralized investment fund on Ethereum, which would allow users to invest their ETH into upcoming projects. This started a mass influx of ICO's that were the start of the true bull run that took ETH to new heights price wise. The DAO has raised a massive amount of ETH that it held in a smart contract, which would be attacked by hacker(s). The attacker discovered an exploit in the smart contract that held the DAO's funds that allowed them to empty the funds. The funds stolen were worth around $60 million at the time, and accounted for about 5% of the total ETH that existed.

As you can imagine, the community was devastated, but had to decide how to proceed. There was a proposal to hard fork the chain, essentially rolling back to before the hack occurred. This was met with huge controversy, and eventually lead to the hard fork of Ethereum into Ethereum (as it is today) and Ethereum Classic (the original Ethereum chain). This is probably the most notable event in Ethereum's short history aside from the Proof of Stake upgrade that took place not too long ago.

In 2017, the Enterprise Ethereum Alliance (EEA) was formed by businesses looking to use Ethereum for enterprise operations. The EEA consisted of companies and organizations such as FedEx, JP Morgan Chase, and Microsoft amongst a large list of others. At the time, I personally saw this as an acknowledgement of the power of this sort of technology, and a step in the right direction for blockchain. I was hyped as fuck, you could say. Also it was the start of the major bull market and I was still fairly new to crypto stuff.

Scaling issues

With the mass influx of support, there were many project trying to launch on Ethereum all at once. One of those was CryptoKitties, launched by Canadian studio Axiom Zen, and it was the first major NFT (Non-Fungible Tokens) projects that people took seriously. It was a simple game where users could buy eggs, hatch cats, and breed them to get new eggs. It immediately exploded in popularity, creating hundreds of thousands of transactions on the Ethereum blockchain. This was a true stress test for Ethereum, and it showed the limitations that existed with how the blockchain worked.

The sheer number of transactions that this game was generating, along with continually rising gas fees (transaction fees on Ethereum), caused the first major congestion on the blockchain. Gas fees went from pennies to dollars, and if I remember correctly, I saw fees upwards of $15. It has been quite a while though, and I don't have the best memory. It does feel like this was a decade ago though lol. CryptoKitties was the first of many giant projects to cause major congestion on the chain, and people started to see a need for scaling solutions that didn't run on the base layer.

These issues with congestions and rising gas fees cause the emergence of what we know today as layer 2 solutions. Of course, these come in a lot of different flavors, but the most successful ones art rollups. Rollups are basically batch transactions that take load off the main layer by providing a cryptographic proof to the main layer instead of performing those transactions on it. This makes sense if you think about it, if it can be done in a way that allows those transactions to be validated without actually processing them. Optimistic Rollups assume all Rollup transactions are valid. zK-Rollups, however, provide a cryptographic proof to the main chain that eliminates the need for them to be validated.

I won't go into more detail on how these work, as I encourage you to read about them yourself. So now we have Ethereum and layer 2 chains that are being built to make Ethereum more efficient and cheaper. Layer 2 solutions come in a lot of different shapes and sizes... Polygon is probably the most well known layer 2 for Ethereum, alongside Arbitrum One and Optimism. Funny how they didn't account for massive amounts of transactions when designing the mining and fee structure... Anyway, off to the races we went with everyone creating their own layer 2 for Ethereum to build their dApps.

The solution to the solutions?

After years of development and numerous network upgrades, Ethereum was finally ready to be migrated to its new consensus mechanism. During "The Merge", it would migrate from Proof of Work mining to Proof of Stake for validating transactions. Ethereum supporters like me were waiting for this for a very long time as it was being talked about for years. It was supposed to be the upgrade that led Ethereum to once again be the ultimate blockchain for dApps. I wrote about this even a ton of times, you can check my profile, as I'm too lazy to link them.

The day finally came, and it was pretty exciting. I followed the news pretty closely, and watched a lot of different videos about it. Test after test were going perfectly smooth with almost no bugs. It was actually pretty amazing how smoothly the whole thing went. The developers involved are some true fucking wizards is all I can say. So then Ethereum as we know it today was born. The Proof of Stake mechanism was running and burning a metric shit ton of ETH every day. Instead of miners earning fees, the fees are burned for the most part. This has lead to an almost-deflationary ETH token.

But can it scale? Surely, it can scale. The problem is no longer transaction throughput, in my opinion. The problem is... Gas fees are still too high for any kind of mass scaling. You could never build a social platform like what we have on LeoFinance on Ethereum. No one is going to pay a fee to do social stuff. No one is going to pay a massive fee to do any kind of hardcore gaming. Vitalik himself once said 5 cent fees are too high for gaming and shit. So yes, it can scale, but at what cost to the users?

For some reason people were under the impression that gas fees would go down like crazy after the upgrade... In reality, they basically just became more stable and predictable. I can confirm this because I recently did some transactions. The fees are still too fucking high. I shouldn't have to spend $20 to swap some tokens. There's still a need for layer 2 solutions if you want to actually use Ethereum. This is the reality, unfortunately.

You either die a hero, or live long enough to watch yourself become the villain.

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