In 2009, Bitcoin marked the start of the cryptocurrency market, introducing blockchain technology and a revolution that allowed people around the world to take part in a monetary system without needing permission, in a decentralised way.
But what would be the next step? The answer came in 2015, with the emergence of Ethereum.
Ethereum is the world's second-largest cryptocurrency and a blockchain that allows the automatic execution of code through smart contracts. This innovation enabled the development of a full ecosystem of decentralised applications, especially in decentralised finance (DeFi), giving rise to one of the most dynamic segments of the new digital economy.
It is through smart contracts that some of the best-known features of the crypto sector emerged: stablecoins, memecoins, decentralised exchanges, staking protocols, collateralised lending, liquidity pools, NFTs, DAOs and even digital identity systems and synthetic financial products.
The blockchain's native currency is Ether (ETH), which is used to pay the network's transaction fees (known as gas) and to execute functions in its smart contracts.
The blockchain acts as a base layer for its applications, functioning as a virtual infrastructure that hosts and is responsible for the correct execution of all transactions and contract calls.
Unlike Bitcoin, whose main purpose is to be a decentralised digital currency, Ethereum was conceived as a general-purpose platform, a kind of large "computer" capable of hosting any type of blockchain-based application.
Today, Ethereum is widely recognised as the main infrastructure for developing decentralised applications, although it still faces scalability challenges that are being addressed through ongoing network upgrades.
Smart contracts
The backbone of Ethereum, smart contracts are programs (software) written in programming languages such as Solidity or Vyper, which carry out tasks automatically, without human intervention.
Vitalik Buterin, Ethereum's creator, compares smart contracts to a vending machine, which carries out an action as soon as certain conditions are met. Smart contracts work the same way, but applied to financial tasks.
Smart contracts are stored on the blockchain and executed automatically (provided there are funds to pay for their execution, when required). Among the main advantages of their use are transparency, the immutability of their content and their versatility.
Once executed — that is, 'inserted' into the blockchain — contracts are stored on every node of the network and their functions can be called at any time by any user with sufficient funds.
An example of a simple smart contract is a digital vault, in which users can deposit cryptocurrencies and the contract's owner can withdraw them under certain conditions. This contract can be programmed to accept deposits automatically and allow withdrawals only to the address that created it, functioning in a fully autonomous and secure way.
A more complex example could be a smart contract that controls an address holding a certain amount of ether. If the price of soybeans reaches a set value, that address will send a previously defined amount of tokens to the addresses described in the contract.
The soybean price information is fed to the contract via oracles, which act as secure bridges between real-world data and the blockchain, allowing the contract to automatically execute programmed actions based on trusted external events, ensuring transparency and automation without intermediaries.
Who created Ethereum?
Ethereum's creator is the Russian-Canadian programmer Vitalik Buterin, who later received help from seven other people: Charles Hoskinson, Gavin Wood, Joseph Lubin, Anthony Di Iorio, Mihai Alisie, Jeffrey Wilcke and Amir Chetrit.
Buterin was a Bitcoin enthusiast, but believed the network was too limited in its purpose of merely creating a means of exchange for a decentralised currency. The programmer wanted to build more applications within the blockchain ledger system.
He tried this by proposing a change to Bitcoin's code called colored coins, but the idea was rejected by the community. Buterin then decided to build a platform from scratch, where the idea of smart contracts would be the cornerstone of the entire network.
Vitalik was born in 1994 in Kolomna, Russia, and moved to Canada at the age of six. He was regarded as a child prodigy, particularly in mathematics and computer science. At 17, he was introduced to Bitcoin by his father, Dimitry Buterin, a computer scientist.
At just 19, in 2013, he conceived what would become Ethereum. He was a co-founder and lead columnist for Bitcoin Magazine, where he wrote articles with revolutionary ideas for blockchain.
The biggest change in Ethereum to date
Between 2015 and 2022, the process of validating transactions on the Ethereum network used a consensus mechanism called Proof of Work (PoW), similar to Bitcoin's. In this model, validators — known as miners — competed to solve a complex computational problem based on cryptographic hash functions.
The first miner to find a valid solution earned the right to propose the next block, which contained a set of transactions to be confirmed. That block was then propagated and permanently recorded on the blockchain. As a reward for the computational effort and the security provided to the network, the miner received a payment in ether, made up of the fixed block reward and the fees paid by users.
This mechanism required significant computing power and energy consumption, but provided robust security by making attacks difficult, since altering a block would require redoing all subsequent computational work, making the network resistant to fraud.
With the aim of reducing the high energy consumption caused by the mining process, the Ethereum community voted for and implemented its biggest change to date: the transition from the Proof of Work consensus mechanism to Proof of Stake (PoS). This process was named The Merge.
Under Proof of Stake, block validation no longer depends on solving complex computational problems, but instead on the participation of validators who lock up (or stake) a set amount of ether tokens as collateral. These validators are pseudo-randomly selected to propose and validate new blocks, based on the amount of ether they have staked and other criteria that encourage honest behaviour.
If a validator attempts to act maliciously or breaks the network's rules, it can lose part or all of the value it locked up as collateral — a process known as "slashing". This creates a strong economic incentive for validators to act correctly.