Ethereum is a technology for building apps and organizations, holding assets, transacting, and communicating without the control of a central authority. There is no need to hand over all your personal details to use Ethereum – you keep control of your own data and what you share. Ethereum has its own cryptocurrency, Ether, which you can use to pay for certain activities on the Ethereum network.
What does that even mean? Let’s dive in!
What is Ethereum?
Ethereum is a decentralized platform for money and new kinds of applications. It has thousands of apps (gaming, financial, etc.) running on its blockchain. It is so popular that even other crypto coins run on its network.
A blockchain is a decentralized, distributed public ledger where transactions are verified and recorded. It’s created in a way that everyone participating in the Ethereum network holds an identical copy of this ledger, allowing them to see all past transactions. The decentralization element means that the network isn’t operated or managed by any centralized entity—instead, it’s managed by all of the distributed ledger holders.
Ether is the native token of Ethereum and you can use it to buy and sell goods and services – just like Bitcoin. But what’s unique about Ethereum is that users can build applications that run on the blockchain like software runs on a computer. These applications can store and transfer personal data or handle complex financial transactions.
What is Ether?
Ether is a digital currency used in financial transactions, as an investment, or as a store of value. You hold and exchange Ether on the Ethereum blockchain.
One of the most common uses of the Ethereum technology is decentralized finance (DeFi). DeFi opens entire areas of banking services to anybody with an internet connection. You can use Ether as collateral to take out loans or provide liquidity to earn interest on your funds. You can also use it as a store of value.
Another one is ‘smart contracts’. In a smart contract, like any other contract, two parties agree to deliver goods or services in the future. But here, we don’t need lawyers, as the parties code the agreement on the Ethereum blockchain. Therefore, Once the contract conditions are met, it self-executes and delivers Ether to the appropriate party.
What is Ethereum: Advantages and Disadvantages
- Ethereum is a reliable network that tested through years of operation and billions of value in trading. It has a large and committed global community and the largest ecosystem in blockchain and cryptocurrency.
- A wide range of functions from being a digital currency to processing financial transactions. Ethereum also executes smart contracts and stores data for third-party applications.
- Constantly innovating new ways to improve the network.
- Avoidance of intermediaries. The decentralized network lets users leave behind third-party intermediaries like lawyers, banks, and third-party web hosting services.
- Rising transaction costs or “gas.” This is great if you’re earning money as a miner but not if you’re trying to use the network. Unlike Bitcoin, where the network rewards transaction verifiers, Ethereum requires those participating in the transaction to cover the fee.
- Potential for crypto inflation. While Ethereum has an annual limit of releasing 18 million Ether per year, there’s no lifetime limit on the potential number of coins. This means that as an investment, Ethereum might function more like dollars and may not appreciate as much as Bitcoin, which has a strict lifetime limit on the number of coins.
- Difficult to learn. Ethereum can be difficult to pick up as developers migrate from centralized processing to decentralized networks.
In 2022, Ethereum 2.0 switched the crypto’s blockchain from a proof-of-work (PoW) consensus mechanism to proof of stake (Pos). Therefore this eliminated the need for miners, who run validations on expensive crypto mining equipment and consume a lot of energy.
Staking, which involves locking away a certain amount of cryptocurrency to participate in the transaction verification process, replaced mining to verify Ethereum transactions. Ethereum 2.0 reduced the crypto’s carbon footprint by up to 99.9%.
How to Buy Ether
- Pick a cryptocurrency exchange.
Crypto exchanges are used to buy and sell different cryptocurrencies. Coinbase and Binance.US and Kraken are some of the larger exchanges. If you are just interested in purchasing the most common coins like Ether and Bitcoin, you could also use an online brokerage like Robinhood or SoFi.
- Deposit fiat money.
You can deposit cash, like USD, in your trading platform or link your bank account or debit card to fund purchases of Ether.
- Buy Ether.
Once you’ve funded your account, you can use the money to purchase Ether at the current Ethereum price along with other assets. Once the coins are in your account, you could hold them, sell them or trade them for other cryptocurrencies in the future.
- Use a wallet.
While you could store the Ether in your trading platform’s default digital wallet, this can be a security risk. If someone hacks the exchange, they could easily steal your coins. Or you could transfer coins you aren’t planning on selling or trading soon into another digital wallet or a cold wallet that’s not connected to the internet for safety.
Investing in Ethereum does have its perks. First, its value and digital currency. Second, the Ethereum blockchain becoming more attractive when migrating to the new protocol. Also, as more people utilize Ethereum-distributed apps, demand for ETH may increase.
Or instead of buying Ether directly, you could try investing in companies building applications using the Ethereum network.
But before making any significant investment in Ether or other cryptos, consider getting financial advice about the potential risks. Given the high risk and volatility in this market, make sure it’s money you can afford to lose, even if you believe in Ethereum’s potential.