The Ethereum Story · Module 4 · 2017 to 2019 · 35 min
Ethereum made it easy for anyone to create a token, which fuelled a boom in 2017, many failed or fraudulent projects, and a network that sometimes struggled with its own popularity.
What you will learn
Explain the difference between a coin and a token.
Describe what an ICO was and why many ended badly.
Explain why congestion pushes fees up.
The lessons
Lesson 1: Tokens and ERC-20
Ethereum’s coin is ether, but the network can also hold tokens. A token is a digital item created by a smart contract, such as points in a game, a share in a project or a stablecoin that tries to stay at one US dollar.
In late 2015 a shared standard called ERC-20 was proposed, setting out the common rules a token should follow, so wallets and exchanges could support any token that followed them. That made creating a token quick and easy.
The difference is easy to remember. A coin, like ether, runs on its own blockchain. A token is built on top of someone else’s blockchain.
Remember: A coin has its own chain. A token lives on someone else’s.
Lesson 2: The ICO boom and bust
An ICO, or initial coin offering, is when a new project sells its own tokens to raise money. In 2017 hundreds of projects did this, often raising millions of dollars in a few hours.
Some were serious attempts to build something useful. Many had a polished website, big promises and no working product, and some were outright scams. Because anyone could create a token in minutes, there was no gatekeeper checking the claims.
Through 2018 many ICO tokens lost most of their value, and regulators in several countries began to pay close attention. The lesson is simple and still useful: promises are not products.
Remember: If a project promises guaranteed returns or pressures you to hurry, treat that as a warning, not an opportunity.
Lesson 3: CryptoKitties and congestion
In December 2017 a game called CryptoKitties let people collect and breed digital cats. It became so popular that it clogged the network, and fees and waiting times rose for everyone, not just the game’s players.
The cause is built into how Ethereum works. Only so much fits into each block, so when more people want space than there is room, they offer higher fees to be first in the queue.
Developers answered with a series of planned upgrades, including Byzantium in October 2017 and Constantinople in February 2019, but the real fix would take years. Congestion became one of the main problems the next chapters deal with.
Remember: When a network is popular, its fees go up. Making it faster and cheaper is called scaling.
Key dates
When
What happened
Why it matters
2017
The ICO boom, with hundreds of projects selling tokens
Easy fundraising brings both real projects and scams
October 2017
The Byzantium upgrade
Part of a series of planned improvements
December 2017
CryptoKitties causes heavy traffic
Shows how busy the network can get
2018
Many ICO tokens lose most of their value
A lesson in checking claims before trusting a project
February 2019
The Constantinople upgrade
Another planned step in the upgrade series
Key terms: token, ICO, ERC-20, congestion, scaling, regulator. Open the glossary
Module quiz
4 questions. Tap an answer to see if you are right and why.
1. What is the difference between a coin and a token?
Ether is a coin; ERC-20 tokens live on Ethereum.
2. What was an ICO?
Many were scams or had no working product.
3. What did CryptoKitties show?
Limited block space means popularity raises fees.
4. Which is a red flag for a new token offer?
Promises of guaranteed returns and urgency are warning signs.
Do it yourself
Build a red-flag checklist for any new token offer. Include promises of guaranteed returns, pressure to hurry, hidden teams and no working product. Keep it for the rest of the programme.
Not financial advice. This lesson is history and education only. Prices are rounded and shown only to explain how big the swings were.