For someone who is being introduced to the world of cryptocurrencies for the first time, things can sound pretty technical. In fact, that’s what a lot of people who want to know about cryptocurrencies hate about the online world i.e. all the information about cryptocurrencies and the blockchain is available in such technical jargon that people leave their reading in the middle to do something seemingly more important. However, your perspective about the blockchain and cryptocurrencies will change today as you get to read this Ethereum trading guide by Giantcapital, which is written in the simplest possible language. In short, things will make sense to you.
So, keep on reading if you want to know about Ethereum.
A Basic Introduction to Cryptocurrencies
Before you jump into the sea of information about Ethereum, it is best that you spend time learning about cryptocurrencies in general. Once you understand this technology, you will not have a hard time understanding any other cryptocurrency. Since all of our trading strategy guides this Ethereum guide intends to make things simple for you, here is some basic understanding of the digital coins in general. Keep in mind that terms like crypto coins, digital coins, digital currencies, etc. all refer to one and the same thing i.e. cryptocurrencies.
Now, you have to know that cryptocurrencies are the currencies of the digital world. They do not exist in the physical form, so you will never see a currency note or coin that you can call Bitcoin, Ethereum or any other cryptocurrency. The idea of cryptocurrencies is to return the control of money and information to the people from banks, governments, and other financial service providers. Rather than a bank keeping records of your money, cryptocurrencies use a large network of many computers connected to each other to form a public ledger.
This public ledger is called the Blockchain. The blockchain, as fancy as the term sounds, is nothing more than a database that keeps records of all the transactions taking place in the form of cryptocurrencies and crypto tokens. The word “decentralized” is added before it because it is decentralized. What does that mean? Well, it means that the record of this ledger is not limited to a particular server that belongs to a particular company. It is maintained on thousands of computers that are connected to the same network, and are called nodes.
A Basic Introduction to Ethereum
Now, we can get to the most important part of this article. What exactly is Ethereum? At this point, you already understand what cryptocurrencies and how the record of cryptocurrencies is maintained in a ledger called the blockchain. For the sake of keeping things simple, let’s just say that Ethereum is another cryptocurrency. It allows you to move value from one point to another point in a digital network through the use of a cryptocurrency. However, when you go deep down into the details, you realize that Ethereum is much different from cryptocurrencies that are purely digital currencies. Ethereum is not even the name of the cryptocurrency.
Ethereum is a platform whereas the token that you use on this platform is called Ether, or referred to as ETH. That’s what you have to understand before you read about Ethereum on the internet. The world of digital currencies is filled with misnomers. People use many terms to refer to things they are not. In a similar way, they call Etheruem a cryptocurrency, when in fact, it is not. The best way to know what Ethereum really is, you need to compare it with Bitcoin. Let’s do the comparison to understand Ethereum in detail.
Ethereum vs. Bitcoin
Bitcoin is what you call a pure cryptocurrency. It is a currency that is cryptographically produced and secured. The purpose of Bitcoin’s existence is for people to be able to share value with each other on the internet without having to share fiat and plastic currencies. Once you have access to Bitcoin, you can use this currency for many online transactions. When it comes to storing your Bitcoin, you use an online or offline wallet to store the money. The transactions you do with Bitcoin are a perfect simulation of the transactions you do in the real world with your fiat currency.
On the other hand, Ethereum is not limited to that. Ethereum is much more than just a currency in the digital world. It is a platform that hosts softwares that are created in the decentralized environments. In fact, it is the environment in which you can create a variety of decentralized applications. However, to create those decentralized applications and to exchange value within those applications, you have to have Ether, the cryptocurrency form of Ethereum. Ether is not purely a cryptocurrency, but more like a crypto token that you can use in the Ether environment or any other decentralized application that has been created on Ethereum.
You can already see from here that Ethereum takes the concept of Bitcoin many steps ahead. If Ethereum is successful in achieving its goal, it will become the platform of the future where softwares will be created with decentralization at their cores. In other words, the softwares that are created on the Ethereum platform do not store the information of their users on a centralized server. At the same time, these applications have a very decentralized implementation as well. For example, if an application promises to provide you with cloud space to store your files, this space will be an aggregation of empty storage space on many computers in the world.
There is another area in which Ethereum is different from Bitcoin and takes the concept of cryptocurrencies a step further. So, when you buy something with Bitcoin, you give Bitcoin and buy the item you have purchased. Of course, you can also use your Bitcoin to subscribe to online services. However, Bitcoin, in a sense, is very much a solution for users who want to use money to buy things. You will also love Bitcoin if you want to send money to your loved one in another country for them to buy a gift for themselves. But when it comes to businesses, they needed a much more robust solution.
That solution came to businesses in the form of Ethereum. Ethereum uses a very sophisticated tool, which you would smart contracts. Smart contracts are more like the automation of the blockchain. These contracts allow for transactions to be completed on the Blockchain automatically. The only qualification for the transaction to be complete successfully is that all the requirements associated with it have to be met. Once those requirements are met, the value is transferred to the intended party immediately.
Let’s take an example of that to understand better. So, let’s say you open a lending company to give unsecured loans to customers. Now, if you work with Bitcoin, you will have to look at the applications from your customers manually, and then issue the money manually once you know the customer has met all your requirements. On the other hand, Ethereum smart contracts allow you to automate the transaction. The money will be issued to the customer when certain requirements are met. So, if the customer submits the application to get the loan and all the requirements are met, your system will issue the required money to the customer immediately.
How Ethereum Changes Applications
Many applications have been created on Ethereum, and more are being created on this platform. Each application that gets created on Ethereum has to have decentralization at its core. What it means is that the solution the application provides should be provided with centralization at its center. We can understand the importance of Ethereum and the changes it is bringing to modern applications through some of the applications that have been created on this platform already. Before you look at some of the applications that have been created on Ethereum, you should know that these particular applications are named as DApps, which stands for Decentralized Applications.
You can tell from the name what you are about to read. Yes, you are about to discover a new social networking platform that allows you to share your thoughts, opinions, suggestions, and rants with the world within 160 characters. Why would you be inclined to use this particular social networking application rather than using Twitter? Well, Twitter is a centralized application. The company stores everything that you post on Twitter on its servers. It can use that information in more ways than you can realize. On the other hand, when you talk about the EtherTweet DApp, all the information gets stored in the decentralized environment so no one company can access your data, wipe it, or use it to its advantage.
This is probably the best application out there that uses Ethereum and the blockchain technology at its best. So, let’s say you are a graphic designer or a cartoonist who creates animated characters for a big animation studio. Of course, in the current situation, you are bound to work from home to create your masterpieces. However, that throws a new and big problem in your way. You now have to render all your animations using the resources of your computer. If you have created something that requires some heavy rendering, you are looking at hours and sometimes even days to render it completely.
That’s where Golem comes in. This particular application uses the decentralized nature of the blockchain to its advantage in the best possible manner. When you use this application, you can take advantage of the resources of other computers attached to this network. The power of those computers is for you to use. It is as though you have a stack of powerful computers at home that you are using for your animation projects. Of course, you will have to use certain tokens to use this service, but you can imagine the usefulness of such a service. An animated character that takes 10 hours to render on your computer could be rendered within minutes if you use Golem.
Mining the Ether Tokens
Mining is one of the most talked about concepts in the world of online, digital or cryptocurrencies. Mining is the process of creating new units of a particular cryptocurrency. In the case of Ethereum, you are talking about the creation of new Ether tokens. Who mines these new units? Well, these are people who have some really powerful computers that have to solve certain riddles to confirm a blockchain transaction. When a particular computer connected to the Ethereum network confirms a transaction on the blockchain, it earns some new coins.
Here, it is important to mention that mining for Ethereum is pretty similar or the same as mining for Bitcoin. As mentioned above, a miner has to use computer resources to solve a particular riddle to create a new unit of Ethereum. This particular method of mining uses proof of work at its core i.e. the more work a miner does the more chances it has of mining a new Ether token. To do more work, a miner has to use a lot of resources on his/her computer to meet the criteria of proof of work consensus.
That’s where Ethereum gets a big setback. Proof of work consensus has been a nightmare for the Bitcoin community as well. More work requires more resources, and the more resources are used, the more heat is produced. That’s a situation many cryptocurrencies are trying to avoid right now, and some have already done that. Ethereum developers are trying to do the same. They are trying to switch to the proof of stake consensus mechanism, in which they do not require so much work from miners. However, this switch is going to be huge and people have been hearing about it for quite a few years now.
Ethereum in the Cryptocurrency Market
Now, if you want to know about Ethereum, then the chances are that you are interested in buying, trading or investing in it. To do that, you have to look at the past performance of this digital currency. When it comes to trading and investing in this particular cryptocurrency, you can say that you are choosing one of the safest forms of investments. Ethereum has been the second most powerful cryptocurrency after Bitcoin. It started ranking as the second biggest cryptocurrency in the cryptocurrency market after Bitcoin. The good news is that it has been that way since forever.
Even today, Ethereum is the second biggest cryptocurrency and one that people can trust with their investments. The best year for Ethereum was 2018, the beginning of that year to be precise. That’s when the cryptocurrency touched the highest point in its value. It came down from that peak quite fast but has been performing quite stably since then. While it might not be the biggest currency in terms of its value, it is definitely one of the most stable ones out there.
For those who purchased this token when it was launched, they are currently enjoying the perks of nearly 7000% return on their investments. There is no maximum supply of this token confirmed yet. The highest point for Ethereum was the mid of January of 2018 when it touched the value of more than $1430. The price of this cryptocurrency continues to fluctuate, but that’s the characteristic of the cryptocurrency market.
How Can You Trade Ethereum?
You will have to find online exchanges that will help you buy Ethereum. However, you have to give the credit where it is due. Even today, Bitcoin is the most used and liquid cryptocurrency out there. If you want to purchase Ethereum on an online exchange, you might have to convert your currency into Bitcoin first. This will cause you to incur some exchange fees, but that’s how things are at the moment. You will, however, find some online exchange to buy Ethereum directly with fiat currency if you research.
One of the best ways of making money off of trading Ethereum is through online brokers. Yes, you have plenty of online brokers that now allow you to trade Ethereum on their trading platforms and provide you with some handsome leverages to help you increase the size of your trades, and your profits in return. Do keep in mind though that these online brokers usually provide Ethereum trading in the form of CFD trading i.e. you will be trading contracts, not the actual Ethereum.
The first thing you have to keep in mind about Ethereum is that it is not just a cryptocurrency. Comparing Bitcoin to Ethereum is like comparing a train to a wheel. Yes, a train seems like a better invention, but a wheel’s use is not limited to trains only. In the grand scheme of things, a wheel is more useful and future-proof than a train. Now that you know about the basics of Ethereum, we hope that it should be easy for you to decide whether you want to trade Ethereum or not with your hard-earned money.