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 Wilke were added in early 2014 as founders." Formal development of the Ethereum software project 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 same time as 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.
Ethereum was proposed in late 2013 by Vitalik Buterin, a cryptocurrency researcher and programmer. Development was funded by an online crowdsale that took place between July and August 2014. The system then went live on 30 July 2015, with 72 million coins minted. Ethereum provides a decentralized replicated virtual machine, called the Ethereum Virtual Machine (EVM), which can execute scripts using an international network of public nodes. The virtual machine's instruction set is Turing-complete, in contrast to Bitcoin.
Several codenamed prototypes of the Ethereum platform 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 Ethereum Improvement Proposal, aka EIP, standardized on EIP-1. The core development group and community were to gain consensus by a process regulated EIP.
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 when US$50 million value of DAO tokens were taken 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. As a result of the dispute, the network split in two. Ethereum (the subject of this article) continued on the forked blockchain, while Ethereum Classic continued on the original blockchain. The hard fork created a rivalry between the two networks.
In 2016, as a result of an exploitation of a flaw in The DAO project's smart contract software, and subsequent theft of $50 million worth of Ether, Ethereum was split into two separate blockchains. The new separate version became Ethereum (ETH) with the theft reversed, and the original chain continued as Ethereum Classic (ETC).
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.
One issue related to using smart contracts on a public blockchain is that bugs, including security holes, are visible to all but cannot be fixed quickly. One example of this is the 17 June 2016 attack on The DAO, which could not be quickly stopped or reversed.
After the hard fork related to The DAO, Ethereum subsequently forked twice in the fourth quarter of 2016 to deal with other attacks. By the end of November 2016, Ethereum had increased its DDoS protection, de-bloated the blockchain, and thwarted further spam attacks by hackers.
The Ethereum Difficulty Bomb refers to a mechanism where the difficulty of blockchain mining began increasing in November 2016, from block 200,000. The onset of the Difficulty Bomb is referred to as Ethereum's Ice Age. The Ice Age was implemented in order to serve as an incentive for the Ethereum network to transition to the Proof of Stake (PoS) blockchain once ready from the Proof of Work (PoW) blockchain. A difficulty bomb was scheduled in February 2019 but was pushed back by developers.
Izabella Kaminska, the editor of FT Alphaville, pointed out in 2017 that criminals were using Ethereum to run Ponzi schemes and other forms of investment fraud. The article was based on a paper from the University of Cagliari, which placed the number of Ethereum smart contracts which facilitate Ponzi schemes at nearly 10% of 1384 smart contracts examined. However, it also estimated that only 0.05% of the transactions on the network were related to such contracts.
The total supply of Ether was around Ξ110.5 million as of 16 April 2020. In 2017, mining generated 9.2 million new ether, corresponding to a 10% increase in its total supply. Casper the Friendly Finality Gadget (FFG), which is a hybrid Proof of Work and Proof of Stake scheme, and Casper Correct-By-Construction (CBC), a separate Proof of Stake design of Casper, are expected to reduce the inflation rate to between 0.5% to 2%. There is no currently implemented hard cap on the total supply of ETH.
In March 2017, various blockchain start-ups, research groups, and Fortune 500 companies announced the creation of the Enterprise Ethereum Alliance (EEA) with 30 founding members. By May, 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 recent additions MasterCard, Cisco Systems, Sberbank and Scotiabank.
Ethereum engineers have been working on sharding the calculations, and the next step (called Ethereum 2) was presented at Ethereum's Devcon 3 in November 2017.
In 2019, an Ethereum foundation employee named Virgil Griffith was arrested by the US government for presenting at a blockchain conference in North Korea.
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 January 01, 2020.
Decentralized finance is a fast growing 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. This economic model is based on supply and demand DeFi assets such as DAI, Compound, WBTC and others. Uniswap, a decentralized exchange for tokens on Ethereum has grown from $20 million in liquidity in May 2020 to $2.9 billion as of October 2020.
Ethereum is different from Bitcoin (the cryptocurrency with the largest market capitalization as of October 2020) in several aspects :
Ethereum, a second-generation cryptocurrency which emerged after Bitcoin, 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 had argued that Bitcoin needed a scripting language for application development. Failing to gain agreement, he proposed the development of a new platform with a more general scripting language.