Ethereum for Beginners

Ethereum is the community-run technology powering the cryptocurrency Ether (ETH) and thousands of decentralized applications. Source: Ethereum.org

So, if Ethereum is the technology, what is Ether?

Ether is the digital currency used to buy services and goods on the Ethereum network. You can buy Ether, just like Bitcoin or other cryptocurrencies.

Ether Facts

Ether is powered by the Ethereum blockchain – A decentralised network of computers that encrypts and records transactions, contracts, certificates, and apps. The blockchain records all transactions and prevents them from being amended by any one party.

Ether is NOT anonymous. The blockchain records IP addresses that can be accessed and traced back to individuals by the police or other legal authorities.

Ether coin values have increased since Ether was launched in 2015. These increases are partly down to the increase in Bitcoin prices, and partly to the devaluation of all fiat currencies over that time. Governments print more money when they need it, devaluing the money in your pocket. The supply of Ether is fixed and not subject to the whims of central banks and politicians’ demands for money to spend.

Buying Ether

Ether prices go up and down, just like bitcoin. Buying Ether is a high-risk strategy.

To buy Ether, you need a coin wallet. You can use software-based wallets, or hardware wallets that look like a dongle or portable USB drive. Software wallets are usually free. Most wallets let you store all your different cryptocurrencies.

You can open an account at a cryptocurrency exchange and make a dollar deposit. You then use your dollars to buy Ether. Fees and spreads at exchanges differ, so do your research before choosing one.

Trading Ether

You can buy Ether coins and resell them a few hours later. You might make money if the price rises, but you lose money when the price falls. This is a POOR strategy. In fact, it’s not a strategy at all, it’s a gamble.

You can seek to take advantage of positive or negative movements in ETH by trading its price against the US dollar with a contract for difference. Using a CFD to trade Ethereum’s token can be risky, but a good broker such as easyMarkets will provide risk management tools such as stop loss, which lets you limit your potential downside.

When you take out a CFD, you decide whether you think the price of Ether will rise or fall. The broker takes the amount you are willing to lose from your account or credit card. If you are correct, you can get your deposit back, plus any profit. If you are wrong, the broker keeps your stake.

Investing in Ether

If you want long-term investments in Ether then look at companies that are invested in Dapps (decentralised apps) and smart contracts. These companies are the modern equivalent of the shovel manufacturers who made money from the gold rushes of the 19^th Century.

Smart Contracts

Smart contracts use the ethereum blockchain to automatically transfer funds when certain agreed criteria are met. Use examples include real estate purchases, hiring off-shore freelancers, and bike hire.

Companies that make it easy for other companies to use smart contracts have great potential.

Dapps

Decentralised apps (Dapps) use smart contracts that are coded into the ethereum decentralized network. Each Dapp has a front-end user interface that communicates with the smart contract back-end. There are thousands of Dapps and there is even a guide to making your own Dapp on Ethereum.org.

Dapps offer many advantages over traditional apps:

• Privacy – they are anonymous
• No downtime – the decentralised structure means the Dapp will always be accessible
• Hacker-resistance – Hackers cannot use Denial of Service attacks on a decentralised app
• Trustworthy – Data on a blockchain can never be altered by one party

You can only pay for Dapps with Ether, so the price of Ether will increase as more people need Ether to use Dapps.

Mining Ether

Mining crypto is the process of creating new coins by solving mathematical equations.

Mining Ether and Bitcoin has been energy-intensive ‘Proof of Work’ based since the beginning. Ethereum mining is changing from December 2021 to a ‘Proof of Stake’ system. Miners will have to have about $80,000 in Ether to mine new Ether coins.

The new mining system will do away with the massive server farms using gigawatts of electricity to mine Ether. If you want to mine crypto without too much damage to our climate, then mining Ether should be your choice, rather than mining Bitcoin.

Your Takeaways

Ethereum is here to stay. Buying Ether is simple, and a necessary preliminary to using any Dapp.

Dapps and smart contracts that are executed using the Ethereum network will become more common because they are more secure and private than traditional apps that harvest your personal data for sale to third parties.