The Ethereum Story · Module 5 · 2020 to 2021 · 35 min
In 2020 and 2021 Ethereum became the home of apps that lend, swap and collect without a bank, which also pushed fees to levels that priced many ordinary people out.
What you will learn
Explain DeFi and NFTs in plain language.
Describe what the Beacon Chain and the London upgrade changed.
Name the main risks of using apps on Ethereum.
The lessons
Lesson 1: DeFi, short for decentralised finance
DeFi means financial services such as lending, borrowing and swapping one asset for another, run by smart contracts instead of a bank or broker. Anyone with a wallet could use them, at any hour, from any country.
In the summer of 2020 DeFi grew very fast, a period often called DeFi summer. Large amounts of money moved into these apps, drawn by the chance to earn interest or fees.
The same features carried risks. Code can have bugs, hackers target large pools of money, prices can swing sharply, and there is no customer service desk that can reverse a mistake.
Remember: DeFi removes the middleman and also removes the safety net.
Lesson 2: The Beacon Chain and staking
On 1 December 2020 a separate chain called the Beacon Chain launched alongside the main one. It introduced staking, in which people lock up ether to help run the network and earn rewards for doing it honestly.
This was preparation. The Ethereum developers planned to switch the main network from proof of work, in which miners compete using electricity, to proof of stake, in which participants who have locked up ether take turns validating blocks.
The Beacon Chain ran quietly for almost two years, collecting stakers and testing the system, before the two chains were joined in 2022.
Remember: The Beacon Chain was the groundwork for the biggest change in Ethereum’s history.
Lesson 3: NFTs and the fee crunch
In 2021 NFTs, or non-fungible tokens, went mainstream. An NFT is a token that is one of a kind, and it was used for digital art, collectables and game items. Some sold for very large sums, and many later lost most of their value.
All this activity pushed fees very high. At busy times a simple transaction could cost far more than the value being moved, which priced out many ordinary people.
In August 2021 the London upgrade changed how fees work. Part of each fee is now burned, meaning permanently removed from the supply of ether. It did not make fees cheaper by itself, but it made them more predictable. Cheaper fees came later, from a different approach covered in the next module.
Remember: High fees were not a glitch. They were what happens when many people want the same limited space.
Key dates
When
What happened
Why it matters
Summer 2020
DeFi apps grow quickly, often called DeFi summer
A wave of new apps and new risks
1 December 2020
The Beacon Chain launches
The groundwork for proof of stake
2021
NFTs go mainstream and fees climb
Many ordinary users find Ethereum too costly to use
5 August 2021
The London upgrade changes how fees work
Part of each fee is now burned, meaning removed from supply
Key terms: DeFi, stablecoin, NFT, staking, burn, layer 1. Open the glossary
Module quiz
4 questions. Tap an answer to see if you are right and why.
1. What is DeFi?
Lending, borrowing and swapping without a middleman.
2. What was the Beacon Chain preparing for?
It laid the groundwork for the move from mining to staking.
3. What did the London upgrade (August 2021) change?
Part of each fee is permanently removed from supply.
4. Name a real risk of DeFi.
There is no safety net if a contract fails.
Do it yourself
Look up the word gwei and explain in one sentence what it measures. Then explain in one sentence why fees rise when many people use the network at once.
Not financial advice. This lesson is history and education only. Prices are rounded and shown only to explain how big the swings were.