What Is Ethereum?

Ethereum was launched in 2015 and is an open-source, decentralized, blockchain-based software platform that also has two cryptocurrencies, one called Ether and another called Ethereum Classic.

Ethereum enables SmartContracts and Distributed Applications (ĐApps), which means you can build apps and software without any interference from a third-party, downtime, fraud, and completely decentralized.

Ethereum is the idea of child prodigy Vitalik Buterin, who is a Russian-Canadian programmer and cryptocurrency researcher. Ethereum is not just a platform; it’s also a programming language (Turing complete) that runs on a blockchain and helps developers create and publish distributed applications.

The project was funded by an online crowdsale in the summer of 2014; over 72 million coins were distributed, which is 65% of the total circulating supply. Since 2019, Ethereum is second-large cryptocurrency in the world, with only the original crypto-token, Bitcoin, overtaking it.  In addition to this, there are far more units of Ethereum in circulation versus Bitcoin.

How does Ethereum work?

Ethereum is run on ether, which is a platform-specific cryptographic token. Ether had an overwhelming response when it was first launched since it is an essential tool for using the Ethereum platform that is necessary to develop and run applications on the platform.

Ethereum can be used to “codify, decentralize, secure, and trade just about anything.”  Aside from using it inside the Ethereum network, users can trade it as a digital currency on cryptocurrency exchanges.

Currently, Ethereum has two separate blockchains: Ethereum and Ethereum Classic. The split happened in 2016 when Ethereum was “hacked” by a malicious actor who stole more than $50 million from the Ethereum platform. Ethereum’s new software is designed to protect the digital currency against such attacks.

What is the difference between Bitcoin and Ethereum?

Bitcoin, Ethereum’s biggest competitor, is the first, largest cryptocurrency in the world. Bitcoin works purely as a payment protocol, which means that you can either:

  • Conduct transactions with BTC
  • Invest in BTC and hold it as its value increases

You do the exact same things with Ethereum, but Ethereum is also a sort of decentralized supercomputer with nodes across the world that allows people to build completely decentralized applications and dApps. dApps are based on blueprints which are also known as smart contacts and are automated; smart contracts are developed in a language called solidity and are automated agreements between parties that are self-executing. Commands cost a certain amount of gas, and users must specify a certain gas limit before submitting it to Ethereum’s miners.  If the gas limit does not cover the contract, then miners will be paid in gas fees through Ethereum’s native currency, Ether. Ethereum has its own internal tokenomics that can theoretically sustain microeconomics of its own.

What is Ether, and how do you trade it?

Often, people assume Ethereum is the actual name of the cryptocurrency when in reality, the coin’s name is Ether. Ether can be used both with Ethereum’s ecosystem and out of it, for purposes like:

  • As a mode of payment
  • To store value
  • To reward minders
  • For staking

Unlike fiat currencies, Ether is a public, fully decentralized cryptocurrency that is not controlled by governments. It is available for trading on the crypto market 24/7, unlike the stock market. There are two options:

  • Holding – the classic, simplest trading strategy used by investors. It’s a long-term strategy that requires the least amount of effort and is executed similarly to stockholding. You purchase a certain amount of cryptocurrency and keep it as it grows in valuation. BTC and Ethereum are market leaders in this area and have brought early investors significant returns over time.
  • Active trading – Active trading is significantly more complex. It requires the trader to have in-depth trading knowledge and use both technical and fundamental analysis to monitor the market.

Advantages and Disadvantages of Trading Ether

Active trading saves a large amount of both time and energy as you can just buy an Ether and let it grow. You will not need to keep up with market news, price history, and other fundamental information to know whether the price will drop or not. Your portfolio will require minimum management and maintenance, and you will not need to worry about things like high transaction fees. On the other hand, you will not be able to benefit from intra-day trading wins that come from price fluctuations.

Holding on to cryptocurrencies can be confusing since your eventual goal is to sell them and monetize on the sale. Active trading can be extremely profitable when done well as cryptocurrencies are highly volatile, and traders can benefit significantly from short-term price fluctuations, but in order to succeed in cryptocurrency, you need to have the necessary experience and knowledge.

So how do I start trading?

To purchase some coins, your best bet is to go on a major exchange where you purchase Ether. There are plenty of beginner-friendly crypto exchanges out there that allow you to either buy coins. For example, you can trade coins at a peer-to-peer exchange which will be entirely decentralized and is maintained via smart contracts. Traders can either trade between themselves in cash, or they can send money digitally.

Alternatively, cryptocurrencies like Ether can be traded as CFDs (contract for difference), and their price differences could be speculated. A CFD is a financial instrument that cans like a contract between a broker and an investor where one party agrees to pay the other the difference in the value of security between the opening and closing of the trade. Traders can either hold a long position if they expect prices will rise or a short position if they assume prices will fall.

In order to start training Ethereum, you should join a reputable broker who will offer tight spreads, advantageous account options, trader’s education, and good customer support. Check out our favorite crypto brokers in our review section!