What is Ethereum? The complete guide on how to invest in Ethereum
What is Ethereum? Let’s see what this cryptocurrency is and how to buy it. We’ll also examine how to invest in Ethereum.
Ethereum, after Bitcoin, is the 2nd largest cryptocurrency. Because of its popularity it’s also one of the cryptocurrencies that you are likely to have heard of, but what is Ethereum all about really?
If you’re looking to invest in Ethereum, or you just want to find out more about it, then you’re in the right place.
In this guide we’ll be explaining what Ethereum is and how it works exactly.
We’ll also take a look at its current price and how it has performed generally in the market. If you’re interested in investing Ethereum, we will also examine the ways you can get involved.
Let’s take a look:
What is Ethereum
The idea of Ethereum was first suggested in 2013 by the programmer Vitalik Buterin. He believed that Bitcoin needed to move beyond being seen as just a cryptocurrency payment system.
Instead he thought that Bitcoin should find a way which would let developers create their own apps via the blockchain.
However, Bitcoin rejected that idea, so instead Buterin teamed up with 3 other people to form Ethereum. The project team got together to develop Ethereum, and it was finally ready to launch in the summer of 2014.
That’s why Ethereum is more than just a cryptocurrency, it’s also an open software platform based on blockchain technology. This lets developers develop decentralized apps and software on the platform itself.
Bitcoin only focuses on being a cryptocurrency system without the option for app creation. This is what makes Ethereum so different from its rival.
However, we want to focus more on the cryptocurrency part behind Ethereum, so let’s take a look at that now.
What is Ether
Ethereum’s digital coin is called Ether (ETH), and this is used to make and run transactions on the Ethereum blockchain.
Ether, as a crypto coin, can be used for transactions between one individual to another. Except with Ether, no physical coins actually move when you receive or send them.
Instead Ether coins are data that exists on a blockchain, (think of blockchain as an enormous worldwide database). This blockchain manages to oversee all the transactions that happen and is regularly checked by other computers globally.
Ethereum’s digital coin has become very popular and currently it’s the 2nd largest cryptocurrency in terms of market capitalization.
In 1st place still remains its biggest rival Bitcoin, but it goes to show how strong Ethereum has become in the very competitive crypto market.
How Does Ethereum Work
Now you know a bit about what Ethereum is, let’s take a quick look at how it works exactly. It’s also important to see what makes it different from the other cryptocurrencies on the market.
Although Ethereum has been based on the same technology as used by Bitcoin, there are also some key differences.
One key difference is that compared to Bitcoin, Ethereum is very fast in confirming transactions.
For instance the average time it takes Bitcoin is about 10 minutes which can not compete with Ethereum’s time of under a minute. This is very quick indeed!
Another difference is one we’ve already touched upon, and that is that whilst Bitcoin is purely a cryptocurrency system that can be used for peer to peer payments – Ethereum offers a lot more!
Ethereum, besides being a cryptocurrency, is also a software platform which is open to developers.
On this platform decentralized apps can be created, whereas for Bitcoin this is not possible. Ethereum has the goal to be the leading decentralized platform where anyone can develop new apps and smart contracts.
Benefits of Ethereum
The benefits of this Ethereum system are:
- Corruption Proof: all the software is developed around a consensus system to protect from fraud and corruption
- Secure: with the decentralization concept, the system is a lot more secure than others and not controlled by one person or company
- No Downtime: in this platform apps are never down and it’s not possible for third parties to change any app’s code
You might be wondering why the creation of apps on Ethereum is so important? Well it’s exciting because the technology is likely to attract a lot of investment from companies.
The use of smart contracts is also likely to change how we transfer valuable items in the future.
For example, smart contracts could be used to manage important agreements between individuals such as insurance or contract agreement documents.
Businesses could also use smart contracts to store important information like medical records or financial history securely. It’s this exciting technology that really separates Ethereum from the rest of the cryptocurrency companies.
Ethereum vs Ethereum Classic
It’s likely that you’ve also come across Ethereum Classic (ETC) whilst looking up Ethereum (ETH). What’s the difference between the 2?
Well both coins belong to Ethereum, but ETC (Ethereum Classic) was the original. Currently Ethereum (ETH) remains the most used and popular version of the two and is the one that the developers continue to support.
ETH came about due to a hacking attack and the result of a ‘fork’. A fork in the crypto market is not the cutlery utensil, but instead a situation where a blockchain is modified in way that makes it completely disconnect with the original version.
For instance let’s compare the situation to a phone software update. Let’s pretend you have an iPhone X and your friend has an iPhone X too. When Apple releases a new software update for the phone you update your iPhone X, but you friend decides not too as they would rather stay with the older software.
This is a perfect example of how a fork operates, you and your friend still have an iPhone X, but due to the software the phones both have very different features.
The fork happened because an online crypto exchange was hacked which caused a lot of ETC coins to be stolen by the hackers.
As a form of punishment for the hackers, Ethereum decided to create the new ETH/Ethereum coin and stop using ETC.
This caused Ethereum Classic to drop in price but it also caused the new ETH coin to grow in value. A classic case of karma served back to the hackers.
Whilst it’s still possible to buy both ETC and ETH, it’s better if you stick to ETH as this is the coin that is still be developed by the company and is generally the better investment.
When you make any investment, it’s always good to know the price history so you can analyse how the price may be in the future. Let’s take a quick look at how Ethereum has performed so far:
Looking at the price history of Ethereum, it started fairly strongly. Since the coins launch in 2015, the price grew to an average of $13, quite impressive for an ICO.
2017 was the year the price of Ethereum boomed though. For instance in September 2017 the price grew to an impressive $386.
Then 2018 arrived. As you likely know already, it’s fair to say that 2018 was a volatile one for the market. The start of the year saw a big increase in crypto prices generally, and one Ether coin was worth an incredible $1377 in the mid of January. This still remains the highest ever price for Ethereum so far.
However, due to the volatility in the crypto market and the bear market outlook in 2018, the Ethereum price dropped. It dropped a fair bit – down to $197 by September 2018.
Ethereum Price 2019
Luckily since 2018 prices seem to have stabilised a bit into 2019. After a small price dip at the start of 2019, the Ethereum price has been in the price range of $130 to $230.
Besides a small price peak in June, when Facebook announced the news that they were launching their Libra cryptocurrency, the coin price has been fairly average but stable.
As of the time this guide was updated (November 2019), the price for one coin was $181.
It’ll be interesting to see what happens to Ethereum’s price for the end of 2019, and whilst it’s not possible to predict what will take place, it’s always good to analyse the market.
Currently it seems as though the second half of 2019 is returning to a bear market, with Ethereum’s price generally decreasing. Yet market analysts have faith in the currency and believe that Ethereum can still grow and peak in price again.
This observation has come from the fact that Ethereum has a lot of projects being developed on it’s network, the amount of projects is also likely to increase yearly. More projects equals more investment, which is likely to see the price bounce back.
The fact that the coin’s value is fairly low to what it was previously, might also tempt you to invest, especially if you’re looking to buy Ether. This is because it’s a lot more affordable to buy now than at the price it was previously.
Whether you decide to invest or not, it’s always worth following the price and keeping aware of what is happening in the market.
Why Invest in Ethereum
Before any investment you should always think of the reasons why something may be worth investing in.
One reason why Ethereum may be worth investing in is because of its large market share and the fact that it’s the strongest rival to Bitcoin. Ethereum has done very well to become the 2nd biggest crypto in the market.
The fact that Bitcoin is really only a cryptocurrency system whilst Ethereum’s system can do a lot more via it’s smart contract technology. This ability has helped to boost Ethereum’s price.
There is also a lot of room for potential growth, especially in Ethereum’s case. For example, Ethereum is one of the few cryptos which can be used by Initial Coin Offerings (ICO’s). Many new ICO startups have raised funds on Ethereum and used the platform as their launchpad.
By being such a valuable network and platform to developers and ICO’s, the price of Ether is likely to keep increasing as more companies and projects use it.
Ethereum Future Development
Large enterprises such as Samsung and banks have also got involved in projects, for instance Alior which is a large Polish bank, announced that they plan to use Ethereum’s blockchain so that it can secure their customer’s private data.
Important projects like this show that there is continued business interest in Ethereum, and more projects are likely to bring further funding and boost Ethereum’s value.
Another point that is worth considering is that there are plans by Ethereum to improve the blockchain and platform in the future. This is important to investment because planned improvements always keep the company ahead of other rivals crypto companies.
By keeping ahead of any potential competition, Ethereum has a big advantage of other cryptocurrencies which is likely to keep the Ether coin price strong.
Of course the risk of investing in the cryptocurrency market is that a new crypto coin could emerge which could become more popular. This of course would cause the Ether price to drop.
Whilst there are never any guarantees to any investment, Ethereum remains a strong contender and it’s likely to not be replaced by anything soon. There are many good reasons why it remains the 2nd most largest cryptocurrency that continues to attract new investors.
How to Buy Ethereum
There are 2 main ways to make an investment in Ethereum, either by trading or buying, both provide very different things though.
For instance when you buy Ether coins, you fully own them. This means that you can do exactly what you want with them – whether holding onto them or selling when the price is right.
It also means that if the price of Ether goes up, then you’ve made a profit on your investment. Of course this also means that if the price decreases, you have also made a loss. It all depends on the coin’s market performance and value.
This is why some people prefer to trade on the price of Ethereum instead of buying. The main attraction of trading is that you can make a profit, even when the value of Ethereum drops! How does trading work though?
Well to trade you can do so via an online broker that allows crypto CFDs trading. CFDs stands for CONTRACT FOR DIFFERENCE, and these mimic the actual behaviour of financial instruments such as cryptocurrencies or stocks.
Depending on which broker you use, CFDs will let you trade on digital coins such as Litecoin, Bitcoin or Ether.
However, the main aim of trading is that you must open a trade position based on how you think the Ethereum price will perform.
For example, if you believe that the price of Ether will drop, you’ll set your trade to ‘sell’. If you think that the value will increase then you set your trade to ‘buy’ instead. If your trading decision matches the actual performance of Ethereum then you’ll have made a profit.
That’s why if the price drops and you have set your trade to sell, you will still make money. This is why a lot of people prefer the flexibility that trading can offer over buying.
To get started you’ll need an account with an online broker. It’s important that you only use regulated brokers platforms, as this means that they are licenced to operate and you can be sure that they’re not a fraudulent company.
Let’s take a look at some places where you can buy and trade from now.
Where to Buy Ethereum
There are a many places where you can trade or buy Ethereum from. The first thing you should do though is to decide whether you wish to trade or buy, because now you know that the two options are very different. The next step is to know where and how to get the process started.
Let’s take a quick look at where you can buy from first:
To make your purchase, you’ll need a crypto-exchange. Some popular ones include Binance and Coinbase. However one that has caught our attention recently is eToroX.
eToroX was launched at the end of 2018 by eToro, a leading online broker. They created eToroX so that users could buy cryptocurrency as well as trade on it.
You can access the exchange either by going to their online site or by downloading the official App which is available for iOS and Android devices. It is a very user-friendly platform to use and to purchase from.
Currently eToroX is acting as both an exchange and an online wallet, so once the purchase is made all your bought crypto assets can be stored securely in your eToroX wallet.
From there you can store, exchange and send your crypto coins.
To ensure that your assets remain fully protected eToro has created layers of complex security features which includes SSL, cold storage and multiple signature wallets.
You’ll also receive a personal blockchain address which is needed for on-chain transactions as well as a private key which remain completely safeguarded by eToro.
This means you don’t have to worry about saving or losing the keys.
To get started with your Ethereum purchase, you will need to sign up and register for a user account. If you’re already an eToro member you can sign in with your existing details.
In order to fulfil security requirements you will need to have your account verified by the customer team, this is so they can check that the account really belongs to you.
Once this is done you can make your purchase by searching the assets for ETH/Ethereum and completing the buying steps. All the purchased Ether is stored in the eToroX wallet, the wallet can also be downloded to your desktop.
When buying, it’s also possible to pay with a credit card (MasterCard or Visa). This is possible because eToroX uses Simplex, which is an external provider, to manage all credit card transactions. Please note that there is a small transaction fee applied when buying with credit card.
If you’d rather trade on the Ether price, then you’ll need a regulated online broker to trade with. Some popular regulated companies include BDSwiss and Plus500.
However IQ Option is a great option, especially if you’re new to trading. This is because IQ Option has one of the lowest minimum deposits on the market, the amount needed is only $10 / €10 / £10!
This is a great amount if you are looking to trade without spending too much on a deposit or if you have a more limited trading budget. They also offer a free demo account from which you can test the platform and practice trading using virtual money.
To get started simply sign-up for a free trading account with IQ Option.
Once this is complete, just log in with your credentials so you can access the trading platform. The next important step is to have your account verified, this is required by the regulation authorities in order to prevent fraud.
Verification requires you to upload 1 proof of identity (passport/I.D. Card) and 1 proof of address (bank statement/utility bill). The customer support team will let you know once your account has been verified. Then to start trading you’ll need to add funds to your account.
The minimum amount is just $10, so you can deposit anything from this amount and higher. With IQ Option they accept many payment methods so you can deposit easily and quickly. For instance, they accept credit and debit card (MasterCard/Visa), Skrill, Neteller and WebMoney. Once the deposited funds are showing in your account you can start trading.
The first step is to search for ETH or Ethereum in the assets search bar. Once the ETH page is found you will be able to see the latest price charts and performance of the coin.
Towards the left are 2 buttons, 1 in red saying ‘Sell’ and 1 in green saying ‘buy’. Decide which trade option you want to choose and click on the buy or sell button.
From here the trade window will open up, this is where you can decide how much money you wish to trade as well as the stop loss limits.
When everything is confirmed your trade order will be open and running. You can monitor the trade from your account and you can close it manually at anytime you wish.
Investing in Ethereum
When investing in Ethereum you should always have an investment plan which you can follow. This an important thing to do because it’s what will help guide you when buying or trading.
It doesn’t have to be written down but you should always have in mind how much you can afford to invest and a general plan of action.
Because the crypto market experiences so much volatility there is no guarantee that your investment will bring profits.
This is why you should think carefully about how much you’re willing to invest and how much you can afford too possibly lose. This is a sensible decision that all investors should consider.
Regarding which plan of action you want go with when investing in Ethereum is really down to whether you want trade or buy.
Professionals will consider whether it is worth making a long-term investment– (which normally means holding onto an asset for more than a year), or to make a short-term investment.
Usually buying a crypto is more suitable for long term periods whilst trading is more suitable for the short-term. When studying the market you can try to see whether you think it’s best to invest in Ethereum for a longer or shorter period.
Doing this will help you to plan if you want to hold onto your Ether coins, you can also think of when you would like to sell or exchange them too.
Another thing a lot of professional traders do is to analyse the market situation by staying up to date with the industry news and using technical analysis to analyse charts and price behaviour.
Even if this is something you don’t normally do, we would really recommend that you check the latest crypto news at least weekly. This will help you to keep aware of any big changes that might be affecting the crypto markets which could also affect prices.
Regarding the analysis of charts and price behaviour, there are many sites such as coinmarketcap that offer the latest price history and charts for you to follow for free.
For example if you wanted to look at an overview of Ethereum’s price history, there are diagrams showing this.
These diagrams and charts help you to see if there are any repetitive price trends or behaviours. The more you do this, the more it will help you make informed investments which can only be a good thing for both you and your funds.
It’s possible to mine Ethereum in order to get Ether, but it’s important to remember that mining Ethereum does a lot more than just adding to the amount of Ether coins in circulation.
Mining also helps to secure the network which checks and verifies the process of creating blocks in the Ethereum blockchain.
The easiest way to think of it is that the main aim of Ethereum mining is to produce Ether coins. However, mining Ether also is vital at securing the Ethereum network. It’s really the essential fuel that helps to keep the platform running smoothly.
For instance, banks are responsible for keeping an accurate overview of their customer’s transactions. They need to make sure that customer’s aren’t cheating the system and spending their money multiple times. This record keeping is needed to prevent fraud.
Blockchains however have another variation of record keeping, they use the complete network instead to check transactions, rather than a middleman.
By doing this Ethereum can make sure that no one is cheating the system and mining helps to do this in a decentralized way. To get a transaction approved, miners have to come to a general agreement first in order to confirm the go ahead.
Another reason why you many be interested in mining Ether is if you’re a developer, if you want to create and use smart contracts on the blockchain, then you’ll need Ether to go ahead.
However it’s important to note though that the supply of ether is limited. This is why there is a yearly cap on the amount of Ether released, which is set to 18 million Ether. This helps to limit the market supply and prevent inflation in the market.
You may be asking how mining Ethereum works though exactly? Well Ethereum’s process is very similar to Bitcoin’s, this is because for each transaction block, miner’s have to use computers which can quickly solve answers to a puzzle. When one of the miner’s solves this puzzle they are awarded with Ether.
This method of puzzle solving is known as ‘proof of work’ in the crypto mining world. It usually takes about 12-15 seconds for a miner to discover a block, but in Ethereum mining the difficulty level is automatically adjusted. By adjusting the ‘puzzle solving’ difficulty level, it helps to keep the network producing 1 block on an average time of every 12 seconds.
Ethereum Proof of Stake
Another thing to note is that both Ethereum and Bitcoin use a Proof of Work (POW) system which helps miners to validate and check transactions, but this may soon change.
It’s been reported that Ethereum aims to update the system so that is becomes a Proof of Stake (POS) system instead. To keep it simple this means that there are 2 different methods of verifying transactions that happen on the blockchain.
The big difference is that whilst the POW way needs a lot of computing power and an expensive amount of electricity to function, the POS method is a lot more energy friendly and not as expensive.
If the POS change was to happen then this would make the Ethereum network more decentralized and a lot more secure than Bitcoin. This is because it would attract more miners to the network. including those who cannot afford the expensive mining hardware that is currently needed for Ether and Bitcoin mining.
For now the POS update is likely to happen sometime in 2020, so next year will be an interesting to watch for miners of Ethereum. As a quick update regarding ETH, as of November 2019 there are more than 108.28 million coins in circulation which is still a large amount.
The average time it takes a miner to mine a block is also a speedy 13.27 seconds at present, which is very near to the previous record time. These statistics mixed with an increasing hash rate show that mining Ethereum remains very profitable still.
However, if the new proof of stake system comes into force as planned next year, it’s likely that the profitability of mining ETH will decrease and the hash rate will decline.
We will keep you updated as soon as there are any more new developments on the POS updates and the mining situation.
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