Ethereum: The Start of the Second Generation of Crypto Currency

Ethereum ushered in a massive era of change of the crypto community with the introduction of smart contracts. With smart contracts and faster block times, it was said that Ethererum would be the Bitcoin killer. It didn't kill Bitcoin but it did take second place as most valuable crypto currency, being dubbed as the digital silver.

We'll dive into some background, tokenomics, features, roles in the NFT market and a little bit more for you in this article.

Background

Ethereum was created by programmer Vitalik Buterin in 2015. He saw what Bitcoin was doing and he wanted to improve on it and make it faster and allow it to do more than just be a store of value or a “vanilla” payments system. Buterin added in a smart contracts system that revolutionized the crypto space. Besides the smart contracts, Buterin designed it so that any developers could build off the chain and add DiFi apps or build on top of it and create an entirely new crypto currency. Those new crypto currencies are known as ERC20 tokens, which stands for Ethereum Requests for Comment 20. As of 2022, some 450,000 different ERC-20 cryptocurrencies exist on Ethereum's main network! We'll get into technical details a bit later, but background aside, let's talk about the proof-of-work consensus mechanism and how it will be changed in the near future.

Proof of Work to Proof of Stake Changeover

Currently, Ethereum is a proof-of-work (PoW) token, meaning that miners validate transactions in a block and then get rewarded for validating these transactions. Since late 2020, there have been announcements that Ethereum is going to switch over to proof-of-stake (PoS) to lessen its impact on the environment. Bitcoin uses PoW and the amount of energy consumed to carry out mining operations on the blockchain have been called into question due to mass energy consumption. Ethereum wants to move away from high energy consumption with PoS. The changeover was supposed to be June 2022, but in recent news it appears that it will be pushed back at least 3 more months until September 2022. You are probably wondering what PoS is? Let's answer that in the next section.

What is PoS

After the conversion takes place, the validators will stake their coins for a chance to validate blocks and receive rewards for doing so. Crypto staking allows you to validate blocks and earn extra passive income from the process. Think of it as interest on your money at the bank.

The change to PoS will fix many issues with the PoW consensus mechanism, significantly changing the environment of the validation process. It'll also improve energy and hardware requirements for mining, which has grown to a considerable cost over the past year.

PoS makes the network more scalable and accessible. Currently, the Ethereum network can store only a limited amount of data at any given time. If several transactions are pending on the network and can't fit into the current block, it must wait for a new block to be added to the network before it can be validated. This congestion will be fixed as an additional upgrade to the mainet and will introduce sharding.

Sharding, a method for distributing data across multiple computers, also addresses the scalability issue. This allows you to have several transactions across a distributed network of multiple machines. That means the network will process more transactions, resulting in network decluttering.

We have discussed a lot of Ethereum's technology in depth. Now let's move to the financial side of things and take a deeper dive into tokenomics and historical price activity.

Tokenomics

Now that you have a good understanding of what PoW and PoS are and how they affect the ecosystem of Ethereum, let's go over how these consensus mechanisms affect Ethereum's overall ecosystem. Right now under the PoW system, miners are earning rewards from block validation and these rewards are coming from gas fees.

Gas fees are levied on your transactions; whenever you buy, sell, swap, etc. There is a fee imposed on your actions. Because Ethereum is so highly used for the NFT marketplace, Ethereum is taking on a lot of activity and the network is becoming congested. From this congestion comes the high gas fees. It is becoming more and more expensive to perform any transactions with Ethereum.

Due to these high gas fees, we are seeing more and more people looking to the new third generation crypto currencies such as Solana, as a way to escape the high gas fees. Before we get into more details on the gas fees, let's talk about the historical price action.

Historical Price Action

graph of Ethereum's historical price action.

If you look at the above chart, you'll see that there are two main areas of major price action. From Q1 2016 through the end of 2018 and then around the start of 2020 until present day.

Etherum started out in 2015 around $.60 USD per token and it steadily increased to about $50 per token at the start of 2016. At this time, crypto currencies were just getting more attention, as the more and more attention grew, so did the price. This period between 2016 and the end of 2018 is known as the first crypto bubble. People were just starting to take notice and prices started to rapidly climb. Around the start of 2017, Ethereum hit a peak for that period right around $1,300. Before pulling back, then really dropping off, rising a bit and then sinking in the first great crypto crash of 2018. 1 Jan 2018 Ethereum sank to $155, a massive crash from what it had once been only a year earlier. The price barely saw anything higher than just over $300 from the start of 2018 until late 2019, when the price steadied well above $300. In early 2020, the pandemic induced buying frenzy pushed the price of Ethereum over $4,000 for the first time, before it came crashing down just a few days later to $2100. Ethereum lost almost half its value in a few days. Just as soon as it gained it, it gave its gains back up. Towards the end of 2021 we saw Ethereum shoot back up to an all time high of almost $4,700 per coin!

Now, investors are saying that it could climb much higher after the switch over to proof of stake. However, the proof of stake keeps getting pushed back and pushed back, it makes us wonder if we are ever going to see this change over? Sometimes delays are worth the wait to get things right. We wouldn't want to see a rushed upgrade only to have it fail and send prices plummeting to new lows. Let's see them get it right with the extra time and give them the benefit of the doubt.

While we are on the topic of speculation and investing. Please remember that Atomic Wallet does not offer investment advice. You should do your own due diligence and research before investing in any assets, traditional or crypto.

Let's address the issues we have been seeing with extra high gas fees. What is causing all this network congestion and driving the gas fees up so high? Read on to learn why.

What's Going on with Gas fees?

Graph of gas fees since initiation until present.

Ethereum is currently on PoW, meaning, like Bitcoin, miners get rewards for verifying transaction blocks in the form of new Ethereum tokens. Though the process feeds itself, transactions incur network or gas fees. Why is that important? A fundamental reason why fees are included for each transaction is to keep spam off the network.

Think of it as email. If it costs to send each email, the amount of spam you'd receive will drop dramatically. The same goes for applying gas fees to Ethereum; the purpose is to keep spam off the network and keep available bandwidth open to paying users.

Due to the popularity of NFTs on platforms like OpenSea, the mainnet has become overloaded with transactions, pushing fees up, higher, and higher. This resulted in a cost barrier for sending and receiving payment using the Ethereum network.

Gas fees are well over $100 per transaction, as at writing. If you're buying and selling NFTs for thousands or millions of dollars, the fee is relatively small. For everyday transactions, like moving some Ethereum from one wallet to another, the fees are extremely high.

Let's address the reason why gas fees have been so high, NFTs.

Ethereum and NFTs

The 9 crypto punks NFTs that sold at auction.

Due to Etherem's smart contracts and DiFi apps, Ethereum has become one of the biggest crypto currencies involved in the NFT space. You might be thinking why Ethereum. Well, NFTs were born on the Ethereum blockchain. It started back in 2017 with the crypto punks and crypto kitties, which were really just images or gifs embedded in smart contracts. What's why any other crypto currency that wants to be involved with NFTs needs ERC20 interoperability. For now, NFTs are firmly tied to Ethereum.

Before we finish up, we should address one more thing you might have a question about, Ethereum Classic.

What's the difference between Ethereum and Ethereum Classic?

Glad you asked. Short answer Ethereum Classic is the original Ethereum that was released in 2015. The Ethereum that you know and love now is a hard fork, or a split from the original blockchain.

Long story short, in 2016 there was a hack known as the DAO hack, which caused investors to lose money. There was a consensus: rather than have investors investing in a flawed blockchain project, most of the developers decided to roll back the software and fix the flaw. The small amount of developers that were opposed to this continued with the original project and renamed it Ethereum Classic. The opposed developers did want to create a precedent of bailouts in crypto. By rolling back the hack they were somehow able to recover the lost Ethereum. Not sure how they did this but you can read more about it here.

That concludes our coverage on Ethereum. If you are ready to start loading up on Ethereum, then you are going to need a safe and secure wallet to store it in. Look no further than Atomic Wallet!

Atomic Ethereum Wallet

Atomic Wallet offers you a great place to store your Tron tokens. Besides just being a wallet for storing, sending, and receiving, you can do much, much more with an Atomic wallet. Atomic Wallet has some great features such as having a built-in decentralized exchange/swap where you can buy more than 300 crypto currencies and have them securely stored in your Atomic Wallet. What's more is that you can stake a number of tokens right in the Wallet! On top of that, for each transaction you make in Atomic Wallet, buying, selling, or swapping, you are eligible to get up to 1% back per transaction paid out in Atomic Wallet's native token, AWC.

FAQ

What is Ethereum?

Ethereum is a blockchain-based - cryptocurrency. Ethereum is a store of value and a smart contract. It is programmable and can be used to create smart contracts and other cryptocurrencies based on the ERC-20 standard.

Ethereum is second only to Bitcoin in market capitalization and possesses more features and functions. These features have made Ethereum integral to the cryptocurrency world: more than 450,000 cryptocurrencies are ERC-20.

What is an Ethereum Wallet?

An Ethereum wallet could be a simple application that allows you to store, send, and receive Ethereum. Some wallets, though, are very advanced, allowing you to buy and sell NFTs, write smart contracts, and much more. Atomic Wallet. is a great choice as it allows you to do more than just send and receive. It helps you buy, trade, exchange, stake your coins, receive rewards for using, Atomic Wallet, and much more. It's also really beginner-friendly, so it's a great option if you're just discovering the cryptoverse.

What are gas fees?

Gas fees make the current Proof-of-Work system work as they pay for the transactions. A portion of these fees also goes to the miners verifying the transaction blocks. Ethereum's network and popularity grewNon-Fungible Tokens (). That led NFT exchange platforms, like Open Sea, to become the primary consumers of gas fees in NFT exchanges.. In turn, that That's making gas fees becoming rather expensive. As of writing, you'll have to pay well over $100 per transaction.

How many Ethereum tokens are there?

Ethereum has 119.2 million tokens in circulation. Unlike Bitcoin, Ethereum doesn't have a fixed supply. Miners receive rewards in Ethereum to keep mining. When Ethereum first debuted in 2015, it had around 72 million tokens.

That said, once Ethereum moves from Proof-of-Work to Proof-of-Stake, the number of new ethereum tokens created will dramatically decrease. This, combined with proof-of-stake, will likely create a supply shock and push up the price. That's only an educated guess, and by no means investment advice. Please do your own research before you invest in any asset.

What happens when Ethereum moves from Proof-of-Work to Proof-of-Stake?

In the Ethereum 2.0 upgrade, Ethereum will move from proof-of-work to proof-of-stake. That'll make blockchain transactions much fasterand more environmentally friendly. It'll also slow down the growth of the total Ethereum tokens in circulation.

This upgrade will also introduce the Beacon coin, which you'd use for staking in the PoS mechanism. This new chain will merge into the mainnet. Finally, the upgrade will include a massive scale-up, known as sharding to create more bandwidth and scalability to handle larger transaction volumes. By using sharding, it is anticipated that gas fees will come down significantly.

Resources

Atomic Wallet

Check out the latest wallets and cryptocurrencies on our website.

Ethereum Atomic Wallet

Get your Ethereum Atomic Wallet here.

Atomic Wallet Academy

Learn about cryptocurrencies and Ethereum in our Academy.

Atomic Wallet FAQ

Learn more about using Atomic Wallet in our FAQ

Ethereum Website

Learn more about Ethereum on the official website.

Ethereum Gas Fees

Learn more about how gas works and what will happen to gas prices after the Ethereum 2.0 upgrade.

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