by Alan on 2021-02-13 filed under Crypto for Beginners
For the new bloods of the crypto world, Ethereum can be somewhat of a mystery. What its uses are, where you can buy it and where did it come from are some of the common questions asked by newcomers to this vast world of currency.
In this article we will cover the basics of Ethereum. Giving you a crash course on what it is, the history and value of Ethereum as it’s moved through the years to the present day. Your very own Ethereum tutorial.
What is Ethereum?
In simple terms, Ethereum is often seen as similar to Bitcoin in its concept, however, there are some key differences. It’s worked through a blockchain and when mined produces “Blocks.” It is a decentralized system which essentially means that there is no singular governing body which is at the helm, like Bitcoin.
Ethereum cleverly takes the blockchain system which Bitcoin uses and improves on it, borrowing the decentralized system and allowing its users to create completely autonomous systems and apps.
Decentralized apps never rely on one source and instead work from a series of computers based all around the world, essentially meaning that there is no one central hub. This means that although Ethereum can be used to transfer valuable assets and currency, it also has a wider use as a platform for users to create apps. All without the usual restrictions put in place by centralized organisations.
A Layman’s History of Ethereum
Ethereum first arrived in 2013 when Vitalik Buterin put pen to paper, authoring the introductory whitepaper on Ethereum. Shortly following in 2014 a swiss company by the name of Ethereum Switzerland Gmbh created the very first Ethereum project, which was succeeded by Frontier in 2015.
In early 2016 a new protocol called Homestead was released, ranking as the second largest upgrade of the new system to date, which led on to the network raising over $150 million in a crowd sale. The system split into Ethereum (ETH) and Ethereum Classic (ETC) later that year, when a bug in an Ethereum smart contract led to hackers taking 1/3 of the Ethereum DAO's funds. In 2017 the Byzantium update is put into place followed two years later by the Constantinople.
The most exciting upcoming development is Ethereum 2, in which Ethereum transitions from a proof-of-work coin (ie, mining based) to a proof-of-stake coin, where investors are granted coins for their holdings. Ethereum will improve the speed and scalability of the protocol, unlocking orders of magnitude new scale for Ethereum. We look forward to Ethereum 2 completing later in 2021 / 2022.
How Do You Get Ethereum?
So, there are three different ways in which you can bag yourself Ethereum or ETH as it’s known on the market. In this section we will break down the three methods in a simple Ethereum 101.
We will start with the most common which are centralized markets. These are places in which you can buy coins, such as Ethereum and Bitcoin. The advantage of these is that they are widely used by a majority of buyers. A good example is Coinbase or Binance. You can also invest indirectly, via investment vehicles like Grayscale Ethereum Trust.
If you are wanting a firmer grip on how you trade without the nagging of the centralized markets, the decentralized markets operate a peer to peer trading system. This allows you to stay in control of your funds, with no one but the seller and you involved in the transaction. Buyer beware, it's very easy to be a victim of fraud in a decentralized exchange.
Most cryptocurrency buyers will have some form of digital wallet in which they store their online, digital currency for safekeeping. Some of these wallets will allow you to go a step further and actually buy directly using a credit or debit card or even using Android or Apple pay.
What Can You Do with Ethereum?
Ethereum can be used in two main ways, which we will break down into two simple sections for the budding trader to be.
Buying, Selling and Trading Ethereum
Similar to every other kind of cryptocurrency, Ethereum is a currency to be traded. As covered in the above section, you can gain it and sell it in three different ways. However, the decentralized method is by far the most suited to trading this type of currency.
Ethereum allows its users to trade on the peer-to-peer system using Smart Contracts. The spart contracts are a sequence of code which are completely autonomous, activating once the appropriate criteria is met.
The benefits to trading on this system is that it is immutable, meaning that no third parties can stick their nose in a gain off the trade between you and your peer during a trade. It essentially works off like-mindedness and mutual respect amongst traders. A nice place to be overall if you play by the rules.
One incredible capability of Ethereum is smart contracts, which are bits of code that run on the Ethereum blockchain. A very simple form of a smart contract is a vending machine. I could write a smart contract that states when I hit a button on a vending machine, it vends me a candy bar at the cost of 1 ETH. This would be an expensive candy bar. However, I wouldn't have to trust the vending machine because the blockchain would guarantee the transaction. It is smart contracts that power brand new fields like decentralized finance, or DeFi.
Why the Sudden Rise in Popularity?
Ever more recent is the demand for Ethereum over other types of currency. The rise in the cryptocurrency market has taken a dramatic climb in the past few years, signalling new ways ahead in the realms of payment and asset trading.
Ethereum has benefits all on display, showcasing multiple pluses should you choose to invest. One of these reasons has to be that due to predicted shortage that is said to befall the community. More investors than ever before are choosing to invest in this type of currency in order to sell when the options are limited for the rest of the market.
The ability to create apps and organizations that stray away from the old-fashioned centralized methodology of trading has increased exponentially in recent years. The reason for this is the mutual gain of peer-to-peer trading. No longer do people want to pay trading fees to the “fat cats” who run the large brokerages and online marketplaces, and why should they, if the option is there.
The introduction of the smart contracts shines a light on the brilliance of the system. It allows you to format contracts between peers in order to gain the best deal for everyone. All without it being tampered with or altered further down the road should things not work out for the best.
Risks of Buying Ethereum
The main risk of buying Ethereum has to be that, despite the best intentions, the code for the smart contract is still written by people. As a result of this you may sometimes get the rotten apple in the sweet bunch. That’s not to say the mistakes are always on purpose, as humans, we error, it’s just a part of human workmanship.
Very occasionally there can be issues with code that may lead to further problems down the line for those who decide to trade using this system.
The Pros and Cons are evident in Ethereum tutorial, although Ethereum is still used as a simple platform for the trading community, it has shown the depth and potential it has as a way in which creators and designers can create the new era of Decentralised Autonomous Organizations.
The old ways of centralized governance on the internet are fading out, being replaced with cleaner, safer ways to trade and build. Blockchain developments are adapting and developing all the time, with new creators finding innovative ways around the fees and late deliveries which come of the long-outdated office hours routines.
Ethereum is still in its infancy but is growing in popularity at a rapid rate. It will be interesting to see how it develops in the coming years, with the addition of more organizations and updates.
Disclosure: I/we have a long position on Ethereum. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Big Time Crypto).
Additional disclosure: Disclaimer: I am not an investment advisor, and this article is not meant to be a recommendation of the purchase or sale of cryptocurrency. Investors are advised to review all documents and press releases to see if the cryptocurrency fits their own investment qualifications.