Ethereum was initially described in a white paper by Vitalik Buterin, a programmer and co-founder of Bitcoin Magazine, in late 2013 with a goal of building decentralized applications. Buterin argued that Bitcoin and blockchain technology could benefit from other applications besides money and needed a scripting language for application development that could lead to attaching real-world assets, such as stocks and property, to the blockchain. In 2013, Buterin briefly worked with eToro CEO Yoni Assia on the Colored Coins project and drafted its white paper outlining additional use cases for blockchain technology. However, after failing to gain agreement on how the project should proceed, he proposed the development of a new platform with a more general scripting language that would eventually become Ethereum.
Ethereum was proposed in 2013 by programmer Vitalik Buterin. Development was crowdfunded in 2014, and the network went live on 30 July 2015, with an initial supply of 72 million coins. The Ethereum Virtual Machine (EVM) can execute scripts and run decentralized applications. Ethereum is used for decentralized finance, the creation and exchange of NFTs, and has been utilized for many initial coin offerings.
Ethereum has an unusually long list of founders. Anthony Di Iorio wrote: "Ethereum was founded by Vitalik Buterin, Myself, Charles Hoskinson, Mihai Alisie & Amir Chetrit (the initial 5) in December 2013. Joseph Lubin, Gavin Wood, & Jeffrey Wilcke were added in early 2014 as founders." Formal development of the software began in early 2014 through a Swiss company, Ethereum Switzerland GmbH (EthSuisse). The basic idea of putting executable smart contracts in the blockchain needed to be specified before the software could be implemented. This work was done by Gavin Wood, then the chief technology officer, in the Ethereum Yellow Paper that specified the Ethereum Virtual Machine. Subsequently, a Swiss non-profit foundation, the Ethereum Foundation (Stiftung Ethereum), was created as well. Development was funded by an online public crowdsale from July to August 2014, with the participants buying the Ethereum value token (Ether) with another digital currency, Bitcoin. While there was early praise for the technical innovations of Ethereum, questions were also raised about its security and scalability.
Ethereum was announced at the North American Bitcoin Conference in Miami, in January 2014. During the conference, a group of people rented a house in Miami: Gavin Wood, Charles Hoskinson, and Anthony Di Iorio from Toronto who financed the project. Di Iorio invited friend Joseph Lubin, who invited reporter Morgen Peck, to bear witness. Six months later the founders met again in a house in Zug, Switzerland, where Buterin told the founders that the project would proceed as a non-profit. Hoskinson left the project at that time.
Several codenamed prototypes of Ethereum were developed by the Ethereum Foundation as part of their proof-of-concept series. "Olympic" was the last prototype and public beta pre-release. The Olympic network provided users with a bug bounty of 25,000 Ether for stress testing the limits of the Ethereum blockchain. In July 2015, "Frontier" marked the tentative experimental release of the Ethereum platform.
In October 2015, a development governance was proposed as the Ethereum Improvement Proposal (EIP), standardized on EIP-1. The core development group and community were to gain consensus by a process regulated EIP.
The ERC-20 (Ethereum Request for Comments 20) Token Standard allows for fungible tokens on the Ethereum blockchain. The standard, proposed by Fabian Vogelsteller in November 2015, implements an API for tokens within smart contracts. The standard provides functions including the transfer of tokens from one account to another, getting the current token balance of an account and getting the total supply of the token available on the network. Smart contracts that correctly implement ERC-20 processes are called ERC-20 Token Contracts, and help keep track of the created tokens on Ethereum. Numerous cryptocurrencies have launched as ERC-20 tokens and have been distributed through initial coin offerings. Fees to send ERC-20 tokens must be paid with Ether.
In 2016, a decentralized autonomous organization called The DAO, a set of smart contracts developed on the platform, raised a record US$150 million in a crowdsale to fund the project. The DAO was exploited in June 2016 when US$50 million of DAO tokens were stolen by an unknown hacker. The event sparked a debate in the crypto-community about whether Ethereum should perform a contentious "hard fork" to reappropriate the affected funds. It resulted in the network splitting into two blockchains: Ethereum with the theft reversed and Ethereum Classic which continued on the original chain. The hard fork created a rivalry between the two networks. After the hard fork, Ethereum subsequently forked twice in the fourth quarter of 2016 to deal with other attacks.
In 2016, a hacker exploited a flaw in a third-party project called The DAO and stole $50 million of Ether. As a result, the Ethereum community voted to hard fork the blockchain to reverse the theft and Ethereum Classic (ETC) continued as the original chain.
In Ethereum, all smart contracts are stored publicly on every node of the blockchain, which has costs. Being a blockchain means it is secure by design and is an example of a distributed computing system with high Byzantine fault tolerance. The downside is that performance issues arise in that every node is calculating all the smart contracts in real-time, resulting in lower speeds. As of January 2016, the Ethereum protocol could process about 25 transactions per second. In comparison, the Visa payment platform processes 45,000 payments per second leading some to question the scalability of Ethereum. On 19 December 2016, Ethereum exceeded one million transactions in a single day for the first time.
Ethereum's blockchain uses Merkle trees, for security reasons, to improve scalability, and to optimize transaction hashing. As with any Merkle tree implementation, it allows for storage savings, set membership proofs (called "Merkle proofs"), and light client synchronization. The network has faced congestion problems, such as in 2017 in relation to Cryptokitties.
In March 2017, various blockchain startups, research groups, and Fortune 500 companies announced the creation of the Enterprise Ethereum Alliance (EEA) with 30 founding members. By May 2017, the nonprofit organization had 116 enterprise members – including ConsenSys, CME Group, Cornell University's research group, Toyota Research Institute, Samsung SDS, Microsoft, Intel, J. P. Morgan, Cooley LLP, Merck KGaA, DTCC, Deloitte, Accenture, Banco Santander, BNY Mellon, ING, and National Bank of Canada. By July 2017, there were over 150 members in the alliance, including MasterCard, Cisco Systems, Sberbank, and Scotiabank.
Ethereum engineers have been working on sharding the calculations, and the next step (Ethereum 2) was presented at Ethereum's Devcon 3 in November 2017.
In 2019, Ethereum Foundation employee Virgil Griffith was arrested by the US government for presenting at a blockchain conference in North Korea.
Decentralized finance (DeFi) is a use case of Ethereum. It offers traditional financial instruments in a decentralized architecture, outside of companies' and governments' control, such as money market funds which let users earn interest. Examples of DeFi platforms include MakerDAO and Compound. Uniswap, a decentralized exchange for tokens on Ethereum grew from $20 million in liquidity to $2.9 billion in 2020. As of October 2020, over $11 billion was invested in various DeFi protocols. Additionally, through a process called "wrapping", certain DeFi protocols allow synthetic versions of various assets (such as Bitcoin, gold and oil) to become available and tradeable on Ethereum and also compatible with all of Ethereum's major wallets and applications.
Since the initial launch, Ethereum has undergone several planned protocol upgrades, which are important changes affecting the underlying functionality and/or incentive structures of the platform. Protocol upgrades are accomplished by means of a hard fork. The latest upgrade to Ethereum was "Muir Glacier", implemented on 1 January 2020.
Ethereum also allows for the creation of unique and indivisible tokens, called non-fungible tokens (NFTs). Since these types of tokens are unique, they have been used to represent digital art, sports memorabilia, virtual real estate and gaming. NFTs generally sell on the Ethereum blockchain through various digital auction websites. In 2021, Christie's sold a piece of NFT artwork by Beeple for $69.3 million, making him the third-most valuable living artist in terms of auction prices at the time.