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Ethereum Guide | Learn Everything About ETH

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The story of Ethereum comes from the early years of the original cryptocurrency. In its infancy, Bitcoin became the main focus of talented developers, and one in particular remarked on how the underlying technology could be used for much more than an electronic cash payments system.

Vitalik Buterin, a Russian-Canadian, proposed to the Bitcoin community an idea of storing code on the network in order to facilitate the creation of decentralised applications (dApps) and immutable Smart Contracts. The suggestion was rejected, leading Buterin to create his own decentralised blockchain, which has since become the launchpad of thousands of different projects and cryptocurrency tokens. 

Table of Contents

What is Ethereum?

Ethereum is the second larget cryptocurrency after Bitcoin (by market capitalisation), and it has maintained that position since 2015 when it was established. It is fundamentally a programmable network where developers can write smart contracts and create dApps that do not require any middlemen to host or execute. 

Since the blockchain is decentralised, there are no singular authorities that can exercise decisive control over the Ethereum platform. It can also be used for storing the value in digital assets, providing collateral, and making payments all across the globe. When people are talking about Ethereum, in general, they are referring to Ether or ETH, which is the native token of the Ethereum blockchain.

What is Ethereum

In a nutshell, Ethereum is a software platform where people can develop their own apps in a easy and straightforward fashion. 

At the time of writing, Ethereum (ETH) is priced at $378.45 with a market capitalisation in excess of $42.6 billion. In the last few months, Ethereum has gained a lot in terms of price owing to the new ETH 2.0 update and other strategic victories. 

Is Ethereum a Type of Money?

Although there are hundreds of merchants that accept Ether (ETH) as a valid payment mode including eGifter and Overstock, it is not meant to be a currency (as envisioned initially) by its developers. Instead, it is a lot more than just an alternative to money as its objective is to be a replacement for conventional banking and e-payment through intermediaries. It aims to democratise the internet so people collectively own data storage and digital services instead of relying on third parties.

Is it Legally Recognized?

Just like a majority of cryptocurrencies, ETH is not directly recognised by governments in terms of its legal existence or as a payment mode. This means that it is currently legal to buy, sell, and trade ETH with the exception of a few countries that have put a blanket ban on cryptocurrencies.

What Do People Use Ethereum For?

ETH has been created to facilitate the development of smart contracts and decentralised apps. However, it can also be used for a multitude of purposes, including the following.

  • ETH can be used to vote on the Ethereum blockchain to decide which smart contracts and dApps should be created and which shouldn’t.

  • You can trade ETH on a wide range of trading platforms to earn a passive income.

  • ETH can act as your investment driver if you are holding the currency to make a long term gain on your capital.

What Merchants Accept Ethereum?

Ethereum currently has more than 4,300 merchants that accept ETH as a valid payment method. It means there is a wide range of options where you can spend your ETH tokens. Some of the top merchants are listed below:

  • PizzaForCoins – Are you craving a pizza? This service will find you a pizza place that accepts ETH to deliver you a hot pizza at your doorstep.

  • Peddler.com – With more than 50,000 products to choose from across dozens of categories, you can shop for pretty much anything here using your ETH currency.

  • eGifter.com – If you are looking to buy from a wide range of gift cards using your ETH tokens, eGifter provides the service.

  • FLOKInet – When all you want is secure and reliable hosting and data centre services against your ETH coins, FLOKInet is the partner you need.

The Technology behind Ethereum

Ethereum is quite similar to Bitcoin in terms of its blockchain network. However, it uses Turing complete programming language to allow developers to build Ethereum applications that can control and automate transactions on the basis of certain outcomes. Apart from the transaction history, Ethereum blockchain also maintains a record of the current state of each smart contract and the balance every user has in their possession.

When a transaction is processed on the blockchain, the tokens show up in the account and are transferable to other accounts. These tokens are based on ERC-20 standard which utilises Proof-of-Work protocol; however, the Ethereum Foundation is now moving to a Proof-of-Stake based network through ETH 2.0 update.

How it All Started - The History of Ethereum

Ethereum was first conceptualised in 2013 by Vitalik Buterin. The idea was to create an open-source blockchain network where developers could make smart contracts that could govern themselves automatically when certain conditions were fulfilled. It would allow the blockchain to execute smart contracts without any intervention, censorship, third-party influence, or fraud. The Ethereum network was initiated in 2015 with 73 million pre-mined ETH.

Mining Ethereum - How Are New Coins Created?

Ethereum mining is pretty much identical to Bitcoin. There are transaction blocks on the network that need to be solved using computational resources. Technically, the metadata of a block is processed by miners utilising a hash function that outputs fixed-length randomised strings of characters. As a miner works out a hash that fits the problem, they are incentivised with ETH and each node verifies the transaction and the database is updated. Every time a miner finds the correct hash, all the other miners start working on the other blocks, and the process continues. 

Supply - How Many Coins Are Available, What if They Run Out?

Currently, the maximum cap of ETH supply cannot be determined as the Ethereum Foundation is in the process of making some substantial changes to the blockchain, most important of which is a transition from a proof-of-work model to a proof-of-stake protocol. The current total circulating supply of ETH is a little over 112 million tokens. With little to no information available, it is difficult to speculate about the maximum cap of ETH supply and what will happen once that limit is reached.

Decentralisation – What Does it Mean?

Decentralisation is defined as no central authority or person having unreasonable influence or decisive control over the governance matters of a blockchain. No organisation, individual, or even the government can dictate the rules and operations of a blockchain and it is completely immutable. 

What Are Smart Contracts?

Smart contracts are one of the concepts that made Ethereum distinct from Bitcoin. Bitcoin is digital cash, plain and simple. However, ETH is a way of storing more than just financial data on a blockchain. Smart contracts are a kind of algorithm that performs a task within an application autonomously. Smart contracts, once initiated, will repeat their coded commands forever, without outside oversight. Theoretically, programs of any complexity could be composed and carried out by smart contracts. 

What is a Decentralised Autonomous Organisation?

A Decentralised Autonomous Organisation is a business, institution, corporation, or other structure that is operated entirely by autonomous smart contracts and is made up of technologies and representatives spread out across the planet. Blockchain itself is a decentralised technology, with miners and users existing in every part of the world, with no centralised headquarters anywhere. When fully mature, Ethereum will be a decentralised autonomous organisation (or DAO, pronounced "dow"). Already, countless network functions are run entirely by smart contracts and artificial intelligence. 

Notable Backers, Investors, and Supporters

There were many early ETH investors who aren't publicly known, but the most prominent ones might surprise you. Joseph Lubin is a major developer and personality within the Ethereum ecosystem, and he was there from the earliest days. Tyler and Cameron Winklevoss bought in early as well, growing their crypto wealth with massive returns from Ethereum. Richard Sherman, of American football team the San Francisco 49ers fame, was also an early investor. Finally, none other than Ashton Kutcher caught wind of Ethereum's incredible potential very early and invested deeply, reaping incredible investment returns in the months and years that followed. 

Does the Name "Ethereum" Have a Meaning?

Vitalik Buterin explains the origin of the name "Ethereum" better than anyone. "I immediately realized that I liked it better than all of the other alternatives that I had seen; I suppose it was the fact that sounded nice and it had the word 'ether', referring to the hypothetical invisible medium that permeates the universe and allows light to travel". 

Ethereum as an Investment

Given the performance of ETH in recent months, it would appear to be quite a tempting cryptocurrency for investment. However, you need to keep in mind that all cryptocurrencies are prone to volatility which means that your capital is at risk. This is why it is crucial that you go in with an adequate plan and minimise your risk by researching the token that you're investing in and also diversify your portfolio by investing in different tokens instead of only one. This will allow you to carry out risk management.

Why Should You Invest?

There could be a multitude of reasons to invest in ETH, including:

  • If you are not satisfied with your primary income source, you can generate passive income through investing in ETH if you are managing your risk properly.

  • You may believe in the Ethereum project and investing in ETH would support the cause.

  • Investing in ETH can be for both short and long term depending on your investment objectives.

  • You may want to store your disposable income or capital in a decentralised environment that can’t be intercepted by the government.

Price and Volatility - Why is the Price So Volatile?

Just like all other cryptocurrencies, ETH is also reliant on a decentralised blockchain which means that there is no central authority that controls its price. This results in market forces causing a huge impact on the price of ETH, including a sudden surge in demand or supply, new technologies, competition, social acceptance, and other factors. 

This volatility is often capitalised on by the investors to make quick profits, but you should also know that it can go both ways. That’s why it is important to keep an eye on the charts, read the latest news, skim through articles, and listen to expert opinions to develop an understanding about the price movements prior to investing.

Where to Buy Ethereum

Being the second most popular cryptocurrency on the market, ethers are available on almost all trading platforms and crypto exchanges. Before you choose an Ethereum exchange, evaluate the pros and cons of each, including user-friendliness, transaction fee, customer support, and payment modes. We have picked three of the most reputed trading platforms for you.

  • eToro – It is one of the top copy trading platforms where you can copy the trades of expert traders to make money. The fees are low and the experience is convenient, what more can you ask for?

  • FXTB – If you are searching for a platform that charges reasonable transaction fees, has convenient to use UI and offers great support, then FXTB is another excellent option that you can consider.

Pros and Cons of Ethereum

Ethereum coins 

Ether is the cryptocurrency used on the Ethereum blockchain [Wit Olszewsk/Shutterstock.com]The pros of investing in Ethereum tend to be related to Ethereum's potential, its head start compared to competitors, its excellent leadership, and the amazing team of developers and users it has all around the world. 

Ethereum has a massive scope, and even if it attains a fraction of what Vitalik has planned for it, Ethereum will be an important world technology. Ethereum is also more developed than almost any other blockchain, with an impressive team of developers. Sometimes people make it seem like Vitalik Buterin is the brain driving the whole operation, but Buterin admits he has brought so much talent into Ethereum development that he often feels like he's the one in the presence of experts.

Now, for the cons. Ethereum's potential is impressive, but that's what it is... potential. Ethereum has failed to actualise many of its most important plans. The first DAO was a complete failure, resulting in the loss of millions in user funds and the eventual splitting of the network (the Ethereum Classic hard fork). 

Sharding, Casper, Proof of Stake - all of these are big ideas that Buterin has talked about endlessly, but all have been delayed by years, and some say they will never come to fruition. We tend to think that the pros still outweigh the cons when it comes to Ethereum. After all, this is still a very young (decentralised) company, having only been founded in 2015. It takes time to create novel technologies from the ground up, and Ethereum has demonstrated massive growth and many successful implementations. We also tend to think that Ethereum's unfinished plans (sharding, Casper, etc.) are more a case of "not yet" than "not ever". 

Where to Store Ethereum

After you have bought Ethereum, the next step is to securely store it since a trading platform’s accounts are not the safest place to hold cryptocurrencies. That’s when you can rely on cryptocurrency wallets.

What Are Wallets?

Cryptocurrency wallets are either software apps that you can install on your devices or come in hardware form like flash drives. They can be used to store your ETH safely and without any hassle.

What Types of Wallets Are Available?

Talking about ETH wallets, there are a wide variety of crypto wallets available that can store ERC-20 standard tokens. You can pick the one that suits your needs.

Web Wallet

These are the wallets that are either accessed through credentials within your browser or are built into your trading platform’s account. They are convenient to use but don’t offer a lot of security. 

Mobile Wallet

If you are looking to buy and sell ETH on the go, then what you need is a mobile wallet so that you can take your funds anywhere you go. Mobile wallets offer a lot of features and provide reasonable security. Top mobile wallets for storing ETH include Trust Wallet, Argent, MetaMask, and Coinbase.

Desktop Wallet

This is in the form of a software program which can be installed on a PC or an iMac to store ETH. These wallets have enhanced security and often offer built-in trading that many traders prefer. Exodus and Atomic Wallets are good desktop wallets that you can rely on.

Hardware Wallet

If security is your top concern or you want to hold your ETH for long-term, then hardware wallets are the best option for you. They work offline and cannot communicate through any network, which makes them invulnerable to security breaches. Moreover, they are also protected by two-factor authentication as well as passphrases. Ledger Nano S/X and Trezor are great hardware wallets.

Wallet Combinations

You also have the option to combine different types of wallets to get the best set of features, including convenience, reliability, affordability, and portability.

Storing Your Wallet on an Exchange - Potential Upsides & Downsides

Using an exchange’s wallet means that you have quick access to your funds and you can trade them right then and there. However, the downsides are that these wallets are not too secure and you can become a victim of a security breach which means that you can lose access to all your funds. Apart from that, if the website is down due to some reason, you can’t access your ETH until the website is up and running again.

Ethereum 2.0

Ethereum 2.0

What is Ethereum 2.0 (Serenity)?

Ethereum 2.0, also known as Serenity, is a series of proposed upgrades to the existing Ethereum model in order to make a quicker, more effective system. The Ethereum blockchain was initially designed to be a decentralised ‘World-Computer’, able to execute anybody’s code for a small fee. Shortly after its launch, some issues with scalability and mining became apparent. Applications launched on the network have failed to attract anywhere near the daily numbers that the likes of Facebook and Google bring in. As the technology evolved, Ethereum began to show further problems relating to proof-of-stake, network security and more. Serenity is the fourth stage upgrade of Ethereum and was planned back in 2015 when the original platform was launched.

Is it a good thing for Ethereum?

Ethereum 2.0 is not only a good thing for Ethereum, it is necessary as the blockchain continues to grow in terms of use cases. The new parallel chain will run alongside the existing one and be completely compatible.

What makes Ethereum 2.0 different?

Proof of Stake: The upgrade will introduce a Proof-of-Stake (PoS) mechanism, which is less expensive and much more energy efficient than Proof-of-Work (PoW) mining. Proof-of-Work is a protocol that aims to deter cyber-attacks such as Distributed Denial of Service (DDoS), which exhaust resources by bombarding a computer with fake requests. This form of consensus requires a huge amount of energy though. Data taken back in 2015 reveals that one Bitcoin transaction required an amount of energy equal to powering 1.57 American households for an entire day. 

Ethereum 2.0 will transition from the Proof-Of-Work into a completely virtual Proof-Of-Stake system, which is cheaper and better for the environment. Sharding: Data sharding will also be used on the new Ethereum 2.0 blockchain. Sharding is where information is split into smaller pieces and distributed across the network. This improves transaction speed, scalability and has improved security because the data is never stored in one single place. eWASM: Ethereum 2.0 (Serenity) will see the implementation of a new execution engine, known as eWASM (Ethereum Flavoured WebAssembly). Blockchain nodes run a virtual machine capable of processing the transactions that they receive. WebAssembly (WASM) is a binary format, optimised for virtual machines. It is supported by an array of JavaScript engines and other runtime environments, which make it executable within most web browsers.

A WASM based on the Ethereum Virtual Machine (EVM) will be able to capitalise on improved hardware, creating a wider ecosystem of tooling and support. This upgrade should also make it possible to create smart contracts in any language that compiles into WebAssembly. The inclusion of eWASM into Ethereum 2.0 should allow for faster execution, language portability, access to the WebAssembly ecosystem and increased tool support.

Will there be a third Ethereum coin introduced with the upgrade?

No, Ethereum 2.0 will not include the creation of a new coin. This upgrade has been planned for a long time, arguably since Ethereum’s inception. As such, the upgrade has a unanimous backing by the community, unlike the controversial Segwit activation, which did not have everybody onboard.

Frequently Asked Questions

  1. Bitcoin is a blockchain that is attempting to replace conventional currencies like the USD while Ethereum is a programmable blockchain that enables developers to code smart contracts and creates decentralised apps to remove intermediaries.
  2. Ethereum mining initially relied on a proof-of-work algorithm just like bitcoin, but it is now moving to a proof-of-stake protocol. Until the transition is complete, it’s difficult to say which one is more profitable than the rest, especially when the prices are so volatile.
  3. If you want to invest in ETH, carry out your research, read multiple expert reviews, and diversify your investment by investing in a number of cryptocurrencies that are expected to do well.
  4. ETH is one of the most popular cryptocurrencies; however, it is not a currency replacement. There are some online retailers who accept ETH as a valid payment method.
  5. Yes, it is. Not only is the blockchain decentralised, but it also aims to enable developers and software engineers to create decentralised applications, games, smart contracts, and other digital resources that eliminate the need of any middleman like the Google Playstore or other financial institutions.

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