Best financial stocks for beginners

These are some mature, easy-to-understand financial sector businesses that are smart choices for beginner investors:

• Berkshire Hathaway (BRK.A -0.75%) (BRK.B -0.51%) is not always thought of as a financial sector stock. However, it is an insurance company at heart, so it is technically a part of the sector. Led by legendary investor Warren Buffett, Berkshire is the parent company of GEICO as well as an enormous reinsurance operation. Investors in the company gain exposure to its massive stock portfolio, which also happens to own large stakes in financial heavyweights Bank of America (BAC 0.31%) and American Express (AXP -0.62%).

• JPMorgan Chase (JPM -0.55%) is the largest U.S. bank by assets, and has an excellent track record throughout a variety of economic environments. It's tough to make a case against JPMorgan Chase as an investment. The bank consistently posts some of the highest profitability metrics in the industry and has vast operations in both consumer and investment banking.

• Visa (V 0.94%) operates the world's largest payment network. Along with Mastercard (MA -0.15%), Visa has half of a near-duopoly over the payment processing industry. But don't make the mistake of thinking Visa doesn't have room to grow. The company currently processes about $14 trillion in annualized payment volume per year via more than 4 billion branded debit and credit cards.

As for financial sector exchange-traded funds (ETFs), the Vanguard Financials ETF (VFH -0.43%) may be an excellent choice. The fund gives investors exposure to the entire financial sector for a low 0.1% expense ratio (annual investment fee). The fund provides exposure to hundreds of financial sector stocks, weighted according to their market capitalizations, so more of the fund's assets are invested in the larger financial companies.

In addition to the three companies already mentioned, top holdings include Bank of America (BAC 0.31%), Citigroup (C -0.82%), BlackRock (BLK -0.61%), and Morgan Stanley (MS -0.22%).

Types of financial stocks

Several different types of companies make up the financial sector. Companies in the financial sector vary widely by function, size, growth potential, and other factors.

Financial stocks can be broken into several categories, including:

• Banks: As previously mentioned, bank stocks make up the bulk of the financial sector. These include commercial banks, such as Wells Fargo (WFC -0.64%), which provide deposit accounts and loans to individuals and businesses. It also includes investment banks, such as Goldman Sachs (GS -0.81%), which provide services to institutions and high-net-worth investors. Some banks, like JPMorgan Chase, serve both commercial and institutional clients.

• Insurance: The second-largest part of the financial sector is the insurance subsector, which includes property and casualty insurers, life and health insurers, specialty insurers, and insurance brokers. Berkshire Hathaway is the largest company in the insurance subsector. This also includes so-called "insurtech" companies, such as Lemonade (LMND -5.11%).

• Financial services: Some companies provide services related to investing and the public markets without being classified as banks or insurers. The ratings agency S&P Global (SPGI 0.34%) and the futures exchange CME Group (NYSE:CME) are two examples of financial service providers.

• Mortgage REITs: Companies that own mortgages and other financial real estate instruments, known as mortgage real estate investment trusts (mREITs), are another group in the financial sector.

• Fintech: Financial technology, or fintech companies, are those that leverage technology to create new solutions for the financial industry. Visa, PayPal Holdings (PYPL -5.07%), and Block (SQ -8.0%) (formerly known as Square) fit into this category.

• SPACs: A special purpose acquisition company, or SPAC, is a company with no business operations that exists to take another company public. Also known as "blank check" companies, SPACs are considered part of the financial sector.

Revenue

Revenue is a business’s gross income or the amount of money it brings in from regular operations before costs are considered.

Analyzing financial sector investments

Investors can evaluate financial industry investments by using both standard metrics, such as the price-to-earnings (P/E) ratio, and custom, sector-specific metrics. For the banking and insurance subsectors of the financial industry, there are some particularly important metrics for investors to consider.

These metrics are especially useful for analyzing bank stocks:

• Return on equity (ROE) and return on assets (ROA): Two of the most widely used metrics to express bank profitability, ROE and ROA are a company's annualized profits expressed as percentages of shareholders’ equity and total assets, respectively. A 10% ROE and a 1% ROA are often considered to be the industry benchmarks.

• Net interest margin (NIM): Most banks earn the majority of their profits by simply loaning money and charging interest to customers. The difference between the average interest rate a bank receives and the average rate it pays plus certain expenses is known as its net interest margin.

• Efficiency ratio: A bank's efficiency ratio measures how much money the bank spends to generate revenue. For example, a 60% efficiency ratio means that a bank spends $60 to generate every $100 in revenue. Lower efficiency ratios are better.

• Net charge-off (NCO) ratio: Calculating this ratio can be useful for comparing asset quality among different institutions. The NCO ratio indicates the annualized percentage of a bank's loans that it ends up writing off as bad debt.

• Price-to-book (P/B) ratio: When valuing bank stocks, the price-to-book ratio can be just as useful as the P/E ratio. The P/B ratio is a company's stock price divided by its net asset value. The price-to-tangible-book-value (P/TBV) ratio may be even more useful than the P/B ratio because it excludes assets tough to value, such as brand names and goodwill.

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Two important metrics for analyzing insurance stocks

• Combined ratio: To compute this ratio, first add (combine) the amount of money an insurance company pays out in claims to the amount of money the company spends on other business expenses. Divide that amount by the amount the insurance company collects as premium income. If an insurer is a profitable underwriter, the result should be less than 100%. A lower combined ratio indicates the insurer is generating greater profit.

• Investment margin: Insurers aim to profit from underwriting policies. They also can make money by investing the premiums they collect until they use the money to pay any insurance claims. How profitably an insurer invests -- its investment margin -- is important since investment income is often the primary source of profits for an insurance company. Most insurance companies invest in rather safe fixed-income instruments like Treasuries and corporate bonds.

• Scammers steal money by advertising fake investments or romancing victims.

• Scammers reach out via Instagram DMs and other social media accounts.

• Buy Bitcoin safely by only purchasing coins via exchanges.

Thought crypto bros were bad? Think again.

Bitcoin has been a phenomenal investment for many. It has appreciated 2,500% since 2013, going from $99.99 to about $25,000 per coin. But crypto is confusing, and scammers like to take advantage of folks unsure how to invest in Bitcoin.

Scammers have stolen over $1 billion of crypto (mainly Bitcoin) between 2021 and 2022, according to a report by the U.S. Federal Trade Commission (FTC). Not even romance is safe from scammers -- romance scams are one of the most common crypto frauds out there.

Most common crypto scams

Crypto lacks regulation. People aren't sure who to trust. The 2022 FTC report lists the biggest crypto scams traders should watch out for:

• Investment-related fraud

• Romance scams

• Business imposters

More than $500 million of scam action boils down to fake investments. Fraudsters contact crypto-curious Americans, claiming they can earn huge investment returns. And why not? After all, people have made millions by investing in coins as ridiculous-sounding as Dogecoin, haven't they? (Fun fact: Dogecoin is up over 1,000% since inception.)

Scams can be persuasive. I would know -- I almost fell for one.

Here's what it's like to be conned

A fraudster impersonating one of my favorite YouTube accounts claimed they were giving out "free crypto" as an experiment. I had to send them some Bitcoin to confirm I was real (in hindsight, a huge red flag). I was literally typing "how to transfer Bitcoin" into Google when it occurred to me that, hey -- this could be a scam!

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I'm a digital native. Over half my life is spent online. I've seen scams -- they've sucked cash from older family members less digitally savvy than me. They were clumsy, and in hindsight, they seemed glaringly obvious. I invest in cybersecurity software and do my due diligence.

Despite all that, I nearly fell for a spam account that probably took five minutes to set up. Yeesh. Talk about humbling. According to the FTC report, the average victim loses $2,600 worth of crypto. I almost lost about half that -- enough money to kick-start a solid emergency fund.

As I scrolled through that scammer's account, rage building at my way-too-close call, it occurred to me: If someone like me can fall for a low-budget crypto scam, anyone can.

How to spot crypto scams

Scammers are like clingy exes -- they linger within the DMs of your favorite social feeds. According to the FDIC report, 40% of scammers contacted victims over social media (mainly Instagram). These hucksters play by the same tactics that make them easier to spot.

Three rules of thumb:

• If someone guarantees you profits on your investment, they are scamming you.

• If someone asks you to buy crypto, they are scamming you.

• If a digital date asks you to move crypto anywhere for any reason, it's a scam.

Sorting through the nonsense is enough to make the average investor want to pack up their bags and wait out this whole "crypto thing," potentially missing out on diversified returns. But it's possible to outsmart the scammers and buy your Bitcoin safely.

Stick to crypto exchanges

Scammers can put a lot of effort into squeezing you for your money. They'll take advantage of your confusion around crypto and digital wallets. Worst of all, they'll break your heart as they rip you off. (Cue the sad violin music.)

How to avoid being scammed?

The easiest solution is to stick with an exchange for everything crypto. Avoid wallet-to-wallet transfers with internet strangers. Buy and sell currency directly through reputable exchanges. Stick to well-researched currencies like Bitcoin or Ethereum to avoid rug pulls, a type of crypto scam that ends in collapsing crypto prices.

Crypto exchanges will never ask for money, and they certainly won't guarantee you sky-high returns. (Not without getting the side-eye from U.S. regulators, that is.) Nor will they attempt to solicit nudes they can use to blackmail you for coins (the FTC report gets awfully specific).

The best cryptocurrency exchanges offer how-tos on investing in your favorite crypto and the information you need to determine whether an investment is right for you. Spoiler: No crypto is 100% guaranteed to return a profit. Not even Bitcoin.

Don't want to deal with scams? Stick to crypto exchanges, like the best places to buy Bitcoin safely. It's easy and one of the safest ways for regular folks to diversify their investments. Or avoid crypto entirely -- no matter their decisions, investors have options.

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The first peer-reviewed paper on cryptocasinos was only published in October 2020. The gambling games discussed were laughably simple, such as bets on virtual coin flips or dice rolls. Such activities that might appeal to bored friends on a long journey must have seemed benign compared to the world of in-play sports betting and online slots available using conventional currencies.

But fast-forward a year and cryptocasinos had evolved substantially. In April 2021, Premier League football team Southampton signed a £7.5 million a year sponsorship deal with sportsbet.io, which specialises in allowing gamblers to make sports bets during matches with cryptocurrencies.

Shortly afterwards, the rapper Drake announced a partnership with Stake.com, another major cryptocasino, which would see him livestreaming six-figure wagers across sports and online casino games. Stake.com then became Everton FC’s new shirt sponsor in June 2022, causing a significant backlash among football fans and gambling harm advocates.

However, most of this opposition focused on the rise of gambling shirt sponsors in football, which will be addressed by the Premier League’s recent announcement banning them from the 2026–27 season onwards. Yet it’s not enough to just think of cryptocasinos in the same way as any other online gambling operator; they pose unique risks that have mostly gone unnoticed.

The risks

First, cryptocurrencies carry inherent risks. Becoming a crypto millionaire is now a common get-rich-quick dream, but some people get so obsessed with the high-stakes trading that they end up seeking treatment, just like with gambling addiction. It is also easy for crypto assets to disappear, such as via the collapse of the crypto exchange FTX in November 2022.

It may be that people are more willing to gamble with crypto than with more tangible forms of money. This would be analagous to the fact that digital deposits at online casinos are thought to encourage gambling more than casino chips.

In addition, cryptocasinos tend to be lightly regulated. They often obtain licences from the Caribbean island of Curaçao, which has a more lax approach than, for example, Great Britain’s Gambling Commission. Platforms operating within Great Britain still have to abide by Gambling Commission rules, but there are workarounds.

For instance, the Gambling Commission does not allow platforms to accept crypto deposits. As a result, cryptocasinos like Stake.com redirect mainland British visitors to a “white label” version of the site that only allows deposits in conventional currencies.

But UK users can easily reach the crypto version of Stake.com (licensed in Curaçao) by using a virtual private network (VPN) to make it appear that they are from a different country, as demonstrated by investigative reporters. Stake.com responded that all operators in the sector experienced users trying to bypass such restrictions using VPNs, and pointed to an example of one user that it had shut down.

We also contributed to research that found that 22 frequently visited cryptocasinos did not even require a VPN for British users to evade such site restrictions. These sites were also part of a wider group of 37 cryptocasinos (out of 40 surveyed) that didn’t require proof of ID before allowing crypto deposits.

Meanwhile, cryptocasinos are often accessible from countries such as China where online gambling is illegal. The fundamental anonymity of cryptocurrencies makes it harder for law enforcement to intervene in these situations.

The lax regulation in this area is also apparent when you look at the safer gambling messaging. The messaging used by conventional online gambling operators is bad enough – many introduced a very weak “take time to think” message a couple of years ago, for example. But the cryptocasinos are worse, using wholly inappropriate messages emphasising potentially huge winnings. For instance, BetBigDollar.com tells its customers:

Yes, there is a chance of winning vast amounts of money, but, if not treated as entertainment only and nothing more, irresponsible gaming can have dire consequences for the player.

What would help

Cryptocasinos demonstrate how online gambling will continue to evolve rapidly. The British regulatory approach is much too slow, insisting on evidence that researchers simply don’t have the tools to deliver. The new proposals give the following rationale for not recommending any substantive new restrictions on gambling marketing:

The limited high-quality evidence we received shows a link between exposure to advertising and gambling participation, but there was little evidence of a causal link with gambling harms or the development of gambling disorder.

A government that makes policies based on only what is known for certain, and which takes two years to react to evidence, is doomed to repeat the policy failures of the 2000s. Gambling was liberalised at that time, but few realised that smartphones would soon give people access to a casino in their pocket.

The truth is that cryptocasinos are too new, and their future evolution too uncertain, to know for sure how policymakers should respond. Cryptocasinos may ultimately require too great a degree of technical knowledge to become a widespread public health concern. But some danger signals are there.

For example, Gamstop is a service that UK-based gamblers can use to self-exclude from online gambling. Some self-excluded gamblers have posted on social media that cryptocasinos have allowed them to evade Gamstop and continue gambling again, with terrible consequences.

For now, some broad principles could be used. The trick is not to make decisions based solely on the information available, but to anticipate how things may evolve. New gambling operators are going to use all available tools to gain gamblers’ attention and increase their perceived legitimacy. That will always include marketing, not just on Premier League shirts, but via influencers and social media, so it would make sense to restrict this avenue.

The Gambling Commission’s approach to giving cryptocasinos access to UK markets via white labelling should also be reconsidered. Without question, it is much easier to use cryptocurrencies to gamble than it should be.

Overview

MetaMask allows users to store and manage account keys, broadcast transactions, send and receive Ethereum-based cryptocurrencies and tokens, and securely connect to decentralized applications through a compatible web browser or the mobile app's built-in browser.[5][6]

Websites or other decentralized applications are able to connect, authenticate, and/or integrate other smart contract functionality with a user's MetaMask wallet (and any other similar blockchain wallet browser extensions) via JavaScript code that allows the website to send action prompts, signature requests, or transaction requests to the user through MetaMask as an intermediary.[citation needed]

The application includes an integrated service for exchanging Ethereum tokens by aggregating several decentralized exchanges (DEXs) to find the best exchange rate. This feature, branded as MetaMask Swaps, charges a service fee of 0.875% of the transaction amount.[7]

As of November 2021, MetaMask's browser extension had over 21 million monthly active users, according to Bloomberg.[8]

History

MetaMask was created by ConsenSys in 2016.[3]

Prior to 2019, MetaMask had only been available as a desktop browser extension for Google Chrome and Firefox browsers. Given the popularity of MetaMask among cryptocurrency users, and its lack of an official mobile app for several years, instances of malicious software posing as MetaMask became problematic for Google in regulating its Chrome Web Store and Google Play platforms.[9][10][11] In one instance, Google Play unintentionally removed MetaMask's official beta app before reverting the decision a week later on January 1, 2020.

Starting in 2019, MetaMask began releasing mobile app versions for closed beta testing, followed by their official public release for iOS and Android in September 2020.

During October 2020, MetaMask Swaps, a built-in DEX aggregation service was added to the desktop extension. The product became available on mobile devices in March 2021.

Criticism

While MetaMask and other "Web3" focused applications aim to decentralize control over personal data and increase user privacy, critics have pointed to the potential for MetaMask's browser extension to leak identifiable information to data collection networks and web trackers as a fundamental flaw.

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Contract source code

Ethereum's smart contracts are written in high-level programming languages and then compiled down to EVM bytecode and deployed to the Ethereum blockchain. They can be written in Solidity (a language library with similarities to C and JavaScript), Serpent (similar to Python, but deprecated), Yul (an intermediate language that can compile to various different backends—EVM 1.0, EVM 1.5, and eWASM are planned), LLL (a low-level Lisp-like language), and Mutan (Go-based, but deprecated). There was also[when?] a research-oriented language under development called Vyper (a strongly-typed Python-derived decidable language).[citation needed] Source code and compiler information are usually published along with the launch of the contract so that users can see the code and verify that it compiles to the bytecode that is on-chain.[citation needed]

One issue related to using smart contracts on a public blockchain is that bugs, including security holes, are visible to all but cannot be fixed quickly.[57] One example of this is the 2016 attack on The DAO, which could not be quickly stopped or reversed.[34]

ERC-20 tokens

The ERC-20 (Ethereum Request-for-Comments #20) Token Standard allows for fungible tokens on the Ethereum blockchain. The standard, proposed by Fabian Vogelsteller in November 2015, implements an API for tokens within smart contracts. The standard provides functions that include the transfer of tokens from one account to another, getting the current token balance of an account, and getting the total supply of the token available on the network. Smart contracts that correctly implement ERC-20 processes are called ERC-20 Token Contracts, and they keep track of created tokens on Ethereum. Numerous cryptocurrencies have launched as ERC-20 tokens and have been distributed through initial coin offerings.[58]

Main article: Non-fungible token

Ethereum also allows for the creation of unique and indivisible tokens, called non-fungible tokens (NFTs).[59] Since tokens of this type are unique, they have been used to represent such things as collectibles, digital art, sports memorabilia, virtual real estate, and items within games.[60] The first NFT project, Etheria, a 3D map of tradable and customizable hexagonal tiles, was deployed to the network in October 2015 and demonstrated live at DEVCON1 in November of that year.[61] In 2021, Christie's sold a digital image with an NFT by Beeple for US$69.3 million, making him the third-most-valuable living artist in terms of auction prices at the time, although observers have noted that both the buyer and seller had a vested interest in driving demand for the artist's work.

Decentralized finance

Decentralized finance (DeFi) offers traditional financial instruments in a decentralized architecture, outside of companies' and governments' control, such as money market funds which let users earn interest.[64] DeFi applications are typically accessed through a Web3-enabled browser extension or application, such as MetaMask, which allows users to directly interact with the Ethereum blockchain through a website.[65] Many of these DApps can connect and work together to create complex financial services.[66]

Examples of DeFi platforms include MakerDAO and Compound.[67] Uniswap, a decentralized exchange for tokens on Ethereum grew from US$20 million in liquidity to US$2.9 billion in 2020.[68] As of October 2020, over US$11 billion was invested in various DeFi protocols.[69] Additionally, through a process called "wrapping", certain DeFi protocols allow synthetic versions of various assets (such as bitcoin, gold, and oil) to be tradeable on Ethereum and also compatible with all of Ethereum's major wallets and applications.[69]

Enterprise software

Ethereum-based software and networks, independent from the public Ethereum chain, are being tested by enterprise software companies.[70] Interested parties include Microsoft, IBM, JPMorgan Chase,[51] Deloitte, R3, and Innovate UK (cross-border payments prototype).[71] Barclays, UBS, Credit Suisse, Amazon, Visa, and other companies are also experimenting with Ethereum.[72][73]

Permissioned ledgers

Ethereum-based permissioned blockchain variants are used and being investigated for various projects:

• In 2017, JPMorgan Chase proposed developing JPM Coin on a permissioned-variant of Ethereum blockchain dubbed "Quorum".[74] It is "designed to toe the line between private and public in the realm of shuffling derivatives and payments. The idea is to satisfy regulators who need seamless access to financial goings-on while protecting the privacy of parties that don't wish to reveal their identities nor the details of their transactions to the general public."[75]

Performance

The downside is that performance issues arise because every node calculates all the smart contracts in real-time. As of January 2016, the Ethereum protocol could process about 25 transactions per second; this did not change after the proof-of-stake implementation. In comparison, the Visa payment platform processes 45,000 payments per second. This has led some to question the scalability of Ethereum.[76]

Ethereum engineers have been working on sharding the calculations, and the next step (Ethereum 2) was presented at Ethereum's Devcon 3 in November 2017.[77]

Ethereum's blockchain uses Merkle trees for security reasons, to improve scalability, and to optimize transaction hashing.[78] As with any Merkle tree implementation, this allows for storage savings, set membership proofs (called "Merkle proofs"), and light client synchronization. The network has faced congestion problems, such as in 2017 in relation to CryptoKitties

Ether (ETH) is the cryptocurrency generated in accordance with the Ethereum protocol as a reward to validators in a proof-of-stake system for adding blocks to the blockchain. Ether is represented in the state as an unsigned integer associated with each account, this being the account's ETH balance denominated in wei (1018 wei = 1 ether).[50] At the end of each epoch, new ETH is generated by the addition of protocol-specified amounts to the balances of all validators for that epoch, with the block proposers receiving the largest portion. Additionally, ether is the only currency accepted by the protocol as payment for the transaction fee. The transaction fee is composed of two parts: the base fee and the tip. The base fee is "burned" (deleted from existence) and the tip goes to the block proposer. The validator reward together with the tips provide the incentive to validators to keep the blockchain growing (i.e. to keep processing new transactions). Therefore, ETH is fundamental to the operation of the network. Ether may be "sent" from one account to another via a transaction, which simply entails subtracting the amount to be sent from the sender's balance and adding the same amount to the recipient's balance.[51]

Ether is often erroneously referred to as "Ethereum".[52]

Accounts

There are two types of accounts on Ethereum: user accounts (also known as externally-owned accounts) and contracts. Both types have an ETH balance, may send ETH to any account, may call any public function of a contract or create a new contract, and are identified on the blockchain and in the state by an account address.[53]

Contracts are the only type of account that has associated code (a set of functions and variable declarations) and contract storage (the values of the variables at any given time). A contract function may take arguments and may have return values. In addition to control flow statements, the body of a function may include instructions to send ETH, read from and write to the contract's storage, create temporary storage (memory) that vanishes at the end of the function, perform arithmetic and hashing operations, call the contract's own functions or public functions of other contracts, create new contracts, and query information about the current transaction or the blockchain.[54]

Addresses

Ethereum addresses are composed of the prefix "0x" (a common identifier for hexadecimal) concatenated with the rightmost 20 bytes of the Keccak-256 hash of the ECDSA public key (the curve used is the so-called secp256k1). In hexadecimal, two digits represent a byte, and so addresses contain 40 hexadecimal digits, e.g. 0xb794f5ea0ba39494ce839613fffba74279579268. Contract addresses are in the same format, however, they are determined by sender and creation transaction nonce.

Virtual machine

The number of daily confirmed Ethereum transactions as of April 2021

The Ethereum Virtual Machine (EVM) is the runtime environment for transaction execution in Ethereum. It includes, among other things, a stack, memory, gas balance, program counter, and the state (including contract code). The EVM is stack-based, in that most instructions pop operands from the stack and push the result to the stack. The EVM is designed to be deterministic on a wide variety of hardware and operating systems, so that given a pre-transaction state and a transaction, each node produces the same post-transaction state, thereby enabling network consensus. The formal definition of the EVM is specified in the Ethereum Yellow Paper.[25][55] EVMs have been implemented in C++, C#, Go, Haskell, Java, JavaScript, Python, Ruby, Rust, Elixir, Erlang, and soon[when?] WebAssembly.[citation needed]

Gas

Gas is a unit of account within the EVM used in the calculation of the transaction fee, which is the amount of ETH a transaction's sender must pay to the network to have the transaction included in the blockchain. Each type of operation which may be performed by the EVM is hardcoded with a certain gas cost, which is intended to be roughly proportional to the monetary value of the resources (e.g. computation and storage) a node must expend or dedicate to perform that operation.[citation needed]

When a sender is creating a transaction, the sender must specify a gas limit and gas price. The gas limit is the maximum amount of gas the sender is willing to use in the transaction, and the gas price is the amount of ETH the sender wishes to pay to the network per unit of gas used. A transaction may only be included in the blockchain at a block slot that has a base gas price less than or equal to the transaction's gas price. The portion of the gas price that is in excess of the base gas price is known as the tip and goes to the block proposer; the higher the tip, the more incentive a block proposer has to include the transaction in their block, and thus the quicker the transaction will be included in the blockchain. The sender buys the full amount of gas (i.e. their ETH balance is debited the amount: gas limit × gas price) up-front, at the start of the execution of the transaction, and is refunded at the end for any unused gas. If at any point the transaction does not have enough gas to perform the next operation, the transaction is reverted but the sender is still only refunded for the unused gas. In user interfaces, gas prices are typically denominated in gigawei (gwei), a subunit of ETH equal to 10−9 ETH.

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Since the initial launch, Ethereum has undergone a number of planned protocol upgrades, which are important changes affecting the underlying functionality and/or incentive structures of the platform.[31][32] Protocol upgrades are accomplished by means of a hard fork.[citation needed]

In 2016, a decentralized autonomous organization called The DAO—a set of smart contracts developed on the platform—raised a record US$150 million in a crowd sale to fund the project.[33] The DAO was exploited in June 2016 when US$50 million of DAO tokens were stolen by an unknown hacker.[34][35] The event sparked a debate in the crypto-community about whether Ethereum should perform a contentious "hard fork" to reappropriate the affected funds.[36] The fork resulted in the network splitting into two blockchains: Ethereum with the theft reversed, and Ethereum Classic which continued on the original chain.

Continued development and milestones (2017–present)

In March 2017, various blockchain startups, research groups, and Fortune 500 companies announced the creation of the Enterprise Ethereum Alliance (EEA) with 30 founding members.[38] By May 2017, the nonprofit organization had 116 enterprise members, including ConsenSys, CME Group, Cornell University's research group, Toyota Research Institute, Samsung SDS, Microsoft, Intel, J. P. Morgan, Cooley LLP, Merck KGaA, DTCC, Deloitte, Accenture, Banco Santander, BNY Mellon, ING, and National Bank of Canada.[39][40] By July 2017, there were over 150 members in the alliance, including MasterCard, Cisco Systems, Sberbank, and Scotiabank.[41]

By January 2018, ether was the second-largest cryptocurrency in terms of market capitalization, behind bitcoin.[42] As of 2021, it maintained that relative position.[3][4]

In 2019, Ethereum Foundation employee Virgil Griffith was arrested by the US government for presenting at a blockchain conference in North Korea.[43] He would later plead guilty to one count of conspiring to violate the International Emergency Economic Powers Act in 2021.[44]

In March 2021, Visa Inc. announced that it began settling stablecoin transactions using Ethereum.[45] In April 2021, JP Morgan Chase, UBS, and MasterCard announced that they were investing US$65 million into ConsenSys, a software development firm that builds Ethereum-related infrastructure.[46]

There were two network upgrades in 2021. The first was "Berlin", implemented on 14 April 2021.[27] The second was "London", which took effect on 5 August.[28] The London upgrade included Ethereum Improvement Proposal ("EIP") 1559, a mechanism for reducing transaction fee volatility. The mechanism causes a portion of the ether paid in transaction fees for each block to be destroyed rather than given to the block proposer, reducing the inflation rate of ether and potentially resulting in periods of deflation.[47]

On 27 August 2021, the blockchain experienced a brief fork that was the result of clients running different incompatible software versions.

Ethereum 2.0

Ethereum 2.0 (Eth2) was a set of three or more upgrades, also known as "phases", meant to transition the network's consensus mechanism to proof-of-stake, and to scale the network's transaction throughput with execution sharding and an improved EVM architecture.[49]

The switch from proof-of-work to proof-of-stake has cut Ethereum's energy usage by 99%. However, the impact this has on global energy consumption and climate change may be limited since the computers previously used for mining ether may be used to mine other cryptocurrencies that are energy-intensive.

https://opensea.io/assets/0xaDEE09a610FEC97C7425B02129D0ad612c56e08C/0

Ethereum was conceived in 2013 by programmer Vitalik Buterin.[5] Additional founders of Ethereum included Gavin Wood, Charles Hoskinson, Anthony Di Iorio and Joseph Lubin.[6] In 2014, development work began and was crowdfunded, and the network went live on 30 July 2015.[7] Ethereum allows anyone to deploy permanent and immutable decentralized applications onto it, with which users can interact.[8] Decentralized finance (DeFi) applications provide financial instruments which do not directly rely on financial intermediaries like brokerages, exchanges, or banks. This facilitates borrowing against cryptocurrency holdings or lending them out for interest.[9][10] Ethereum also allows users to create and exchange non-fungible tokens (NFTs), which are tokens that can be tied to unique digital assets, such as images. Additionally, many other cryptocurrencies utilize the ERC-20 token standard on top of the Ethereum blockchain and have utilized the platform for initial coin offerings.

On 15 September 2022, Ethereum transitioned its consensus mechanism from proof-of-work (PoW) to proof-of-stake (PoS) in an upgrade process known as "the Merge". This has cut Ethereum's energy usage by 99%.

History

Founding (2013–2014)

Ethereum was initially described in late 2013 in a white paper by Vitalik Buterin,[5][12] a programmer and co-founder of Bitcoin Magazine, that described a way to build decentralized applications.[13][14] Buterin argued to the Bitcoin Core developers that Bitcoin and blockchain technology could benefit from other applications besides money and that it needed a more robust language for application development[15]: 88  that could lead to attaching[clarification needed] real-world assets, such as stocks and property, to the blockchain.[16] In 2013, Buterin briefly worked with eToro CEO Yoni Assia on the Colored Coins project and drafted its white paper outlining additional use cases for blockchain technology.[17] However, after failing to gain agreement on how the project should proceed, he proposed the development of a new platform with a more robust scripting language—a Turing-complete programming language[18]—that would eventually become Ethereum.[15]

Ethereum was announced at the North American Bitcoin Conference in Miami, in January 2014.[19] During the conference, Gavin Wood, Charles Hoskinson, and Anthony Di Iorio (who financed the project) rented a house in Miami with Buterin at which they could develop a fuller sense of what Ethereum might become.[19] Di Iorio invited friend Joseph Lubin, who invited reporter Morgen Peck, to bear witness.[19] Peck subsequently wrote about the experience in Wired.[20] Six months later the founders met again in Zug, Switzerland, where Buterin told the founders that the project would proceed as a non-profit. Hoskinson left the project at that time and soon after founded IOHK, a blockchain company responsible for Cardano.[19]

Ethereum has an unusually long list of founders.[21] Anthony Di Iorio wrote: "Ethereum was founded by Vitalik Buterin, Myself, Charles Hoskinson, Mihai Alisie & Amir Chetrit (the initial 5) in December 2013. Joseph Lubin, Gavin Wood, & Jeffrey Wilcke were added in early 2014 as founders." Buterin chose the name Ethereum after browsing a list of elements from science fiction on Wikipedia. He stated, "I immediately realized that I liked it better than all of the other alternatives that I had seen; I suppose it was the fact that [it] sounded nice and it had the word 'ether', referring to the hypothetical invisible medium that permeates the universe and allows light to travel."[19] Buterin wanted his platform to be the underlying and imperceptible medium for the applications running on top of it.[22]

Formal development of the software underlying Ethereum began in early 2014 through a Swiss company, Ethereum Switzerland GmbH (EthSuisse).[23] The idea of putting executable smart contracts in the blockchain needed to be specified before it could be implemented in software. This work was done by Gavin Wood, then the chief technology officer, in the Ethereum Yellow Paper that specified the Ethereum Virtual Machine.[24][25] Subsequently, a Swiss non-profit foundation, the Ethereum Foundation (Stiftung Ethereum), was founded. Development was funded by an online public crowd sale from July to August 2014, in which participants bought the Ethereum value token (ether) with another digital currency, bitcoin. While there was early praise for the technical innovations of Ethereum, questions were also raised about its security and scalability.