Today, there are many types of cryptocurrency on the market, and Ethereum is currently the second-largest cryptocurrency after Bitcoin. With its growing popularity in finance, arts, collectibles, and more, Ethereum rose to about 510% in 2021 and is not slowing down. Having achieved this prestigious status with more and more people investing in the coin daily, it's important for beginners looking to make money from Ethereum to find answers to the question: What is Ethereum?
This article will explore what Ethereum is and how it works. We'll also look at how you can use it, where to get it how you can start to make money from trading or investing the coin.
If you're here looking for answers, we'll help you find them easily and in simple, understandable terms.
What is Ethereum?
Ethereum is a decentralized technology that allows you to send cryptocurrency to someone at a small charge. It also helps to power some applications that cannot be censored or deactivated by anyone or any authority.
Ethereum is well-known for its cryptocurrency token known as Ether or ETH. Its decentralized quality is what makes Ethereum secure, causing it to become more valuable over time.
Decentralization in the cryptocurrency world means that the authority or power usually given to the government or traditional banking authorities to control and make decisions about financial issues is transferred to a distributed network.
Unlike Bitcoin, Ethereum is a programmable blockchain that can be used for many digital assets. Bitcoin and Ethereum have some features that make them quite similar but also have varying visions and goals that distinctly differentiate them from the other. As you read further, you will come to understand these variations.
Compared to Fiat currency, how does using Ethereum benefit you? Here are some advantages of Ethereum you should know:
- Lower charges - Many traditional forms of online payment often incur expensive bank charges when you make a transaction. However, with Ethereum, you pay a lesser fee for your transactions, regardless of how much worth of Ethereum you send.
While very popular cryptocurrencies like Ethereum may charge a slightly higher transaction fee than other digital currencies, they provide solutions for quite large transactions.
Ethereum's upgrade, Ethereum 2.0, promises to improve its charges sustainably so that users and developers working on the Ethereum blockchain can benefit from it.
- Faster remittance worldwide - When it comes to moving fiat currency, there's a global general delay often associated with transactions. For instance, some transactions may require that you physically visit the bank to perform it, or you have to wait until a business day before you can complete the transaction.
With Ethereum, it's different. You can complete Ethereum transactions at any time of day within a few minutes. Making payments or purchases with Ethereum globally also eliminates the foreign exchange fees usually attached to fiat currency.
Usually, with fiat, you have to pay specific forex fees to convert one currency to another to be able to send to someone outside of your country. You don't have to do this with Ethereum.
- It's free of government regulations - Ethereum is a decentralized form of payment, which means that no government rules and regulations are controlling its value. This makes it a preferred method of payment for many users because you can make transactions without fear of government interventions or hitches.
- It's difficult to fake and quite transparent - Ethereum is a virtual currency that only exists digitally and not in physical forms like fiat currency. The physical forms fiat currency takes make it quite easy to produce counterfeits (by simply printing on paper) that can be used to scam unsuspecting people. Ethereum, on the other hand, is only available virtually and has specific identifiers that make it unique.
Ethereum is also built on an open-source platform, allowing interested developers to continue improving it as needed. The platform's openness helps to ensure it remains transparent, which is useful in cases of failed transactions or payment errors.
Ethereum has a few disadvantages that may deter users from choosing cryptocurrency. Here are a few of them below:
- Security - Although Ethereum has been known to be quite safe and secure, one can't ignore the major security breach it suffered in 2016. While efforts have been made to ensure such doesn't occur again, users are not too quick to forget that breaches can occur at any time. This may lead to a loss of Ethereum that you've amassed over time.
- Scalability - Ethereum still remains a little behind in processing speeds, currently being able to handle only 15 transactions per second. Although it promises to significantly improve this with the rollout of its upgrade, Ethereum 2.0, there is still some worry from users, especially as there is still no defined date when this upgraded network will go live.
- Second best - Ethereum, over its six-year existence, has grown exponentially. However, it still remains second-best compared to Bitcoin in terms of market value. This may remain a significant factor affecting its value on the market, something potential investors may be wary of. Still, experts predict that Ethereum's price will continue to grow.
How Ethereum was created
The co-founder of Ethereum, Buterin Vitalik, got the vision for Ethereum as a 17-year old programmer in 2011 who was interested in Bitcoin. However, he believed there was more to blockchain technology than just a financial payment platform. Instead, he wanted to create a platform that was different from Bitcoin in that it could trade more than just cryptocurrency.
In 2014, Buterin and other co-founders launched a crowdsourcing campaign, selling Ether tokens to participants, raising more than $18 million. By 2015, Buterin and the others pushed their first live release of Ethereum, called Frontier.
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How Ethereum works
Ethereum works using blockchain technology, like many other cryptocurrencies. A blockchain is a virtual collection of blocks, with each block representing numerous digital cryptographic transactions. The records of all the transactions carried out on the Ethereum network are what is known as an Ethereum blockchain.
Every time an Ethereum transaction is made, new blocks are added to the Ethereum blockchain so that it can be processed. This is necessary to be able to print new Ether coins (the Ethereum token) or to execute smart contracts for Ethereum decentralized applications (dApps).
Smart contracts are programs that run on the Ethereum blockchain and are mainly used to execute an agreement or transaction automatically, without the need for any intermediary involvement or wastage of time.
Ethereum can remain as secure as possible due to the decentralization of its blockchain technology. For any changes to be made on the blockchain, there has to be a majority agreement from the massive amount of computers on the blockchain that continuously work to maintain the Ethereum network.
How to get Ethereum
There are two common ways to get Ethereum, these include through mining or buying. Let's explore the two options below:
Mining is the process of using high-energy computing power to solve complex equations to validate Ethereum blocks. Here's how to begin:
- The first step is to select how you wish to mine your Ethereum. The three main methods are pool mining, solo mining, and cloud mining. Polo mining is the most popular and straightforward method of mining Ether, but you can go with any of the options you prefer.
- Next, open a crypto wallet. A crypto wallet is like a holding account where you store your ETH coins. You can choose a hardware or software wallet based on your preference. The software wallet is a digital program that requires an internet connection to access the private keys to your crypto. Hardware wallets are physical devices, usually like high-tech USBs where you can store your keys offline.
- Now, select a mining pool. A mining pool is a more affordable and simpler way to min crypto. To choose an Ethereum mining pool, consider its pool size, hash rate, mining fees attached, minimum payout amount, and method of payout.
- As soon as you set up your mining operation, you can begin to reap your mining rewards.
Buying Ethereum is as easy as buying other forms of crypto. You can use any of the available crypto exchange platforms to trade (buy or sell) Ethereum.
- Open an account on your preferred crypto trading platform, like Binance. Sign up by following the prompts.
- Connect your account to a payment platform. This will enable you to purchase your preferred amount of Ether from the crypto exchange.
- Order the type of Ethereum packages available on the platform. You have various options for people who would like to buy or invest in Ethereum.
How to store Ethereum
As we have explained above, you can store Ethereum in a crypto wallet. You have two storage options available to you -- hardware and software wallets. They are also called cold or hot wallets, respectively.
Hardware wallets are generally safer, since they store your Ethereum offline, away from frauds and scammers. However, they are often more expensive than hot or software wallets which are connected to the internet.
Software wallets are more convenient but prone to hacking.
How to use Ethereum
What is Ethereum used for? Many things, even outside of the regular financial payments. This is one of the significant factors that differentiate Ethereum from Bitcoin.
You can use payment Ethereum (Ether or ETH) as a payment method in stores that accept cryptocurrency as a form of payment. You can also use it to settle bills or pay for services, as long as the recipient accepts ETH, the Ethereum token.
You can also use Ethereum as an investment & trading instrument. If you're looking into investing in cryptocurrency, you can purchase Ethereum through a crypto exchange platform or stockbroker. The cryptocurrency is available on most trading platforms, seeing as it is one of the largest cryptocurrencies today.
Ethereum can also be used in staking. What is Ethereum staking?
Ethereum staking is simply depositing some amount of ETH to activate a validator software. As a validator, you become responsible for storing data, processing Ethereum transactions, and adding more blocks to the blockchain network.
Carrying out these activities continuously keeps Ethereum transparent and safe for users and also rewards you with some new ETH.
Start investing in Ethereum Today
Ethereum is a rapidly growing cryptocurrency currently spreading its reach to diverse aspects of blockchain technology, which significantly increases its value on the stock market. You can start investing in Ethereum today, to help you get even better acquainted with the crypto and all that it has to offer. Try out our crypto comparison page to find the best crypto exchange platform to get started.
Ethereum is a decentralized digital currency that was co-founded by Vitalik Buterin in 2015. It is useful for many activities, including payments, developing applications, and more. It is the second-largest cryptocurrency on the market and very efficient in carrying out safe transactions globally at little to no cost.
ETH is the native cryptocurrency coin of Ethereum also known as Ether. In other words, it is the transactional token that people who own Ethereum use to make transactions. It can also be used as an abbreviation for Ethereum.
ETH 2.0 is a significant upgrade to the currently existing Ethereum network, that is being developed to make the network sustainable, scalable, and stable. Although there is no set date for the launch of ETH 2.0, work is ongoing to ensure its release.