Popularly dubbed as “digital silver”, Ethereum is (currently) the second most valuable cryptocurrency out there. As such, people have started flocking to it as an alternative to Bitcoin, the former being a relatively cheaper substitute with an ether coin value of $1,065 (at the time of writing). That’s an equivalent of 0.0921 BTC to ETH.
But anyone who goes into the market thinking that Ethereum’s just like Bitcoin with a different name will find themselves facing a completely different beast. To start with, Ethereum’s not entirely a cryptocurrency.
What is Ethereum?
Let’s start off with the similarity first. Both Bitcoin and Ethereum have a cryptocurrency. Bitcoin has its titular currency, the shorthand for which in the market is “BTC.” On the other hand, Ethereum’s currency is the ether and it’s shown in the market as “ETH.” Both Bitcoin and Ethereum use blockchain technology.
But Ethereum goes a little further than that. Rather than using the blockchain to store and record transactions using their currency, it aims to create a “world computer” of sorts. Rather than decentralise banking, it aims to decentralise the Internet’s storage.
To further expound on this idea, imagine that you’re running a website. A few examples of the third-party servers involved in maintaining a proper website are the web host (like HostGator or GoDaddy) and the image host (such as Photobucket or Imgur). When your host changes conditions or shuts down – such as when they require users to update so their images would show up on third-party websites – you’re inevitably affected too.
What Ethereum aims to do is disrupt this client-server model. Instead of losing your data on the whims of an entity, you gain full control of it.
It plans to do this by storing your programs in every node or computer connected to the blockchain network. The glory is that only the user can make changes to it later. This, then, becomes the world computer, otherwise known as the “Ethereum Virtual Machine.”
History of Ethereum
If you follow Ethereum price predictions and certain op-eds, you’ve likely heard the speculation that it’s set to overtake Bitcoin soon. In 2018, to be exact. But before delving into its future, let’s take a quick stroll down its past.
The idea behind Ethereum has been bubbling since 2013. Vitalik Buterin described his ideas for the project in a white paper and generally planned to develop a completely new platform, separate from Bitcoin, that is open-source.
This initial presentation of the idea occurred in late 2013. By January the next year, Buterin had managed to assemble a team of four. This consisted of himself, Anthony Di Iori, Mihai Alisie, and Charles Hoskinson.
The ether, its primary currency, was introduced later during a crowdsale that ran from July to August. The crowdsale’s participants were given the option to buy ether in exchange for bitcoin. This sale raised more than $14 million.
In 2015, Ethereum released a couple of initial versions, including a beta prototype called “Olympic”, and “Frontier”, which was their first official release. The Ethereum Foundation, a Swiss non-profit, is in charge of the program’s development. It wasn’t until later in March 2016 that they developed a stable version in “Homestead.”
The development of Ethereum hasn’t been completely smooth. Since 2014, there have been doubts regarding its security and scalability. Concerns weren’t alleviated when, in 2016, there was an exploit in the code that let anonymous users siphon $50 million worth of ether out of the DAO. Afterwards, Ethereum splintered off into two separate entities.
Ethereum, as we know it today, has successfully managed to increase its protection to avoid further attacks from hackers.
Additionally, it has since enjoyed surges in the market due to notable press coverage and, curiously, an endorsement from Russia in June of 2017.
What is Ether?
As previously described, ether is like Ethereum’s currency. However, it functions a little differently from bitcoins.
To start with, the official website portrays ether as a token needed to run an arcade game. Ether has so far been used to fuel the Ethereum network. You use it to pay for the computation of a program, such as when you want to make a change to the data you released to the nodes. Certain computational actions require some amount of power to execute, and that’s where ether comes in. It pays for the power necessary. In this way, Ethereum’s other nickname as “digital oil” is apter than “silver.”
Additionally, there’s currently no known cap for available ether. Bitcoin has a strict maximum of 21 million coins available. In comparison, there’s approximately 90 million ether in circulation. These are divided into:
- 60 million purchased from the crowdsale in 2014
- 12 million allotted for the aforementioned Ethereum Foundation responsible for its development
- Approximately 18 million mined per year determined by a rough estimate that five ether is mined every 12 seconds
Ethereum is still under development. Currently, the yearly limit of issued ether is at 18 million. But it’s expected that this number shall decrease and the pace of creation will stabilize after adopting relevant updates.
Presently, Ethereum has a market cap of $72.8 billion.
How to buy Ethereum
There are two things you need before you start buying Ethereum – a wallet and an exchange. Arguably, you can — and, in the case of smaller amounts of currency, might opt to — store your ether in your exchange. This makes it easier to access them later for trading.
However, when you start earning large amounts of ether, then it might be time to store them in a wallet to keep them safe from malicious attacks. Your options for wallets include:
- Hardware wallets. Trezor and the Ledger Nano S are popular choices. These are gadgets no larger than a finger that can function offline. So even without a connection, you can sign your transactions using them.
- Mobile wallets. Mobile wallets include those in app form such as Coinbase and Jaxx. This type of wallet is convenient and suitable for anyone who conducts business on the go. However, you might want to consider the additional security of cold storage/a paper wallet when you go for these.
- Desktop wallets. Coincidentally, both Jaxx and Coinbase have desktop versions too. The downside to this option is that it needs to stay connected with the latest transactions.
- Paper wallets. Cold storage options mean that you’ll be storing your data offline. Paper wallets only require you to print out or write down your private key on paper.
When you’ve chosen a method to store your ether, then you’re ready to trade them.
Certain cities, such as New York, will make it easy for you to trade ether for cash through a meet-up in real life. But if you’re in a city where ether isn’t that popular or where, for any other reason, people would rather not meet up, then there are always exchanges.
The question of where to buy Ethereum is dependent on a few factors. These include the location where you’ll be trading from, the method you prefer to pay with, the minimum purchase, and whether or not it’s an easy platform for beginners to trade in.
Some popular exchanges are:
- Coinbase. It’s available for traders in the USA, UK, Australia, and many European countries. It has a minimum purchase of $1. You can buy ether through a bank transfer or with a credit/debit card. It’s user-friendly. Coinbase is perhaps the most popular exchange. You can trade cryptocurrencies other than ether using the platform and the low minimum makes it ideal for dipping your toes in the market. The only downside is that you’ll need another exchange when you want to trade your ether in for AUD.
- eToro. eToro is available in Europe. There’s a steeper minimum purchase of $500, but there are more options for method of payment. You can buy your ether through bank transfer, card, or PayPal. It’s beginner-friendly. In addition, it’s regulated by the Financial Conduct Authority, so you can rest a little easier knowing the platform’s completely legitimate.
- localethereum. As with Coinbase, localethereum has a minimum of $1. It’s not the most beginner-friendly option on this list. But it makes up for it by providing more methods of payment and by being available to traders worldwide. You can buy your ether through bank transfer, but there are also the bonus options of buying with PayPal, cash, and other cryptocurrencies. It’s relatively new, having been launched in October 2017, but it’s already gaining popularity within the community.
There are a couple more exchanges that you might want to explore such as Kraken and Plus500. Do a bit of reading on the benefits of each exchange and find the one that suits you and your needs best.
At the moment, there are three possible uses of Ethereum that come to mind: you can invest in its technology, you can sell it as a trader, or you can develop with it.
Investing in ether requires you to participate in the exchange. So, treat ETH like a long-term stock. As volatile as the market is, the general consensus has been that — unlike its counterparts — Ethereum actually has more practical uses. It’s a budding technology waiting for increased development to perfect it. Notably, the government of Canada’s (specifically, the National Research Council of Canada) recent adoption of Ethereum’s blockchain to publish grants in real time is considered as a vote for Ethereum’s promising future.
On the other hand, other users have opted to sell it in exchange for fiat currency or for Bitcoin. There are a couple of options out there on how to sell Ethereum. There’s still the ability to trade your ether in-person by meeting up with someone who’s interested. But again, there are exchanges available for this. A popular market for exchanging ether with other cryptocurrencies is ShapeShift. Alternatively, BTC Markets is the largest market for trading your ether to Australian dollars.
As with any experience that involves trade and investment, you must know how to play the market right. In addition, you must never risk more money than you’re financially capable of spending. The rule that you should use money you won’t need for the next 2-3 years applies even in this situation, especially given how high-risk cryptocurrencies are.
Lastly, development is not a path that everyone can take. However, there have been some interesting uses of Ethereum’s blockchain that regular users can take part in if they have ether to spend. A few of the projects that use Ethereum include:
- uPort. uPort markets itself as a “self-sovereign identity platform.” The idea behind it is to allow the users to take full control of the people that can access and use their personal information.
- Provenance. In a world dominated by informed consumers and consumers willing to pay more for organic products that benefit society, Provenance sounds like the app it needs. It uses the blockchain to trace and reveal the supply chain that products have gone through before they reach their potential buyers.
- Augur. Augur aims to provide accurate predictions using “the wisdom of the crowd” or crowdsourced reports. The interesting thing is that the crowd participates in predictions in a way that’s reminiscent of buying stock. When a participant buys the right stock (i.e. the prediction that came true), they’ll be given a reward. In some ways, Augur sounds more like a gambling game than anything, but it should be interesting to test.
There are many other projects that use Ethereum as a building block. And it’s these projects that could determine the blockchain’s longevity beyond the highs and lows it experiences as a currency.
Thanks to its open-source nature, Ethereum is enjoying a period of experimentation. On the outside, other developers are tweaking their code and expounding on it. On the inside, within their foundation, the blockchain is in a constant state of development and updates.
Needless to say, even with its competitors, Ethereum is a different sort from the pack. And it’s precisely for this reason that you might want to consider buying your first ether today. The offical Ethereum website is www.ethereum.org