You may have heard a lot about Ethereum, a form of cryptocurrency that has been around since 2015 and was created as an alternative to Bitcoin. Here’s what you need to know about it in a nutshell.
First, Ethereum is not actually the name of the cryptocurrency. Rather, it is the name of a specific blockchain, a decentralized distributed electronic ledger that keeps track of all transactions publicly, as well as the name of a programming language to be executed and developed on that blockchain.
Bitcoin also uses the blockchain, of course, but the Ethereum blockchain is more sophisticated and can be used to run applications.
Ether, also known as the stock symbol ETH, is the cryptocurrency “token” derived from the Ethereum blockchain. This is just one of hundreds of possible applications for the Ethereum blockchain, which is also used to verify NFTs, trade contracts, and other financial instruments.
What is Ether and how is it different from Ethereum?
Because we assume that most readers are here to learn how to get rich using cryptocurrencies, Ether is what this article will focus on.
Ether is the second largest cryptocurrency by market capitalization after Bitcoin. According to Investopedia, both are the only cryptocurrencies you can trade futures on the Chicago Mercantile Exchange on. At the time of writing, on April 30, 2021, an Ether token was worth around $ 2,750.
Ether is not only a cryptocurrency token that can be bought and sold, but it is also how you pay for transactions and to run applications on the Ethereum blockchain network. The price of an Ether transaction is called “gas”. The more computing power an Ethereum transaction uses, the higher the price of “gas”.
At present, Ether tokens are ‘mined’ like Bitcoin, thanks to the ‘work’ done by computers solving math problems. But Ethereum operators are working to move the whole process to a “proof of stake” model instead of a “proof of work” model. (No, we don’t understand how this will work either.)
This change, which will be called Ethereum 2.0, is expected to be made by 2024, and you can already track its future cryptocurrency tokens, ETH2, on Coinbase.
Unlike Bitcoin, which caps at 21 million possible tokens (not to be hit for over a century), the supply of Ether tokens is indefinite. This creates less of a supply crisis; While ETH tokens cost much less than Bitcoin, they are easier to mine. New blocks on the Ethereum blockchain are created several times per minute, instead of several times per hour with the Bitcoin blockchain.
There is also an associated cryptocurrency token, Ether Classic (ETC). It is derived from Ethereum Classic, a “fork” of the original Ethereum blockchain that was created in 2016 after $ 50 million worth of Ether was stolen from an Ethereum-based smart contract platform.
Ethereum operators chose to “reverse” the theft and erase it from the blockchain ledger; Ethereum Classic operators recognized the theft and proceeded. Do not confuse ETH and ETC; the latter was only worth $ 34 per token at the time of writing.
How can I buy Ethereum and Ether tokens?
To buy Ether tokens, you can go to a cryptocurrency exchange such as Binance, Bitfinex, Coinbase, or Gemini, among others. (The The Ethereum website has a few tips.) You will need to create an account, which includes verifying your identity (a process that can take a few days), on the exchange you choose.
Then you add real money – dollars, pounds, euros, etc. – to the account, which creates a reserve from which you can draw to buy cryptocurrency tokens. If you already have cryptocurrencies, you can add them as well. Once this process is complete, you can buy Ether or other cryptocurrency tokens and watch your holdings go up or down as appropriate.
Once you have accumulated enough Ether to be satisfied, you can withdraw it into a cryptocurrency savings account managed by a third party, or a cryptocurrency ‘wallet’ that you maintain yourself in your computer or a specialized hardware device. Alternatively, you can cash in your Ether holdings by selling them for US dollars, other nationally guaranteed currencies, or other cryptocurrencies.
How does Ethereum work?
Right now, Ether is on an upward trajectory, going from around US $ 1,900 to around US $ 2,750 last month, although there have been some declines in the past 10 days. Its current USD exchange rate is around 10 times what it was in July 2020, so there is definitely money to be made.
Be careful, however. Ether’s previous peak was around $ 1,400 in January 2018. Within three months it had slipped to around $ 400 and then recovered a bit before falling back to around $ 80 in December 2018. Someone who had bought Ether at its peak would have lost almost 95% of their stake – unless they kept it until now.
Because the Ethereum blockchain and programming language can be used for many other things besides getting rich quick, several leading companies and financial firms, including Microsoft, JPMorgan Chase, Intel, and MasterCard, have high stakes there.
This indicates that the fundamentals of Ether currency will be there for a while, unlike some other cryptocurrencies (cough, Dogecoin!) Which can be riskier investments.