What is Ethereum?

Ethereum is the other giant of the cryptocurrency universe besides Bitcoin. It aims to move beyond Bitocin’s blockchain technology and offer a wider digital revolution rather than simply focusing on cryptocurrencies. But we have gotten ahead of ourselves; let’s introduce Ethereum first!

Ethereum is a decentralized, open-source blockchain, with Ether as the platform's own cryptocurrency. After Bitcoin, Ether is the second largest cryptocurrency by market capitalization, while Ethereum is the most actively used blockchain. Ethereum was proposed in 2013 by programmer Vitalik Buterin, and following a crowdfunded development push, it went live in 2015 with an initial supply of 72 million coins.

Ethereum uses blockchain technology just like Bitcoin, meaning that every participant in the Ethereum network holds a copy of the public ledger of transactions. It is a decentralised system that isn’t run or overseen by any central authority but instead managed by its participants. Blockchain uses cryptography to keep the network safe and verify transactions. Participants use computers to “mine”, or guess a complex mathematical puzzle to confirm transactions and add new blocks of data containing those transactions to the chain. For this work, miners are rewarded by cryptocurrency tokens, in this case Ether.

What is Ether?

Ether is a virtual currency that, similarly to Bitcoin, can be used to buy and sell goods and services and can be traded. Its price has gained rapidly over the last few years. There is no ceiling to the number of potential Ether tokens, as opposed to Bitcoin, where the number of total coins ever released will be capped at 21 million. The Ethereum protocol nevertheless has a limit of 18 million Ether that can be released annually. Still, there is no total limit like with Bitcoin, which means that Ether as an investment might behave more like conventional currency and could be prone to inflation.

How is Ethereum different from Bitcoin?

In contrast with the Bitcoin blockchain, Ethereum aims to be more than a simple store of value and a secure ledger of transactions. Users of Ethereum can build applications that run on the blockchain. These are called decentralized applications, “dapps", because no single company controls the data, and people can host applications on the blockchain without third-party interference. This gives users better control of their data. These applications can store and transfer personal data and handle complex transactions.

One of the most interesting features of the Ethereum blockchain are the so-called smart contracts, which are self-executing contracts. The two contracting parties make an agreement and the parties code the contract on the Ethereum blockchain. Again, no central authority or lawyers are needed for smart contracts to be executed. Once the conditions of the contracts are met, it self-executes and delivers Ether to one of the contracting parties. Bitcoin and the blockchain behind Bitcoin doesn’t offer these possibilities. Developers are working on new ways to use Ethereum in the future, such as land registries or secure voting. The Ethereum platform also enables the creation and exchange of NFTs - non-interchangeable tokens connected to digital artwork or other items sold as unique digital property.

How to buy Ether?

You can buy Ether the same way you can buy Bitcoin. Pick a currency exchange or an online brokerage that buys and sells Ether. You will need to deposit cash in fiat currency, or crypto coins other than Ether (in the case of crypto exchanges), or link the platform to your bank account. You can use your money to buy Ether and start trading with cryptocurrency. You can store Ether in the wallet provided by the crypto exchange, or you can set up your own digital wallet and transfer the coins you don’t want to sell or trade there. At an online broker, you need to deposit cash.

The Ethereum network has transaction fees, also known as “gas”. In June 2021, network fees fell to $3.70, the lowest level since December 2020, due to the down-trending market and a decline in demand for Ethereum, according to BitInfoCharts.