Ethereum is a cryptocurrency network that was launched in 2015. Its native currency is known as Ether (ETH) and, much like Bitcoin, the network was launched with a Proof of Work consensus algorithm.
However, unlike Bitcoin, which simply secures BTC, Ethereum has the ability to host smart contracts, allowing for the development of decentralised applications. This innovation means anybody can issue their own tokens, leading to the emergence of decentralised finance, or DeFi, and non-fungible tokens (NFTs).
Recently, Ethereum's popularity as the home of decentralised finance has caused it to outgrow its processing capabilities, rending it too expensive for many users. High demand, coupled with a limited number of transactions per second, has led to network congestion meaning users must pay high gas fees to have their transactions processed.
This congestion has led to a rise in the use of other blockchains, as well as extra layers on top of Ethereum's base network. The ultimate goal is for the Ethereum mainnet to underlie a range of scaling solutions, offering guarantees of security and decentralisation to the layers built upon it.
On September 15th 2022, Ethereum upgraded from a Proof of Work consensus mechanism to Proof of Stake. The change, referred to as ‘The Merge’, saw sharp reductions in the rate at which new ETH is produced (-88%) and the overall energy consumption of the network (-99%).