What is Ethereum? A trader’s guide

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What is Ethereum?

Ethereum is an open-source, decentralised, Layer 1 blockchain created by Canadian computer programmer Vitalik Buterin, which launched in 2015. Buterin envisioned Ethereum as a next-generation network, addressing the limitations of bitcoin by expanding blockchain applications beyond cryptocurrency transactions.

While first-generation blockchains like bitcoin focus on decentralised transactions, second-generation blockchains like Ethereum introduce smart contracts and decentralised applications (dApps). Smart contracts are self-executing agreements with terms written into the code, eliminating intermediaries and reducing costs.

Ethereum also allows for the creation of Layer 2 networks, cryptocurrencies, and non-fungible tokens (NFTs), and more applications on the foundation of Ethereum’s underlying technology. Transactions on Layer 2 networks are processed using Ethereum’s native cryptocurrency, ether (ETH).

Ether (ETH) is a utility token used for transaction fees and staking on the Ethereum network. As the second-largest cryptocurrency by market capitalisation, ETH is widely traded and paired with assets like bitcoin (BTC) and USD.

What is Ethereum Classic?

Ethereum Classic was created in 2016 following a community vote for a hard fork after hackers stole over 3.5 million ether (ETH) from the decentralised autonomous organisation (DAO). The hard fork resulted in two separate blockchains: Ethereum Classic and Ethereum.

Ethereum Classic is a Layer 1 blockchain that continues the original Ethereum blockchain without implementing the changes introduced by the hard fork. Like Ethereum, it supports smart contracts. Its native cryptocurrency is ether classic (ETC), is used for peer-to-peer transactions, trading and paying network fees.

While Ethereum reversed the DAO hack by implementing changes, Ethereum Classic maintained the original chain, following the philosophy of ‘code is law’, prioritising immutability. Ethereum, on the other hand, embraces a more progressive approach, evolving with significant upgrades like The Merge in 2022.

Here’s a quick overview of the similarities and differences between Ethereum and Ethereum Classic.

How does Ethereum work?

Ethereum is a blockchain, a publicly accessible digital ledger where cryptocurrency transactions are recorded. It is fully transparent and difficult to alter, ensuring the integrity of the ledger. This is achieved through a consensus mechanism that secures the blockchain’s immutability.

Originally, Ethereum used the proof-of-work (PoW) consensus mechanism, similar to bitcoin. PoW relies on mining, where complex algorithms are solved using large amounts of computing power. However, as Ethereum grew, the limitations of PoW, including concerns over energy efficiency and scalability, became evident.

To address this, Ethereum transitioned to a proof-of-stake (PoS). In PoS, ETH transactions are validated through staking, a more energy-efficient process compared to mining. Staking requires validators to lock up their ETH to participate in the validation process. PoS is considered more accessible and environmentally friendly than PoW.

While Ethereum does not have a fixed supply limit, mechanisms like EIP-1559 can gradually reduce the circulating supply over time. Transactions are validated and recorded in blocks, and when a block is created, validators are rewarded with ETH.

What’s the ether (ETH) price history?

Ethereum and ether (ETH) have attracted a large community following Ethereum’s 2014 ICO, which raised a total of $15.57 million. ETH’s price has fluctuated significantly since its 2015 mainnet launch.

Past performance does not guarantee future results

In 2016, hackers stole over 3.5 million ETH from the DAO, exposing vulnerabilities in Ethereum’s smart contracts. This led to a hard fork, creating Ethereum Classic and lowering market confidence, which contributed to a decline in ETH prices.

ETH prices surged in 2017 during the broader cryptocurrency bull run. The ICO boom, where Ethereum blockchain was widely used for token launches, drove demand for ETH, and the growing popularity of cryptocurrencies led to the introduction of ETH futures in February 2021.

The crypto winter of 2018-2019 saw ETH prices decline amid increased regulatory scrutiny and market concerns about fraudulent token launches on Ethereum’s ERC-20 standard. Negative market sentiment during this time around the cryptocurrency market contributed to a prolonged downtrend for ETH.

In 2020, ETH began to recover as the rise of decentralised finance (DeFi) drove demand. The bullish trend continued, with ETH reaching an all-time high of $4,891.70 in November 2021. Key drivers included the explosive growth of NFTs, further expansion of DeFi, and anticipation for Ethereum 2.0 upgrades, particularly ‘The Merge’.

ETH prices fluctuated in 2022, correlating with a broader cryptocurrency market downturn and macroeconomic factors such as persistent inflation, interest rate hikes and global economic uncertainty. However, the successful rollout of ’The Merge’, which transitioned Ethereum from PoW to PoS, boosted market confidence by reducing ETH issuance and potentially creating deflationary pressure. This upward trend continued throughout 2023.

In 2024, ETH prices were volatile, influenced by a combination of technological advancements, regulatory changes and broader cryptocurrency market trends. Early in the year, anticipation surrounding the Cancun upgrade (introducing EIP-4844, or proto-danksharding) fueled optimism by reducing layer-2 transaction costs, encouraging increased adoption of Ethereum-based applications like dApps.

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Which factors might influence the ether (ETH) live price?

While its market movements often correlate with bitcoin (BTC) and broader market sentiment, the ETH price may be affected by a number of unique factors, from technological advancements to regulatory developments to media coverage and market sentiment.

Technological advancements and network upgrades – Ethereum upgrades are highly anticipated, potentially moving ETH prices before and after release. Major updates, such as ‘The Merge’, can boost market anticipation. Successful implementations can improve the blockchain’s scalability, security and efficiency, which might contribute to price increases. Conversely, delays or issues during upgrades may dampen trader confidence, causing price declines.

Competition from other blockchain platforms – the emergence of competing networks like Cardano and Solana may influence the ETH price. If these competitors offer more efficient, scalable or cost-effective solutions, they could attract developers and users away from Ethereum and reduce demand for ETH. On the other hand, Ethereum's progressive philosophy, dedicated community and regular updates can positively impact its price.

Bitcoin and broader market trends – ETH often moves in tandem with bitcoin and the overall cryptocurrency market sentiment. When bitcoin experiences significant price gains, ETH and other altcoins frequently follow suit. Positive trends such as increased institutional adoption or favourable regulatory news can lead to market-wide surges. Conversely, market downturns or negative news can exert downward pressure on ETH.

Regulatory developments – government policies and regulatory changes can significantly affect the ETH price. Acts like banning centralised exchanges or imposing strict compliance requirements might reduce market accessibility and liquidity, potentially leading to price drops. Conversely, regulatory clarity and acceptance may boost trader confidence and encourage wider adoption and increase the ETH price.

Market sentiment and media coverage – public perception and media narratives can cause significant price volatility. Positive news, endorsements from influential figures and optimistic projections can drive new interest and attract traders, leading ETH to rise. Conversely, negative reports, regulatory crackdowns or security concerns could erode confidence and influence the price lower.

Adoption of decentralised applications (dApps) and DeFi – The growth of decentralised finance (DeFi) platforms and non-fungible tokens (NFTs) on the Ethereum network drives demand for ETH, as it is used to pay transaction fees (gas). Increased usage of dApps leads to higher network activity, which can positively influence the ETH price. However, network congestion and high gas fees might push users towards alternative platforms, negatively affecting demand for ETH.

What are the ether (ETH) trading hours?

ETH operates on a decentralised blockchain network that is active 24 hours a day, seven days a week. This means you can trade ETH at any time, including weekends and holidays.

• Cryptocurrency exchanges – many exchanges facilitate 24/7 trading, allowing for continuous market participation.
• Online trading platforms – some reliable and trusted brokerages provide ETH trading via CFDs.

If you choose to trade CFDs, you can follow the ETH performance live in US dollars with our comprehensive ETH/USD price chart.

Alternatively, you can check out our ETH/BTC, ETH/GBP and ETH/EUR price charts.

Monitoring the cryptocurrency’s activity can help you to keep an eye out for any key fundamental or technical events that may affect short-term movements in its value.

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How to trade ether (ETH)

ETH is a cryptocurrency, meaning that it can be traded directly on a cryptocurrency exchange or through peer-to-peer transactions. Traders may also choose to trade ETH via a derivative, a financial product that takes (or ‘derives’) its value from the price of the underlying asset.

You could use a contract for difference, or CFD, to trade on the price of ether (ETH) pairs. A CFD is a contract, typically between a broker and a trader, where one party agrees to pay the other the difference in the value of a security, between the opening and closing of the trade.

You can use CFDs to trade on whether you think an ETH pair will rise (called ‘going long’) or fall (‘going short’). CFDs give you access to leverage, allowing larger positions with a relatively small outlay. This amplifies your potential profits, but also your potential losses, making CFD trading risky.

You can learn more about trading cryptocurrencies with Capital.com in our comprehensive guide to cryptocurrency trading.

Aside from CFDs, you can also trade ETH pairs through instruments like futures, options, ETFs, and mutual funds. Each offers an alternative to the leveraged trading of CFDs, suiting different risk profiles and strategies.

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