Etherum 101: Should you start Trading Ether Now ?

If you have heard of cryptocurrency, you have most likely heard of Ethereum. You may not be very familiar with what it is about, but this article will serve as a guide to its history, as well as its protocols and why you should invest in it.

What is Ethereum?

This is an open source cryptocurrency – this means that it makes use of cryptography to regulate its management instead of relying on central banks for regulation. It also allows for public participation in its development and scripting (smart contract) functions.

RISK WARNING: YOUR CAPITAL MIGHT BE AT RISK

With the emergence of the internet, there is a convenience of storing your data in a central place (cloud storage), but it comes with a problem – possible cases of unwarranted access. A new tool, blockchain, was developed, and Ethereum is one of the blockchain users.

It goes back to 2013 with the white paper proposal by Vitalik Buterin, a programmer. Unlike Bitcoin that aims to change the manner of business transactions, the aim of Ethereum is to use blockchains as better alternatives to third party transactions to track complex financial transactions.

The network formed officially in 2014, after the founder failed to get support for Bitcoin to use general scripts in application developments. He then proposed the creation of a system using general script, and formed a team to oversee this development. Funding came in 2014 from a Swiss company, as well as a public crowd sale. Participants in the crowd could buy the ether token (Ethereum value token) using Bitcoins.

Why is Ethereum different?

The world of cryptocurrency can confuse new users because you will hear all sorts of investment advice. With all the information lying around, you may wonder what makes Ethereum different from other currencies, particularly Bitcoin.

It is similar to Bitcoin though different in some ways. Some of its distinguishing features are:

  • More than a currency – Ethereum is not just a currency. It has EVM (Ethereum Virtual Machine), smart contracts, as well as ether for peer-to-peer contracts.

  • Blockchain functions – blockchains are for several purposes including negotiating and facilitating contracts. It gives a decentralized method of approving transactions, while the smart contracts have higher protection levels than traditional contracts.

  • Allows you to use other currency – Ethereum enables users to make tokens that act as shares and proof of membership. They are useful in any wallet and transactions requiring standard coin API.

  • You can raise funds with it – this feature is not present in many currencies. It allows you to set a contract and its target time and seek funding from the community for various projects. If you fail to meet the goal, the funds return to the contributors, and if the project succeeds, the funds are used. The best part is you do not need Kickstarter, so there is no need to worry about paying added fees.

Alternative coins to use

Being among the leader currencies relying on smart contracts and blockchains, Ethereum is a digital currency you cannot ignore. It is open source in nature, therefore allowing people to create decentralized applications. It is not alone in the mission to spread out its benefits. The following is a list of other currencies, which may surpass Ethereum in future.

  • Ardor (ARDR) – this is currently in its developing stages, but promises to allow faster creation of blockchains through NXT blockchain technology. This will create child chains that will eventually result in faster transaction processing.

  • Stratis (STRAT) – This token allows people to trade at open exchanges and is very popular for market capitalization. It runs on the same principle as Bitcoin, making it highly reliable and secure.

  • Litecoin/LTC – launched in 2011, it has a distinction of being a highly sought after currency together with Ethereum and Bitcoin. Formed based on promoting open source payments without control from central authorities. For proof of work, there is generation “scrypts”, which are then decoded by CPUs.

  • Dash – Formed in 2014, it works on a master-code network that enables transactions to be untraceable.

  • NEM – works as a peer-to-peer currency, allowing you to message, build your asset base, make payments and improve naming systems. It is newer than most, but promises to deliver better solutions because of its technology.

  • Monero (XMR) – 2014 was the launch year for this currency and its development is unique – it uses donations as well as the power of the community to improve its features. It allows for complete privacy as well through a technique called “ring signatures”.

Technology behind Ethereum – How it works

Ethereum uses blockchain technology that is very similar to Bitcoin, but the difference here lies in the application. Ethereum can support various functions, not just money-related. Developers can make applications for added ownership, transaction steps and formats, and even transferring state.

All nodes in the network will share the same transaction logs, similar to Bitcoin. The contrast is the manner of storage. Every node will store the most recent state of each smart transaction. For all applications, the network keeps the current information of all user data, which includes the balance, storage location and the contract codes.

Ether

This is the value token of the system. It runs on the Ethereum Virtual Machine (EVM) environment, which can read ‘bytecodes’. Individual nodes will perform smart contracts through their EVMs.

The aim of all this is to promote a sense of responsibility among nodes by not blaming financial institutions. This is because the system performs a contract using the developer’s rules.

Trading Ethereum currency

Before you start trading in the currency, it (along with all other cryptocurrencies currencies) is very volatile, and prices are subject to very quick changes.

  1. Find an exchange provider and open an account- various providers can link you with Ether currency, since there is no direct exchange. Some of them include Kracken, CoinBase, and Poloniex. Others will not need you to open an account, such as ShapeShift and Changelly.

  2. Purchase Ether coins using Fiat currency (credit/debit card, bank transfer) to fund your account.

Two ways you can trade Ether are through active trade or speculation. In all of them, you will require a digital wallet or a online trading account, provided by a reputable broker.

Speculation

Also called cold storage, you can do it either through hardware wallets or paper wallets. Each of these options has their own benefits and downsides. Paper wallets are very good in terms of security, but the drawback is the risk of password loss or accidental destruction of the wallet.

Hardware wallets carry the advantage of low hacking possibilities, water resistance and ease of use, though the disadvantages are their vulnerability to electronic devices, and theft risk.

Active trading is harder because of prevention of stop-limits, though some exchange services can enable you to set limit orders. If you want to trade Ether using this method, here are the steps to follow.

  1. Find out if the exchange provider has stop limits. If it is not there, you will need to monitor the market and manually place trades.

  2. To set up your alerts, use the TradingView. Look for the ETHUSD currency pair in the search box (since Ether and the USD are tied), then add it to the watch list by clicking on it.

  3. A chart comes up, so right click on it and click on the upper limit that you require.

Ethereum prices and trading history

Similar to other cryptocurrencies, the market value for the coin has been volatile, though its price has risen over the years. Here is a brief history of the changes in its value:

May 2016 – the price of the currency had a major boost after thousands of people participated in a crowd fund project, the DAO (Decentralized Autonomous Organization). Participants raised over $150 million. This led to the value rising to $14.80, which was an increase in value by fifteen times in the span of six months.

2017 – The value rose to $52.31 in March. It also achieved a milestone of becoming the leader blockchain platform in delivering initial coin projects.

2018 – The price of Ether is set to soar, with one Ether costing $1341.68 at the time of writing (Jan 2018).

Is it worth trading Ethereum?

This is a complicated question, because several authorities do not approve of investing in it. The risk is great, but carries several rewards. Its technology is popular among companies because they use it more as a building block for investment unlike Bitcoins or Litecoins. We have outlined some pros and cons below.

Pros

  • Many projects use Ethereum software as a building block due to the security offered by Ether. This makes the currency a very good option for long-term investment.

  • Unlike Bitcoin supply that is set at 21 million tokens, Ether supply has no limit. This can be a good choice if you want to invest large sums of money.

Cons

  • Ethereum relies on Ether to determine its market value and hence success. This is good, but can be a drawback, especially if future blockchain currencies have similar features. An example is the NEM currency.

The risks for investors are great, but if you are prepared to shoulder losses as a probable cost, then you can go ahead. If you are sceptical, it is better to start with smaller amounts and grow them slowly.

Conclusion

The rise of Ethereum is synonymous with the rise in use of digital cash. People want to spend money faster without reliance on institutions like banks that require long protocols and time to approve transactions. The benefits are immense if you invest well, but it is best to be careful and not rely on it as a sole investment channel.

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