Everything you need to know about the pros and cons of Ethereum and its token, ether.
What is Ethereum?
Ethereum is a digital platform that adopts blockchain technology and expands its use to a wide variety of applications. Ether, its native cryptocurrency, is the second largest on the market.
The Ethereum platform was created in 2015 by the programmer Vitalik Buterin, with the perspective of creating an instrument for decentralized and collaborative applications. Ether(ETH), its native cryptocurrency, is a token that can be used in transactions using this software. Like bitcoin, ether exists as part of an autonomous peer-to-peer financial system, free from government intervention. Also like bitcoin, the value of ether skyrocketed in a short period of time.
In January 2016, ether was trading around $1, and in January 2018, the cryptocurrency hit its highest level yet at $1,391. However, in October 2020 ether is trading far from its historical peak to be below $390. Its value has been shown to be volatile, with frequent intraday fluctuations. Although this is just one of hundreds of cryptocurrencies, it is also one of the few that have a significant market capitalization, along with its two main rivals, bitcoin and bitcoin cash.
How Does Ether Work?
Ether, like other cryptocurrencies, uses a shared digital ledger where all transactions are recorded. It is publicly accessible, completely transparent and very difficult to modify afterwards.
This ‘digital ledger’ is called a blockchain, and it is built through the process of data mining.
Miners are responsible for verifying groups of ether transactions to form “blocks” and encoding them by solving complex algorithms. These algorithms can be more or less difficult, as a way of maintaining a certain constancy in the processing time of the blocks (around one every 14 seconds).
The new blocks are then linked to the old block chain and the miner in question receives a reward, i.e. a fixed number of ether tokens. Normally they are 5 units of ether, although this figure can be reduced if the cryptocurrency continues to rise.
How To Trade With Ether?
To start trading with the movements in the price of ether, access your CFD trading platform, if you do not already have it, you must first open your real account. You will find ‘Ether’ by selecting the cryptocurrency market in the menu on the left, or through a direct search. Keep in mind that what you will then be doing is trading a derivative contract on the price of ether, but you will not directly own the cryptocurrency.
How Does Ethereum Work?
The Ethereum blockchain is very similar to bitcoin’s, but its programming language allows developers to create software through which to manage transactions and automate certain outcomes. This software is known as a smart contract.
If a traditional contract describes the terms of a relationship, a smart contract ensures that those terms are met by writing them in code. They are programs that automatically execute the contract once pre-defined conditions are met, eliminating the delay and cost of manually executing an agreement.
To take a simple example, an Ethereum user could create a smart contract to send a set amount of ether to a friend on a certain date. They would write this code on the blockchain and when the contract is complete (i.e. when the agreed date arrives) the ether will be sent automatically.
This basic idea can be applied to more complex setups, its potential probably limitless, with projects already making notable progress in sectors such as insurance, real estate, financial services, legal services, and microfinance.
Smart contracts also have several additional benefits:
- They eliminate the figure of the intermediary, offering the user total control and minimizing extra costs
- They are recorded, encrypted and mirrored on the public blockchain, where all users can view market activity
- Eliminate the time and effort required in manual processes
Of course, smart contracts are still a very new system with many details to be polished. The code is translated literally, so any errors during contract creation could lead to undesirable results that cannot be changed.
Dapps Vs Smart Contracts
Dapps -or DApps- are decentralized applications built on Ethereum and share similarities with smart contracts, but they also have some important differences.
Like smart contracts, a DApp is an interface that connects a user to a service from a provider through a decentralized peer-to-peer network. But while smart contracts need a fixed number of participants to be created, DApps have no user limit. Furthermore, they are not just limited to financial applications like smart contracts: a DApp can have any purpose one can think of, for example, new types of money and digital assets, unobjectionable web applications and decentralized organizations.
