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ETH Trends In 2024
- Ethereum’s transition to proof of stake has already had a meaningful impact on its supply, due to a part of transaction fees now being burned. Further, a continued increase in the number of network transactions could expedite this trend.
- Layer 2 networks continue to see massive growth. These rollups first surpassed Ethereum Mainnet in daily transactions in 2023, and have been increasing their presence since. Transactions on Layer 2’s are processed faster and cheaper than on Mainnet but passed to Mainnet for security.
- Other upcoming upgrades from Ethereum’s roadmap are set to take place over the next year. Starting with the Dencun upgrade in March, these events aim to bolster the scalability, speed and decentralization of the network.
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What is Ethereum?
Ethereum is the leading smart-contract blockchain. Hold up, what? Okay, let’s break that down.
- Smart contracts are computer programs that run on the Ethereum network.
- Blockchains are like a tally sheet that tracks who has what, where it came from, and where it went. It’s like a bank statement, but for crypto — and it’s always up-to-date.
Each “block” in the “chain” contains transactions and data, and just like real chains, they’re linked.
Think of the Ethereum network as an operating system on the internet that can run programs. It’s decentralized because the transactions the Ethereum network saves to the blockchain are validated and mirrored by thousands of computers around the world. Some even refer to Ethereum as the World’s Computer.
Vitalik Buterin — the Ethereum project’s best-known founder — published the Ethereum white paper in November of 2013, describing the soon-to-be network and how it would function. By 2015, the Ethereum network was live and processing transactions.
Fast-forward to today, and Ethereum has become the most widely used smart-contract network amongst all blockchain networks. There are plenty of other smart-contract networks out there now, but Ethereum led the way, and it’s still the biggest player by a big stretch.
Who Founded Ethereum?
Vitalik Buterin is the most famous (and most memed) of Ethereum’s founders. (Don’t miss the Vitalik Pic of the Day in the Milk Road newsletter)
But the Ethereum project has several founders, including Charles Hoskinson, who went on to found IO Global, the company that’s developing the Cardano project.
Many of Ethereum’s founders are still very active in the crypto space:
- Vitalik Buterin still works on Ethereum.
- Gavin Wood went on to found Polkadot, a blockchain network that enables transfers between blockchains.
- Charles Hoskinson founded Input Output Global, the company behind the Cardano network.
- Anthony Di Iorio went on to found Decentral, a blockchain tools company.
- Joseph Lubin went on to found ConsenSys, the leading Ethereum software company and maker of the popular MetaMask Ethereum wallet.
- Mihai Alisi is building AKASHA World, an Ethereum-based social platform.
- Amir Chetrit keeps a low profile and reportedly still invests in crypto projects.
- Jeffrey Wilcke went on to co-found Grid Games.
Why Was Ethereum Founded?
We already had Bitcoin, so why did we need Ethereum? Early crypto networks like Bitcoin and Litecoin offer peer-to-peer transactions without a bank in the middle. They were (and still are) effective as digital ledgers and payment rails. What they didn’t do was run programs. At least not well. The problem: they just don’t support enough programming commands.
The Ethereum white paper explains the reason for Ethereum in contrast to the existing crypto networks.
Here’s the TLDR: The Ethereum network was built to run decentralized applications (dApps), programs that run on a network of thousands of computers rather than on servers controlled by a single person, organization, or government.
The network runs on Ether (ETH), which is the cryptocurrency you use to pay for using the network. So, Ether is money. But the Ethereum network envisioned in the white paper would open up a new world of possibility beyond just payments from person A to person B — and it has.
In the white paper, Vitalik introduces the idea of smart contracts, which he describes as boxes that are only unlocked if certain conditions are met. Think of smart contracts like switches –- or like if-then statements. If this happens, do that.
Those smart contracts are what’s running under the hood of today’s dApps, including Aave, Uniswap, and more. We see a website that does cool crypto stuff. Behind the HTML and shiny buttons, there’s an app running on a blockchain — and it’s probably running on Ethereum or a Layer 2 network. We’ll cover Layer 2 networks in a bit.
Ethereum Price History
Crypto prices are volatile in the sense that they can explode to the upside or blow up your life savings. Since its launch, ETH has made millionaires and billionaires — and broken more than a few hearts (and wallets) as well.
Like most markets, pricing is driven by supply and demand. Here’s how ETH’s supply works:
Prior to 2022, ETH was mined in a similar way to Bitcoin, using proof-of-work, a process that created ever-growing piles of ETH. 2022’s change to proof-of-stake as the way to validate transactions changed the supply dynamics of ETH. What was once an inflationary cryptocurrency is now closer to a stable supply.
But there’s another factor at play that affects ETH supply. EIP-1559 (an Ethereum Improvement Proposal) introduced burning ETH. When you pay ETH gas fees, the base fee is burned while the remaining fee (the tip) goes to network validators.
Burning just means sending ETH to an unrecoverable address on the blockchain. Proof-of-stake creates new ETH as staking rewards, but burning sees roughly the same amount destroyed. The result is a fairly stable or slightly deflationary supply — so far.
How Ethereum Works
The web browser you’re using now is running on your computer or mobile device. If you spill milk on your computer, no more Milk Road for you. The Milk Road website is hosted on a different computer somewhere, delivering crypto news and how-tos. If someone trips over the server’s power plug, no more Milk Road for anyone.
But what if you could run programs on a network of computers – and if one goes offline, it wouldn’t matter at all? That’s what Ethereum does. Developers deploy programs called smart contracts to the network where they live forever. Seriously, they can’t be deleted. That’s why you’ll see versions on dApps, like Aave, currently on version 3.
If you spend enough time in crypto, you’ll run across the phrase, “code is law,” which refers to the smart contracts being the final arbiter of whether something happens or doesn’t.
The transactions from these smart contracts are stored on the blockchain. Blockchains are a lot like databases, a way to store information. But here’s one big difference: Someone can delete a database or change its contents. Blockchains are designed to be immutable, meaning the records in each validated block of transactions never change. As new blocks of transactions and data are built and validated, they’re added to the chain.
Surely all of this can’t be free, right? That’s where Ether comes in, which we’ll dig into next.
Ether & Gas
Here’s your chance to impress your friends: The term Ethereum is often used interchangeably with the cryptocurrency that powers the network. That’s not quite accurate — the fuel for the Ethereum network is called Ether (ETH).
Ether is money in the Ethereum world. Ethereum is the network itself.
In the real world, nothing moves anywhere without energy. The same is true for Ethereum. Ether is the fuel for the network, and that’s why network costs are called gas fees.
Think of it as a way to pay for processing power on the network. If you want to interact with a smart contract, you’ll have to part with some ETH to do so. And the more complex the contract is, the more the transaction can cost. And the gas fees for using smart contracts can get spendy if the network gets busy.
Lastly, there’s another factor: the cost of ETH itself. Imagine how much it might cost to do even simple transactions if the price of ETH was spiking AND the network was busy. Yeah, that’s a problem.
Well, that’s why Layer 2 networks were developed. Basically, Layer 2 networks execute transactions at a lower cost and then send bundled transactions to the main Ethereum blockchain to be stored securely. Layer 2’s are a lot like taking the train for your city commute rather than driving. Layer 2’s move transactions in bulk.
- The benefit of Ether: Ether creates a financial incentive for the development of new apps (many of which collect fees in ETH) and for the network validators that secure the network. Nobody wants to work for free, right? Ether also lets you do things you couldn’t do easily in the analog world. For example, if you want to borrow money, just lock some collateral on a decentralized app like Aave, and you can borrow against it – all in a few clicks. You can’t do that with your local bank, and without ETH, you couldn’t do it on Ethereum, either.
- The downside of Ether: It’s spendy sometimes. It makes sense to keep an eye on gas fees and make your moves when gas fees are lower. And if you can, use a Layer 2 network.
Ethereum Token Standards
Ether is the fuel for the Ethereum network, but what are all these other crypto tokens, and what do they do? Well, tokens are other crypto assets on the network, and they have various uses. Some are used for voting. Some track the value of other assets, like the US dollar or Bitcoin. Others represent the ownership of an asset, like an NFT (non-fungible token).
- Fungible tokens are interchangeable. These include tokens like USDT and WBTC. One USDC is the same as the next USDC. US dollars work the same way. A dollar is a dollar.
- Non-fungible tokens are unique. These include NFTs like the Bored Apes or even an NFT that records ownership of real-world assets, like real estate. The future could include tokenized everything. Put your ownership of anything on the blockchain.
To work with Ethereum, a token must follow standards, basically a set of rules. Otherwise, the network doesn’t know what to do on its own.
Here are the main token standard used by Ethereum:
- ERC-20: This is by far the most common token standard on Ethereum. You’ll find it used for governance (voting) tokens, utility tokens for a specific platform, or staking tokens.
- ERC-721: Most NFTs follow the ERC-721 standard. These include artwork, music NFTs, event ticket NFTs, and property deeds. Other NFTs may use the ERC-1155 token standard.
Ethereum Proof Of Stake
In 2022, Ethereum switched from proof-of-work to proof-of-stake as the way the network validates transactions. Bitcoin, Litecoin, and Dogecoin still use proof-of-stake, which uses more energy compared to proof-of-stake, but both methods use financial incentives (or disincentives) to validate and secure transactions on the blockchain.
Let’s focus on proof-of-stake. In PoS, computers on the network check transactions to be sure they conform to the protocol, basically another set of rules. Each validator (also called a node) puts ETH at stake.
If the other validators on the network catch one of the nodes approving blocks that don’t follow the protocol, the ETH staked by that node can be slashed, meaning the network takes away part of the stake.
These validators don’t work for free. They earn rewards for validating blocks. And the entire community can participate. ETH holders can stake their ETH with a validator service to earn a yield from staking rewards.
After the switch from PoW to PoS, the Ethereum network reduced energy consumption dramatically. By comparison, Ethereum PoW uses an estimated 30,000 times more energy compared to PoS, and Bitcoin uses 50,000 times more energy.
Use-Cases For Ethereum
Okay, so we understand that smart contracts are just programs that run on the network. But what can you do with them?
Aave is the biggest dApp in this category. The premise is simple. You deposit a supported asset like ETH or USDC to earn interest from borrowers. Often the returns are about 2% to 3%, but they can spike higher. You can also borrow by using your deposit as collateral. And unlike a CD or treasury, you can withdraw your deposit at any time (unless you borrowed against it).
If you want to swap some of your ETH stack for another token you’ve been investigating, you can do that with a decentralized exchange (DEX) like Uniswap or an aggregator that compares prices like OpenOcean. Read up on DEXs first, they’re not hard to use, but you’ll want to learn the ropes before you set sail.
Where do the tokens on DEXs come from? Traders like you. You can earn a solid return by providing tokens to a pool that other traders use for swaps. Again, you’ll want to learn about considerations like impermanent loss before you start randomly clicking buttons.
You can also provide liquidity for trading platforms like GMX, but you’ll need to use an Ethereum-compatible network. GMX supports the Arbitrum Layer 2 network, and Arbitrum can use ETH natively.
Most of the big-name NFT collections are on the Ethereum network. You can buy NFTs on well-known platforms like OpenSea, but a new breed of NFT exchanges is going the decentralized route, using smart contracts so you can buy and sell without a middleman.
The new Blur NFT platform is a great example of this.
Trade Cryptocurrencies And Futures
There are ways to bet on the future price of Ethereum and Bitcoin. Ethereum can run dApps that let you trade future prices right from your favorite recliner. Decentralized apps like GMX, which runs on the Arbitrum and Avalanche networks, let you bet your crypto with leverage of up to 50x.
Staking can have a lot of meanings in the crypto world. The most common in an ETH context means putting some ETH into a staking contract to help validate network transactions. In exchange, you can earn staking rewards.
But staking can also be a way to earn additional rewards from dApps. On LooksRare, an NFT marketplace, you can stake LOOKS tokens to earn a share of earnings on the platform. It’s a lot like a dividend stock but without dealing with brokers who are always trying to get you into their managed fund.
The decentralized crypto world runs on votes, like a true democracy. The Ethereum project itself uses votes to decide future changes to the project. ETH holders can vote on Ethereum Improvement Proposals (EIPs).
Many projects in the Ethereum ecosystem issue governance tokens, making governance token holders the real owners. Uniswap is a great example. The UNI token serves no other purpose other than voting on what comes next for the world’s biggest DEX.
How do you keep some of your crypto stack stable? Well, you can use stablecoins, which are ERC-20 tokens pegged to the value of a fiat currency or other benchmark. USDC and USDT are both examples of stablecoins that track the US dollar.
Layer 2 Networks
Ethereum is pretty amazing, but it has its drawbacks. First, it’s kind of slow… It’s faster than Bitcoin, but that’s not really an accomplishment. Second, it’s expensive – especially when the network is congested.
That’s why the universe gave us Layer 2 networks. These Ethereum-compatible networks let you do just about anything you can do on Ethereum for less money, and they’re faster too. The downside? You’ll have to bridge some funds into a Layer 2 network.
Layer 2 networks like Arbitrum and Polygon let you do more for less, and then they pass the transaction off to Ethereum in batches for its stellar security. It’s an Ethereum transaction in the end, but you saved a bunch of money by using a Layer 2.
The 5 Most Popular Dapps On Ethereum
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Other Things To Be Aware Of
This is a ratio that compares the performance of ETH directly to the performance of BTC, instead of the U.S. dollar. Since most tokens generally move in the same direction, comparing these directly can give you a better sense of how ETH is performing versus the OG crypto. Additionally, an outperformance from ETH in this ratio can indicate that an alt-season may be coming.
A year after Ethereum launched, a debate broke out after a smart contract hack occurred. While the majority of Ethereum’s community voted to reverse the hack, others were opposed. And as a result of the two divided sides, the original blockchain was split in two. Ethereum is the new and improved blockchain that you hear about today, while Ethereum Classic represents the original deployment of the network.
Wrapped Ether (WETH)
Just like WBTC represents the wrapped version of Bitcoin in DeFi, WETH is a wrapped version of Ether. This allows it to be used across other blockchains, while still holding value. This token is pegged to the value of Ether and can be redeemed for ETH 1:1 at any time.
After Ethereum transitioned to proof of stake, all assets were replicated and business continued as normal on the new chain. However, the old chain still exits and is referred to as ETHPOW, the proof of work version of ETH. While this token still trades and may have a small community around it, there is no value left on this old blockchain.
What To Look Forward To
The Ethereum project is constantly evolving and will likely take many years to fully play out. Regardless, it can be important to be aware of the next stages of its roadmap:
- The Surge: The next component of ETH’s roadmap is focused on scalability. While the emergence of layer-2 blockchains have helped to mitigate congestion on the network, gas fees have still been too high for the average user. While this upgrade won’t have a direct impact on Ethereum Mainnet, it is expected to lower the cost of using layer-2 networks significantly.
- The Scourge: After working towards scalability on the network, the focus will shift to improving decentralization through the Scourge. This upgrade aims to change the way that blocks are produced by validators, while preventing MEV attacks on the network.
- The Verge: The Verge will implement zero-knowledge technology into Ethereum for the first time. This feature allows transactions to be verified with less data being stored, which will ultimately preserve block space and make transacting on the network cheaper.
- The Purge: The Purge is a technical upgrade that builds on top of the Verge, reducing the overhead of the network in terms of data storage.
- The Splurge: The final upgrade planned in the Ethereum network has been named the Splurge. This is the most general upgrade and is likely to change. The overall plan is to evaluate where the network stands at this point, and fix everything else.
Frequently Asked Questions
The price of ETH is based on supply and demand, with demand dependent on macro conditions, and interest in the crypto sector. On the supply side, recent changes have made the supply slightly deflationary, meaning there are fewer ETH to go around. Additionally, as more and more ETH is staked, there will be less Ether to buy on the open market.
Even after all of the progress, Ethereum is in the early stages of its deployment. If you believe in the future of Ethereum, it’s always a good time to buy. But it’s usually wiser to dollar-cost average or ease into your position. All cryptocurrencies are very volatile, but by buying a little bit at timed intervals, you can smooth out the highs and lows.
The most common way to buy Ethereum is through a centralized exchange like Coinbase or Binance. These exchanges let you buy ETH or other cryptocurrencies with fiat money, such as US dollars. If you use a wallet to explore DeFi, Ethereum is one of the most liquid assets across decentralized exchanges.
It’s generally a good idea to move your ETH off centralized exchanges and into the safety of a wallet you control. Crypto wallets let you send and receive crypto but also open up a world of decentralized apps you can use with your wallet. If you have a larger amount of crypto, you can also use a company that provides crypto custody services or may want to consider cold storage.
Ethereum is decentralized, meaning the community votes on proposals for improvements to the network. This means that there’s no one person or organization that controls Ethereum.
Ethereum and Bitcoin serve different purposes and are rarely seen as competitors. Ethereum brings more functionality, while Bitcoin is regarded by many to be better as peer-to-peer money or a store of value. Both are considered to be “blue chip” cryptos and often move together in market upswings and downswings.
There are hundreds of thousands of ERC-20 tokens out there, with more being added daily. This is because on the decentralized web, any person or wallet can launch their own token in minutes. Additionally, each protocol running on Ethereum or a compatible network can have one or more tokens it uses for various purposes.