How to use Ethereum. How to buy Ethereum
Should you invest in Ethereum? Yes, if you share the vision of its founders
Created in 2015 by the Canadian-Russian programmer Vitalik Buterin, has established itself as the second most high profile and popular cryptocurrency in the world, after Bitcoin.
Yet there is a great deal more to Ethereum than to Bitcoin and many of its rival cryptocurrencies. It uses blockchain, the technology that underpins Bitcoin, to deliver not just a cryptocurrency, but a whole ecosystem of applications. Its champions argue that Ethereum is the platform making the most of blockchain’s potential, creating incredible opportunities for developers.
This article explains how to use Ethereum, unpacking its role in the development of blockchain technology. We will also explain how to buy Ethereum and the process of storing it securely.
Ethereum vs Bitcoin
As you probably know, Bitcoin uses blockchain technology to create a peer-to-peer cash system that enables people to pay for things online with lower costs than if they used traditional fiat currency. As we will see in more detail later, you can use Ethereum’s coin, Ether (ETH), in the same way.
The big difference between Ethereum and most of its cryptocurrency rivals is that it is not primarily a standalone cryptocurrency, but a way to enable developers to house their apps on the blockchain. Put simply, while Bitcoin is like an app, a way of paying for things, Ethereum is an app store, where developers can post apps, which are then used by consumers or companies.
Ethereum’s developers felt there were too many applications stored centrally by a small number of companies such as Amazon, Microsoft and Google. They wanted to create their own version of the internet where big companies had no control. So they set out to enable users across the globe to write decentralised applications using the Ethereum blockchain. If data is stored in thousands of different places, they reasoned, it would be more secure and could not be tampered with. It would also be cheaper for the developers.
Smart contracts and dApps
In theory it sounds innovative and exciting, yet developers have been slow to warm to Ethereum. There are questions about how scalable the technology is and whether it can cope with hosting, for example, a Facebook or Twitch. Nevertheless, popular apps, which are actually blockchain-based websites called dApps, include the MLB Crypto Baseball, a dApp that sells memorabilia via an online store. There is also a blockchain game called Cryptokitties, where players buy, breed and trade virtual cats. Most dApps developed so far are financially-based (there are several exchanges on the platform) or have a retail element.
The innovation that made this possible was something called a smart contract. Basically, smart contracts are snippets of code that produce an action when a series of criteria are met. The clever bit is that they work without reference to third parties, such as lawyers. If all parts of an agreement are undertaken the contract is facilitated and enforced. Transactions are also, in theory, irreversible and transparent.
To ensure the decentralised nature of the Ethereum blockchain worked seamlessly, and to provide a way for developers to pay to have their apps hosted, Ethereum’s team developed the Ether cryptocurrency. So if you create an app you have to pay with Ether to have it hosted.
Ether works like Bitcoin does on decentralised exchanges, with no third-party involvement and in theory the transactions are immutable and secure.
Incidentally, Ether coins are created using mining in a process similar to Bitcoin. With the introduction of Ethereum 2.0 next year this will change and the platform will move from a “proof of work” process to a “proof of stake” system. This is explained in more detail here.
How to invest in Ethereum
Ether is a standard cryptocurrency, and you can use it in a number of ways even if you have no intention of launching your own app. Just as Bitcoins are accepted by a variety of retailers, you can use Ether to pay for everything from art to pizza.
Many people have also bought Ether in the belief that one day Ethereum will achieve its mission to become a leading hosting platform for apps and its value will rocket.
When it launched in 2015, it was worth around 40 US cents. It rose massively in 2018 before falling to between $120-180. At the end of November 2019 it was worth $151.
If you are mulling over whether to invest in Ethereum for the long haul it is worth reading up about Ethereum 2.0 as its effectiveness, or otherwise, could significantly affect Ether’s price. The price is also moved by global issues such as attitudes of governments and pan-national organisations such as the EU towards blockchain technology.
Another option is to speculate on Ether in the short term and exacerbate its price differential using a concept called Contracts for Difference or CFDs. These are available on Capital.com. You are essentially trading on margin. A CFD is a contract between a broker and a trader to exchange the difference in value of an underlying security between the beginning and the end of the contract. Investors can use leverage to increase the returns that are possible if the price of Ether shoots up – or their losses if it falls.
Where to buy Ethereum
So how do you buy Ethereum? If you decide to buy Ether, whether for the short term, or because you think it will rise significantly over time, you can easily swap Ether for fiat using an exchange such as Currency.com.
If you buy Ether via Currency.com, we can store the currency for you. We have ultra-high levels of security backed up by two-step authentication procedures.
If you want to keep your Ether for a long time it is worth investing in your own wallet. These are a bit like internet banking accounts and are protected by a private key, a code that operates as your password and stops others from accessing your account.
The most popular types are hardware wallets, invariably USB sticks, protected by a code. There are many different brands, including Keepkey, Trezor and Ledger.
These are arguably the most secure way to keep Ether. However some people are content with a concept called hot wallets. These are integrated into web browsers or mobile apps. If you do go down this route make sure your computer/phone is running the latest security software so the chances of being hacked are minimal.
So, you are probably asking yourself, should I buy Ethereum? In the long term, its value largely depends on whether you think that the future its founder envisioned, a new style blockchain-based internet, is achievable. Over to you.
FURTHER READING: Bitcoin vs Ethereum
FURTHER READING: What is Ethereum?
FURTHER READING: Can you make money from Ethereum 2.0?