Ethereum is one of the world’s most popular blockchains, and it’s a great place to start if you’re interested in non-fungible tokens. Currently ranked second in market cap among all the world’s cryptocurrencies, Ethereum has only grown more popular since its launch in 2013. And despite the recent increase in blockchains supporting NFTs, most NFT trade volume still resides on the Ethereum network.
Apart from NFTs, Ethereum plays host to a variety of other uses. It’s used as an investment platform, a transaction space for the sale of goods and services, a medium that allows users to decentralize finances and assets, and much more. But, if you’re just getting started with NFTs, it’s important to know that Ethereum is ultimately just one of many options.
So let’s take a closer look at the Ethereum blockchain. We’ll cover its history, how it functions and is upgraded, its pros and cons, and where it stands among its competitors. If you haven’t jumped into the NFT space yet and don’t want to read a bunch of white papers discussing the technical specifics of one Blockchain over another, don’t worry. We’ve done most of the hard work for you.
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Ethereum: A brief history and overview
Ethereum is an open-source, public blockchain and cryptocurrency platform proposed in late 2013 by Vitalik Buterin, a Russian-Canadian programmer. Buterin wanted to build a decentralized platform that could facilitate online contracts and track ownership of various assets.
To do that, Ethereum introduced the concept of smart contracts, programs stored on a blockchain that automatically execute once a series of predetermined conditions are met. Often, the execution of a smart contract is transaction-based. A user pays in ether (ETH) or a denomination of the currency, and the smart contract executes automatically. Smart contracts can store a wealth of information, including transaction history and ownership details.
While smart contracts are also created when using Bitcoin, Ethereum added a level of complexity and sophistication to the process that was unrivaled at the time. This added functionality — and the fact that it was one of the first blockchains to offer this advanced level of functionality — has helped propel the Ethereum platform to the unparalleled popularity that it enjoys today.
When it comes to initiating upgrades to the Ethereum network, there’s a formalized, multi-step process that users follow. The key to this process is the Ethereum Improvement Proposal (EIP). There are three main types of EIPs: Standards track, Meta, and Informational. No matter the kind of proposal, each is considered and debated by the broader Ethereum community, the core developer team, and others who have proven to have a deep knowledge of the Blockchain. This complex system of checks and balances can take months, potentially finally resulting in a testing phase on Ethereum’s ‘testnet.’ But the proposal isn’t officially a part of Ethereum until the dev team implements it into the client node software, where it can be enabled.
Since its inception, the platform has continued to change and evolve. In 2022, Ethereum transitioned to a proof-of-stake consensus system for processing transactions, reducing the power consumption of the network by 99 percent from the previous proof-of-work method.
Unlike Bitcoin (BTC) and other currencies, Ethereum doesn’t have a maximum supply to its cryptocurrency and instead seeks to curb inflation through Ethereum transaction fees and similar monetary policies. The summation of these technology tools has made Ethereum a popular blockchain platform for a wide variety of use cases, as users leverage the network to create NFTs, decentralized apps (dApps), decentralized finance (DeFI) networks, and more. For NFT users, Ethereum offers a solid application of blockchain technology with built-in scalability that can meet user demand as interest in NFTs and Web3 continues to grow.
Smart contracts and NFTs
The smart contracting protocols introduced by Ethereum are sophisticated concepts. Contracts are created using Solidity, a unique programming language designed to run on the Ethereum Virtual Machine (EVM), which acts as a kind of operating system and persistent storage for all Ethereum accounts and contracts. Without getting too far into the weeds on technical details, the complexity behind the smart contracting system is one of the main reasons that Ethereum remains one of the world’s most popular blockchains for NFTs. Why? Because, at its core, every non-fungible token is a smart contract.
It’s easy to think of NFTs as digital assets — like a painting, video clips, or gifs. However, NFTs are the blockchain token that enables the transaction. The token is associated with the asset you intend to purchase, but it’s not the asset itself. Additionally, physical assets can also be traded via NFTs using QR codes or similar tools (see our guide to NFTs if you’re looking for a deeper explanation of how all of this works).
Suffice it to say smart contracts bridge the gap between digital and physical assets and a blockchain network. The NFTs allow validator nodes (individuals who validate blockchain transactions) to track the transfer of a digital asset as it changes hands across the ecosystem. Using this method, validators can verify ownership and ensure that trades and transactions are authentic. All of this is done using smart contracts, and it’s what has made Ethereum a cornerstone of the digital asset — and NFT — revolution.
Thanks to its advanced functionalities and how early it was to market, most major NFT projects were initially launched on Ethereum. Digital wallets and similar transaction technologies were also created to be — first and foremost — compatible with Ethereum. There were simply no other leading competitors at the time that could offer the same level of functionality.
Ethereum and NFTs in 2023
Since those early days, several successors and competitors to Ethereum (Solana, Tezos, etc.) have joined the crypto universe. Like Ethereum, most of these blockchains also offer smart contracting technology as part of their platforms. While these newer blockchains lack the popularity and momentum that Ethereum has gained within the NFT space, they still have some benefits worth considering. Let’s take a closer look at the pros and cons of using Ethereum compared to other NFT-capable platforms.
Ethereum is still a significant player in the NFT space, and using this Blockchain comes with some notable benefits:
- Popularity. All other arguments aside, Ethereum is one of the most popular blockchains and the first to introduce the concept of smart contracts. The infrastructure for most digital assets was built for and remains compatible with Ethereum and Ethereum-related protocols.
- Selection. Due to Ethereum’s popularity and positioning in the market, the widest selection of NFTs are available on the Ethereum network.
- Stability. At this point, Ethereum has been around for nearly a decade. While it’s still growing and evolving, it’s one of the most well-established blockchains today.
- Mainstream. After Bitcoin, Ethereum is the most widely recognizable Blockchain. In no small part to the high cost of Bitcoin, Ethereum is also more popular due to its low barrier of entry and its lack of a supply-capped currency.
- Versatility. While we’ve primarily focused on how Ethereum relates to NFTs, it’s worth pointing out that the Blockchain is capable of far more than trades for digital assets. It’s home to many dapps, and its use cases range from implementation as a payment gateway to operating as a decentralized bank, gaming, and identity management.
- Sustainability. Since the switch to a proof-of-stake protocol, Ethereum has lowered its energy costs by 99 percent. If you’re looking for a way to minimize your carbon footprint while transacting, Ethereum and other PoS platforms like Solana and Tezos are great starting points.
While Ethereum brings quite a bit to the table in terms of popularity and functionality, it’s not a one-size-fits-all solution. Other blockchains exist, and many offer functionality similar to Ethereum without suffering from the inherent downsides of using such a well-established platform. Here are a few downsides to consider before jumping into the Ethereum network.
- Expensive. Because Ethereum has been around for a while, the price of ETH is higher than other blockchain currencies. For perspective, ETH regularly trades above $1.20, while Solana’s cryptocurrency (SOL) trades at around $0.25. Smaller transactions may also be processed with gwei, a denomination of ETH equal to roughly one billionth of one ETH.
- Volatile fees. One way that Ethereum controls inflation is by implementing flexible transaction fees. “Gas” is used to fuel Ethereum transactions, and gas prices fluctuate based on a supply and demand system between network validators.
- Larger market cap than competitors. A larger market cap isn’t necessarily bad, but a high cap often attracts more investors, leading to more transactions and higher market volatility. While Ethereum is a stable blockchain, ETH can still fluctuate wildly based on prevailing market forces.
- Less innovative. This is a common refrain with any sizeable organization. The larger the entity, the more difficult it becomes to innovate with it. Ethereum sees roughly one million transactions and produces roughly 7,000 new blocks each day. Any significant changes or upgrades must consider the entire ecosystem and can’t be executed on a whim.
- Long history. Ethereum has gone through several evolutions and upgrades during its lifespan. This includes hard forks, where transactions can be invalidated, changeovers in how blocks are mined (Ethereum vs. Ethereum Classic), and major debacles regarding how platform technologies are used.
Some of these problems stem from Ethereum’s history as a prominent innovator. Still, any piece of technology that exists in the marketplace long enough will probably encounter similar issues. Ethereum has been around long enough to become firmly entrenched. Users transacting on the Blockchain should be prepared to embrace those downsides.
Top NFT projects
In the last section, we pointed out that most major NFT projects have found a home on the Ethereum blockchain. Just like physical collectibles, these assets can be traded, gifted, or sold through the Blockchain without any middleman or third-party involvement. While the preference of some creators to use Ethereum evolves from its marketplace popularity and the use of smart contract technology it largely pioneered, there are other reasons to mint NFTs using Ethereum.
Many popular NFTs rely on algorithms to generate unique digital art. By leveraging Ethereum as a payment platform, it’s easy to automate the entire creation and minting process. NFT games and applications can also connect their in-game currencies to Ethereum client APIs, making it easy to optimize and track user transactions. Here’s a closer look at the top NFT projects on the Ethereum network.
Launch date: June 2017
Creator: Larva Labs
In brief: Launched in 2017, CryptoPunks are a collection of 10,000 unique, algorithmically generated pixel art images. Each Punk is one-of-a-kind, and many have become quite valuable as the project has grown in popularity and appreciated in value. Prices range from around $100,000 to well over $1 million. Learn more about CryptoPunks here.
Bored Ape Yacht Club (BAYC)
Launch date: April 2021
Creator: Yuga Labs
In brief: Another collection of 10,000 NFTs, Bored Ape Yacht Club was founded in 2021 and took the NFT world by storm. BAYC is more than an NFT. It’s also a membership card that grants access to the Yacht Club community. By owning one, you become a member of an exclusive club, along with all the features and perks. Since the initial offering has ended, a third-party sale is the only way to pick up this NFT. Current prices sit somewhere between $120,000 and well north of $1 million. Learn more about BAYC here.
Mutant Ape Yacht Club (MAYC)
Launch date: August 2021
Creator: Yuga Labs
In brief: An offshoot collection of Bored Ape Yacht Club, Mutant Apes enjoy much of the same popularity as their predecessors — but at a much lower price point. This NFT collection is 20,000 strong, with many sales floating around $70,000. Don’t be fooled, though; a cursory search will reveal transactions of $500,000 or more, so the collection is quite robust. Learn more about MAYC here.
Launch date: March 2018
Creator: Sky Mavis
In brief: Axie Infinity is an NFT-based play-to-earn (P2E) online game where players collect, breed, and mint creatures called Axies and pit them against each other in battle. Unlike other NFT games, Axie Infinity is a fully-fledged game world with an ever-evolving meta and economy. The game features strategic turn-based combat, team building, and trading systems. Players can also participate in seasonal tournaments to win prizes. It’s also one of the biggest P2E games out there, meaning that players can earn in-game assets (which can be sold for crypto and converted to cash) simply by playing the game. Learn more about Axie Infinity here.
Launch date: February 2020
Supply: 90,601 Lands
Creators: Ariel Meilich and Esteban Ordano
In brief: This NFT project acts as a virtual real estate platform where users can buy and sell parcels of land, then construct 3D scenes on them. The project seeks to connect these experiences in a single, unified metaverse. Items are bought and sold on the marketplace as NFTs, and those digital assets can be used inside the game to construct the desired experience. Learn more about Decentraland here.
Launch date: November 2020
Creator: Erick Calderon, AKA Snowfro.
In brief: Bringing generative art to the NFT space, Art Blocks aims to find the intersection between artists, collectors, and blockchain technology. The project works with “creative coders” to publish collections of algorithmically generated digital artwork. Because each coder/artist is different, each collection varies greatly in output and overall style. The mint and resale prices are usually relatively low, but some collections have become popular and greatly appreciated value. Some well-known Art Blocks collections include Chromie Squiggles, The Friendship Bracelet Project, Fidenza, and Eternal Pump. Learn more about Art Blocks here.
Getting started with Ethereum
Overall, Ethereum offers a tremendous amount of variety for every type of digital collector. If you’re just getting started, setting up to transact through Ethereum is a relatively straightforward process and one that will pay off in the long run if you become a serious collector.
Be sure to check out the following guides for next steps:
- NFTs Explained: A Must-Read Guide to Everything Non-Fungible
- NFTs for Beginners: A Guide to Crypto Exchanges
- NFT Dictionary: All the Terms and Definitions You Need to Know
- Everything You Need to Know About Crypto and NFT Wallets
- NFT Red Flags: How to Identify and Avoid NFT Scams
While other blockchains exist, and you should check them out, most of the major trading action still happens on the Ethereum network. It’s fair to say that, even if you start somewhere else, all roads eventually lead here.