What is Ethereum?
This guide aims to give an overview about what Ethereum is and how it is used. In particular, we cover its definition, the concept of the Ethereum wallet, Ethereum mining, its price, trading and how to keep up to date with the latest news.
So, what actually is Ethereum? Most people will think of Ethereum as a digital currency (often these are also called crypto-currencies) which is not backed by any country’s central bank or government. Like other currencies, Ethers (the tokens or coins) can be traded for goods or services. You might have heard of other cryptocurrencies, such as Bitcoin and Litecoin. Ethereum is currently one of the three largest cryptocurrencies in circulation.
In reality, Ethereum is a blockchain network. The difference between Bitcoin (which is also a blockchain network) and Ethereum is their purpose. The Bitcoin blockchain is used to track ownership of their digital currencies (Bitcoins), while the Ethereum blockchain focuses on running the programming code of any decentralized application.
Transactions from one user to another are made by digitally exchanging anonymous, heavily encrypted hash codes across a peer-to-peer (P2P) network. This P2P network monitors and verifies the transfer of Ethereums between users.
What is an Ethereum Wallet?
Each user stores their Ethers in a digital wallet, which holds the address that the user sends and receives Ethereums from. The Ethereum wallet also includes a “private key” that only that user knows.
Why was Ethereum created and how does it work?
The first Blockchain applications were designed with a limited number of purposes in mind. Bitcoin, for instance, was developed only to support the cryptocurrency.
This meant that, when considering using a Blockchain for other purposes, developers faced a problem. They could either choose to expand the functions offered by Bitcoin, which would be very complicated and time-consuming, or develop a new blockchain application and an entirely new platform. For this reason, Ethereum’s creator Vitalik Buterin developed a new approach by creating the “Ethereum Virtual Machine” which enables anyone to run any program on the platform, making the process of creating blockchain applications much easier and efficient than ever before.
What is Ethereum used for?
The answer to this is quite simple. Most of the time, it’s used to help de-centralise any services that are currently centralised.
Meanwhile, as a cryptocurrency, Ethers can be spent wherever they are accepted as a payment method. Like all cryptocurrencies, some countries do have concerns about the use of this currency. For instance, Ethers could be used to anonymously transfer illicit funds or hide unreported income from the Internal Revenue Service (IRS). This was raised as a particular issue with Bitcoin as the currency has been linked with illegal activity in the past.
What is Ethereum Mining?
You might be wondering where the money actually comes from. Think about it. In the case of physical money, a government decides when to print and distribute money. Yet, Ethereum doesn’t have a central government.
Instead, with Ethereum like any cryptocurrency, miners use special software to solve math problems and are issued a certain number of Ethers (essentially a token) in exchange. Ether is used by application developers to pay for transaction fees and services on the Ethereum network. This provides a smart way to issue the currency and also creates an incentive for more people to mine.
What is Ethereum worth in USD and GBP?
The value of one Ether is always changing. At the time of writing, one Ether is worth £541.14 (pounds) or $720.88 (USD). There are various sites where you can find out the current price of Ethereum, one of which is CoinGecko.
What is the actual Price of Ethereum?
Actually calculating the price of Ethereum is pretty difficult. As a comparison, it’s worth reading Peter Cohan’s article in Forbes about the value of Bitcoin, called “Why bitcoin is worth 0, 20,000, 2M or infinity”. Peter Cohan argues that Bitcoin is worth “anywhere between $0 and infinity.” This is because people will pay for it as they are afraid of missing out and they feel that Bitcoin has the potential of making the world run more efficiently.
The compound annual growth of Ethereum between January 2014 (when it was $1.15) and December 2017 (when prices as high as $324.06 are mentioned) means that it is difficult to ignore Ethereum and its potential. Yet, in reality, this value regularly shift dramatically up and down.
Ethereum Price Chart
There are a number of websites to view Ethereum’s price changing over time. For example World Coin Index. An example of this across 2017 is below:
Ethereum Trading is the act of buying and selling Ethers. There are a couple of ways to trade Ethereum:
- Buy the cryptocurrency itself and hope to sell it for a profit
- Speculate on its value without ever owning any coins (this is how spread betting and CFDs work)
Where can you read Ethereum news?
There are a number of sites where you can read the latest news about Ethereum. Here are a few sites that we feel give some useful insights about the crypto-currency: