Ethereum (ETH) is one of the most prominent blockchain networks, with its native cryptocurrency being the second largest in terms of market cap (i.e. $264 billion as of now).
A brainchild of Vitalik Buterin, the network was first thought of in the early 2010s. With its whitepaper being released in 2013, the project launched in 2015.
Being one of the most scalable networks for DeFi smart contracts, Ethereum has had quite a journey since its launch nearly eight years ago.
In this article, we will explore Ethereum’s history over the past few years in detail.
Table of Contents
The Genesis Split aka The DAO Fork
Only a year after its launch, the Ethereum network witnessed a major crisis.
In 2016, a virtual decentralised autonomous organization called The DAO raised a total fund of $150 million for Ethereum project development. However, a group of participants gained majority control of the funds of the network and sold DAO tokens worth more than $50 million.
Now, this posed a challenge to the immutability feature of a blockchain network. The question before the team was to either accept the phenomenon as a part of the network’s journey or reverse the action.
This is where the team split, with two differing opinions emerging. A large number of participants decided to reverse the transaction and create a network with a revised history—Ethereum (ETH). But a small group chose the original network, Ethereum Classic (ETC), itself.
As we write, ETC is the 28th largest cryptocurrency in terms of market cap ($2.8 billion). There is no indication of any upgrades occurring on the network for some time now.
The split resulted in the network giving way to two blockchain networks.
Other Hard Forks — Addressing Vulnerabilities
In the Ethereum blockchain ecosystem, an upgrade is known as Fork. In this section, we will briefly explore each hard fork that took place before the Merge in 2022.
In 2016, the network introduced the Tangerine Whistle fork and then the Spurious Dragon fork to address the denial of service (DoS) attacks occurring on the blockchain.
The next year, the network introduced a new governance model, proposing the Byzantium Fork of 2017. It reduced mining rewards from 5 ETH to 3 ETH, in addition to incorporating certain cryptography methods to allow for layer 2 scaling. As we are well aware, Ethereum is a leading L-1 blockchain network, with a large number of L-2 blockchains such as Polygon (MATIC) using it.
It introduced the Constantinople fork in 2019 which further reduced mining rewards from 3 ETH to 2 ETH. In fact, the upgrade laid the ground for the proof-of-stake (PoS) consensus mechanism.
The Ethereum network introduced the Istanbul fork in 2019 which improved the gas fee structure on the platform. It made the interaction among L-1 and L-2 networks more efficient.
The Ethereum network introduced the Muir Glacier fork in 2020 which put forward the “difficulty bomb” of the network by four million blocks. It was another important step towards the transition from PoW to PoS.
The next year, the Berlin and London forks took place in 2021. While the former improved gas cost structure for EVM actions and increased support for multiple transaction types, the latter updated the entire transaction fee market and brought in changes to gas refunds.
The same year, we witnessed the Arrow Glacier upgrade that delayed the “difficulty bomb” of the Ethereum network by several years. The upgrade was similar to the 2020 Muir Glacier fork. Next, the Gray Glacier upgrade in 2022 performed a similar function by three months.
The Merge & Road to Ethereum 2.0
In the beginning, Ethereum used the proof-of-work (PoW) consensus mechanism, and required energy intensive computing (mining) to validate blocks.
Because of concerns about its environmental impact, the project switched to a proof-of-stake (PoS) consensus process in 2022. The network update became known as the Ethereum Merge.
The Merge occurred in two phases: the Bellatrix upgrade and the Paris upgrade.
The Bellatrix upgrade was the one for the Beacon Chain, an Ethereum-based PoW blockchain introduced by the network in 2020. The upgrade also laid the foundation for the network’s switch from the last PoW block to the first PoS block.
The next and final phase of the Merge was the Paris upgrade as it put an end to the PoW mechanism. It subsequently switched to PoW instead. The existing PoW network was merged with the Beacon Chain.
At this point, we should understand how these mechanisms function and how they differ from each other.
PoW requires the use of computer power by miners to solve difficult mathematical puzzles to validate transactions. The first miner to complete the challenge earns new coins as well as transaction fees. Although the method is generally thought to be more secure and decentralised, it also consumes a lot of energy and resources.
PoS, on the other hand, asks validators to stake some of their tokens rather than asking miners to solve mathematical puzzles. The network then randomly selects a validator to build a new block based on the stake size and other characteristics. Instead of new tokens, the validator is compensated with transaction fees.
PoS is thought to be more scalable and efficient than PoW. The Merge cut Ethereum’s energy usage by 99%.
At time of writing, a total of 28,306,544 ETH tokens were staked, valued at $62.5 billion.
Unlocking Staking: The Shanghai Upgrade
The next major upgrade on the Ethereum network post the Merge was the Shanghai upgrade, also known as “Shapella,” which took place in April 2023. It allowed staking withdrawals to be unlocked for the validators on the platform. It led to a substantial increase in ETH liquidity.
From Merge to Splurge
With the Merge, the Ethereum network transitioned from the PoW to the PoS consensus mechanism.
A supporter of several dApps, the Ethereum network is keen to incorporate more upgrades to better serve the users:
- Cheaper transactions
- Extra security
- Better user experience
The network aims to introduce high-priority upgrades within the next six months and low-priority upgrades within the next 5-10 years.
One of the upgrades that Buterin himself is very interested in is the Splurge. The two major goals of the upgrade are achieving 100,000 transactions per second (TPS) on rollups and improving the Ethereum Virtual Machine (EVM).
The EVM is the Ethereum machine that manages the blockchain network infrastructure and helps run smart contracts.
The Future of Ethereum: 2024 Upgrades & More
What the Ethereum network is focusing on now is its scalability among L-2 networks such as dApps. The next upgrade, dubbed the Cancun-Deneb upgrade, will try improving this component.
It will introduce the Danksharding scaling method which will increase its storage capacity and reduce gas fees.
This upgrade is expected to occur in early 2024.
Additionally, apart from the various technological updates, the status of Ethereum as a financial asset has been a particularly debated topic within the past year.
In August 2023, a major court judgement in the United States ruled that ETH is a commodity. However, the Securities and Exchange Commission (SEC), the securities regulator in the US, has so far refrained from commenting too much on ether unlike other cryptocurrencies.
Alternatively, there is also a lot of buzz around the possible arrival of futures and spot ETH exchange-traded funds (ETF) to the market. In fact, several large traditional finance (TradFi) institutions such as BlackRock are betting on the crypto market through these products. The phenomenon will most likely lead to a widespread adoption of crypto assets.
What Should BitDelta Traders Do?
BitDelta traders should keep a close eye on the latest updates taking place on the Ethereum network. Not only are these developments critical for the future of Web3, but also influence the price action of ETH.
Note that not all upgrades are going to have a positive effect on the price action of a cryptocurrency. For instance, the price of ETH continued to stumble before and after the Merge. In fact, its price dropped 18% to nearly $1,350 within a fortnight of the Merge’s completion.
Meanwhile, the Shapella upgrade certainly led to an enthusiasm in the market for ETH. Its price rose 15% to the north of $2.1k-mark for nearly a week following the upgrade. But the cryptocurrency couldn’t sustain the rally any further and fell to the previous level soon after.
Being a savvy investor, you can capitalise on the latest updates and realize substantial returns by making prudent investment in ETH.
So start your trading journey today and get in on the upcoming bull market with Ethereum!