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How Does Ethereum Works?
Ethereum is just like every other cryptocurrency out there, as it also works on a blockchain network. For the unfamiliar, a blockchain is essentially a decentralized public ledger that contains verified and recorded transactions.
In a sense, a blockchain is distributed so that participants within the Ethereum network have an identical copy of this virtual ledger, allowing them to view all the past transactions made. Not only that, there’s no centralized entity that’s managing or operating the network. Instead, all the ledger holders are the ones managing it.
Cryptography is utilized to ensure that the network is secure as well as verify the various transactions. Powerful computers are used to “mine” these tokens, but the act of mining is much different from what we know the word to be. When it comes to crypto mining, miners solve challenging mathematical equations. And they don’t do this just for fun—the result of successfully solving these puzzles adds brand-new blocks to the blockchain and validates each transaction made on the network.
Those who participate in this challenging mining activity get rewarded with crypto tokens. In this case, they receive Ether (ETH) tokens. Like the popular Bitcoin (BTC), you can use Ether to purchase and sell goods and services. This particular token has seen incredible gains over the past few years, making it a de facto investment.
Ethereum stands out because it has a unique feature wherein you can build applications that can actually “run” on the blockchain itself, similar to how the software would run on a desktop computer. With these applications, you can store or even transfer personal data. Not only that, you can even use it to handle complex financial transactions.
Ether vs. Ethereum
For developers to create new tokens or decentralized applications on the Ethereum network, they must first pay a fee to the network. They make the payment in Ether, which is the native currency of Ethereum. According to Bill Noble, the chief technical analyst at Token Metrics, enthusiasts also refer to this fee as “gas.”
Essentially, gas is the price you have to pay to use the system, similar to paying for your subway fare if you want to ride the train. In this case, Ether is the currency you use to purchase your MetroCard. Noble says that you can think of Ether as tolls you have to pay for if you want to make the most out of Ethereum. The amount of Ether you have to pay varies depending on the action you want to do, and the more people join the network, the higher the fees will get.
The more developers try to create and do things on Ethereum, the more Ether they have to buy to pay gas fees. As a result, this causes Ether’s price to increase every time.
These gas fees are also one of the biggest obstacles to Ethereum’s growth. However, an ongoing project, Ethereum 2.0, hopes to fix all the issues present in the current blockchain.
Ethereum Price Prediction
The month of November seems to be a solid month for Ethereum. Last Tuesday, the crypto reached an all-time high of $4,820, though it fell once more to $4,650 shortly after. Ethereum has been steadily increasing since late July after its significant downtrend in May.
However, what do the experts think about Ethereum’s future?
Some believe there’s a chance that Ethereum will surpass Bitcoin one day and become the world’s leading cryptocurrency.
Ethereum Pros
While no one can deny that Ethereum is incredibly popular, have you ever stopped to think what its benefits are? In this section, we’ll list down some of the significant pros of investing in ETH.
Fewer Chances of Inflation
Because Ethereum utilizes a transparent inflation strategy, the blockchain is less vulnerable to any tampering. So, if you choose to invest in Ethereum, you don’t have to worry so much about the crypto deflating because the blockchain as we know it is pretty much limitless.
Volatile
In the past, crypto investors and enthusiasts would view volatility as a bad thing. However, at this point, investors have now begun to recognize Ethereum’s market cycle patterns. If they make the right moves, they can benefit from the incredible profits generated thanks to the market bubbles.
Liquidity
Without a doubt, Ethereum is one of the most liquid financial assets out there, and it’s all thanks to the worldwide release of exchange, trading platforms, and online brokerages. With Ethereum, you can easily have your crypto exchanged for valuables such as gold or simply cash.
Ethereum Cons
Of course, Ethereum isn’t perfect either, no matter how popular it may be. Here, we’ll be listing down some of the disadvantages of investing in ETH so you can make an informed decision.
Uses Difficult Programming Language
Even though Ethereum utilizes a programming language similar to C++, Java, and Python, the crypto’s native language known as Solidity can be challenging to learn. One of the main complaints that people have is that beginner-friendly lessons for understanding Solidity can be challenging to come by, which means it’s not as easily accessible as many would like it to be.
It Can Be a Dangerous Investment
Like any other cryptocurrency out there, there are some risks involved if you choose to invest in Ethereum. As you’re probably aware, the cryptocurrency market is incredibly volatile, and there can be sudden gains and losses in the blink of an eye. If you’ve been keeping yourself up to date with Ethereum’s value over the years, you’re probably aware of how much its price has fluctuated.
For particular investors, this kind of volatility could be a massive disadvantage, especially for those new to investing in crypto. Not only that, but Ethereum’s fees themselves aren’t stable, as they fluctuate a lot as well, which many enthusiasts find troublesome.
Scaling Issues
While Bitcoin only serves one purpose, Ethereum differs in that it functions more like a ledger, a platform for smart contracts, and other aspects. As such, it tends to have various flaws and breakdowns here and there.
How to Buy Ethereum
If you’re interested in buying Ethereum, there are a couple of things you need to know.
Decide Which Cryptocurrency Exchange You Want to Use
Unlike Fidelity or Vanguard, you can’t buy Ethereum through an online brokerage or a bank. For you to start investing in ETH or even in any cryptocurrency in general, you’ll need to use a crypto trading platform. There are many crypto exchanges out there, and you need to find one that works the best for you. There are exchanges for beginners with easy-to-use systems or platforms for advanced traders who won’t get confused with complex dashboards.
Since Ethereum is incredibly popular, you shouldn’t have any problems buying Ether on most cryptocurrency exchanges. That said, we highly recommend a couple of platforms, such as eToro, Gemini, and Coinbase, as they’re pretty popular.
Believe it or not, you can even buy Ethereum using platforms such as Venmo or PayPal, although this isn’t a standard feature for most crypto. It’s best to do as much research as you can before investing, as different platforms will have varying fees, features, security measures, and the like.
Deposit Money Into Your Account
For you to register and create an account with a cryptocurrency exchange, you’ll typically be requested to verify your identity by providing a couple of documents confirming your personal information. Once that’s done, you’ll be able to proceed in linking your bank account or debit card so that you can start funding your account. As usual, the fee amount will vary depending on the method you choose.
It’s important to know that just because you’ve already funded your account doesn’t mean you’ve purchased Ethereum already. It simply means that you have money sitting in your account, which isn’t something you want. To start investing in Ethereum, you’ll need to purchase the crypto using the funds you’ve deposited.
Start Trading Your USD for ETH
Once your account has sufficient funds, you can go ahead and start trading your money for Ethereum. It’s pretty simple; all you need to do is enter the amount of USD you want to exchange.
Keep Your Crypto in a Digital Wallet
If you didn’t purchase a significant amount of crypto, the easiest way to proceed from here is to keep your investment in your crypto exchange account. However, if you bought a considerable amount and want to keep your investment safe and secure, you’ll need to get your hands on a personal digital wallet. There’s a variety of digital wallets out there, with varying levels of security. As such, it’s best to do a lot of research beforehand.
Ethereum Wallet
As mentioned, there are a plethora of wallets you can use to store your Ethereum, with varying features and capabilities. Some wallets only allow you to exclusively send Ether to different addresses, while other wallets offer more functionalities such as creating smart contracts. If you aren’t familiar with smart contracts, these are self-executing agreements not written on paper but in code.
When setting up an Ethereum wallet, you typically download or note down a price key or seed phrase. Private keys are essential because they allow you to send or spend the crypto stored away in your wallet. On the other hand, a seed phrase will enable you to access your wallet and all the private keys associated with it. As long as you remember or take note of your master password—the seed phrase—you shouldn’t have any issues accessing your crypto.
There are two different types of Ethereum accounts: externally owned accounts (EOAs) and contract accounts. EOAs are composed of public and private cryptographic pairs of keys. These keys ensure that forgeries would not be possible, as they prove that the sender did sign a transaction. Since we use private keys to sign transactions, they give you complete control over your money.
Contract accounts, on the other hand, deploy a smart contract to the Ethereum network. Each one has a one-of-a-kind Ethreum address the code controls.
How to Mine Ethereum
There are three different methods you can do if you want to mine Ethereum. We’ll take a look at each one below.
Pool Mining
Pool mining is perhaps the easiest and quickest way to get started in mining Ethereum. In this method, you collaborate with other people. Everyone in the same pool agrees that if they solve the cryptographic puzzles successfully, the rewards received will be split amongst themselves based on the provided hash power.
So, the pool of miners can expect to receive rewards based on how big or small the size of the pool is measured in hash power.
Solo Mining
As the name implies, solo mining involves mining for crypto by yourself. This venture is attractive to many individuals, as it means that you won’t have to pay pool fees, nor do you have to split the rewards. However, the chances that you’ll be able to solve the cryptographic puzzles in a sufficient amount of time, you’ll also need an adequate number of GPUs—probably dozens. As such, solo mining is suitable for experts who run mining farms.
Cloud Mining
Last but not least, cloud mining refers to the process of paying another person to do the mining for you. Instead of owning or running hardware that’s strong enough to mine Ethereum, cloud mining has you renting the computer power of someone else, essentially letting them do the hard work for you.
This form of mining requires a lot of faith, especially when you’re only hiring via an online service.
Ethereum Aspects
As you’re probably well aware by now, Ethereum is multifaceted, and there isn’t just one aspect to it. Three factors make Ethereum stand out from the others:
Ethereum Virtual Machine
Ethereum Virtual Machine (EVM) is a fundamental aspect of the blockchain. Ethereum is what it is today, thanks to EVM innovation. Before Ethereum came along, blockchain-based application developers were responsible for doing time-consuming and tiring tasks. But when EVM came along, the approach became so much more adaptable.
Ethereum Smart Contracts
As previously mentioned, smart contracts are an essential part of the Ethereum blockchain. These contracts make use of mathematical algorithms, which means that there’s no longer any need for any mediators.
Blockchain Validation
Blockchain as a whole no longer requires reliable intermediaries such as banks to ensure that transactions are valid. However, how do we know that these transactions are genuine? Well, blockchain validation has made this possible.
This is when new transactions are verified through nodes, and a new block is only added to the main block after validation.
Ethereum 2.0
So, what lies in the future of Ethereum? Vitalik announced last year that plans for Ethereum 2.0, otherwise known as Serenity, are already in motion. If things go as planned, this upgraded version will handle more or less 15,000 TPS by the next 3-4 years. Not only that, they say that there will be a significant decrease in transaction costs on the ETH network after the launch of Etherum 2.0.
