Top 10 Questions Investors Are Asking About Ethereum

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The approval of spot Ethereum exchange-traded products (ETPs) by the U.S. Securities and Exchange Commission has sparked renewed interest in Ethereum, the second-largest cryptocurrency by market capitalization. As more investors seek to understand this foundational smart contract platform, Grayscale Research highlights key insights into Ethereum’s technology, ecosystem, and investment potential. Whether you're new to crypto or deepening your knowledge, here are the top 10 questions investors are asking — answered with clarity and depth.

What Sets Ethereum Apart from Bitcoin and Other Smart Contract Platforms?

Bitcoin was the first public blockchain, launched in 2009 as a decentralized digital currency and store of value — often compared to digital gold. Ethereum, introduced in 2015, expanded the blockchain concept by enabling smart contracts: self-executing code that powers decentralized applications (dApps).

👉 Discover how Ethereum's innovation is reshaping digital finance today.

While Bitcoin focuses on monetary use cases, Ethereum functions like a decentralized operating system — similar to an open-source version of the Apple App Store — where developers build everything from financial tools to games and identity systems. This fundamental difference places them in separate categories within the crypto ecosystem:

Ethereum leads its category across key metrics: market cap, total value locked (TVL), and fee revenue. It also supports higher transaction throughput and faster block times than Bitcoin, with comparable average user fees.

How Is Ethereum’s Supply Managed, and What Controls Its Issuance Rate?

Since transitioning to proof-of-stake (PoS) in 2022 via "The Merge," Ethereum's supply has remained largely stable. Unlike inflationary models, Ethereum’s post-Merge design aims for minimal net issuance — reinforcing its scarcity.

ETH issuance is influenced by two factors:

This dual mechanism creates a dynamic supply model:

When fee burn exceeds new issuance, Ethereum experiences net deflation, making it a potentially scarce digital asset over time — a feature increasingly attractive to long-term investors.

What Is “Gas” on Ethereum, and How Does It Create Value for Token Holders?

Every action on Ethereum — sending tokens, interacting with dApps, or deploying smart contracts — requires gas, paid in ETH. These fees constitute the network’s primary revenue stream.

Gas consists of:

This economic model benefits ETH holders in two ways:

  1. Supply reduction: Burning base fees decreases circulating supply.
  2. Security funding: Tips reward validators who secure the network.

As network usage grows, so does fee burn — creating a feedback loop where increased demand strengthens scarcity and value accrual for all ETH holders.

Why Do Developers Choose Ethereum? What Are the Largest dApps?

Ethereum dominates developer activity with over 4,700 active dApps and around 580 weekly contributors — the largest developer community among smart contract platforms. Key reasons include:

Top dApps built on Ethereum include:

These protocols rely on Ethereum as a secure settlement layer, ensuring censorship resistance and finality.

Is Ethereum a Modular Blockchain? What Does That Mean?

Yes — Ethereum embraces a modular blockchain architecture, dividing core functions into specialized layers:

This approach contrasts with monolithic chains like Solana, which bundle all functions into one layer. Ethereum’s modularity enables scalable innovation without compromising security.

For example, during periods of high congestion — such as May 2022, when average gas fees spiked to $194 — modular solutions help offload processing efficiently.

What Are Ethereum Layer 2s, and How Do They Connect to Mainnet?

Layer 2 (L2) networks are scaling solutions built atop Ethereum that process transactions off-chain and settle results back on the mainnet (Layer 1). This reduces costs while inheriting Ethereum’s security.

Common L2 types:

The recent Dencun upgrade (March 2024) slashed L2 data costs by introducing proto-danksharding, making transactions significantly cheaper. Today, L2s handle about two-thirds of Ethereum’s ecosystem activity, offering near-Solana pricing with Ethereum-grade security.

👉 See how Layer 2 innovations are unlocking mass adoption.

How Does Ethereum Achieve Consensus and Measure Network Security?

Post-Merge, Ethereum uses proof-of-stake (PoS) instead of energy-intensive proof-of-work. Validators must stake at least 32 ETH to propose or attest blocks — aligning economic incentives with honest behavior.

Network security is measured by:

This collective stake represents Ethereum’s “security budget” — one of the highest in crypto — making attacks economically impractical.

How Is ETH Ownership Distributed?

As of mid-2024:

Approximately 17% of supply is considered illiquid due to long dormancy or smart contract locks. Combined with staking and ETP holdings, nearly half of all ETH is in non-traditional circulation — highlighting strong long-term holder conviction.

How Much Capital Could Flow Into U.S. Ethereum ETPs?

Grayscale Research estimates that U.S. spot Ethereum ETPs could attract $3.5–4 billion in net inflows within their first four months — roughly 25–30% of Bitcoin ETP inflows during the same period.

Globally, Ethereum ETPs already manage assets at about 25–30% of Bitcoin ETP levels. While Ethereum’s market cap is ~33% of Bitcoin’s, investor appetite may reflect broader institutional adoption trends. Major financial players like BlackRock and Goldman Sachs are already building tokenized funds on Ethereum (e.g., BUIDL), signaling growing confidence.

What Are Ethereum’s Key Opportunities and Challenges Ahead?

Opportunities:

Challenges:

To maintain dominance, Ethereum must continue evolving — scaling sustainably, decentralizing L2s, and boosting fee generation through both L1 and L2 growth.

👉 Stay ahead with real-time insights into Ethereum’s evolving ecosystem.

Frequently Asked Questions

Q: Is Ethereum more than just a cryptocurrency?
A: Yes — ETH is both a digital asset and fuel for a global decentralized computing platform powering dApps, DeFi, NFTs, and more.

Q: Can ETH become deflationary?
A: Yes. When transaction fee burn exceeds new issuance from staking rewards, Ethereum experiences net deflation.

Q: Why is staking important for Ethereum?
A: Staking secures the network by requiring validators to lock up ETH. It also reduces liquid supply, increasing scarcity.

Q: Are Layer 2 networks safe?
A: Most inherit Ethereum’s security by regularly posting transaction data or proofs to mainnet, though some have short-term centralization trade-offs.

Q: How does Ethereum compare to other blockchains?
A: It leads in developer activity, TVL, and institutional adoption but faces competition on speed and cost — addressed via L2 scaling.

Q: Will Ethereum remain the leading smart contract platform?
A: Its strong foundation suggests continued leadership, but success depends on execution around scalability, decentralization, and innovation.

Keywords: Ethereum, ETH, smart contract platform, Layer 2, proof-of-stake, gas fees, total value locked (TVL), decentralized applications (dApps)