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What is Ethereum?

What is Ethereum?

After Bitcoin, Ethereum is often referred to be the second most popular cryptocurrency. Unlike Bitcoin and most other virtual currencies, however, Ethereum is meant to be far more than just a medium of exchange or a store of value. Ethereum, on the other hand, refers to itself as a decentralized computing network based on blockchain technology.

Ether (ETH), an Ethereum blockchain token, is one of the top three cryptocurrencies in the world. It has the second-highest market value, around $380 billion, as of January 2022, trailing only Bitcoin’s $800 billion.

Ethereum is a blockchain-based platform best known for its native cryptocurrency, ether, sometimes known as ETH or just Ethereum. The Ethereum network is safe due to the distributed nature of blockchain technology, and this security enables ETH to accrue value.

How does it work?

Ethereum is a platform that supports ether as well as a network of decentralized apps, or DApps.  Smart contracts, which emerged on the Ethereum platform, are an integral part of the network’s functionality. Smart contracts and blockchain technology are used in many decentralized finance (DeFi) and other applications.

Ethereum, like all cryptocurrencies, is based on a blockchain network. A blockchain is a decentralized, distributed public ledger that verifies and records all transactions.

It’s distributed in the sense that everyone on the Ethereum network has an identical copy of the ledger, which allows them to observe all previous transactions. It’s decentralized in the sense that the network isn’t run or maintained by a single entity, but rather by all of the distributed ledger owners.

Cryptography is used in blockchain transactions to keep the network safe and verify transactions. People use computers to “mine,” or solve difficult mathematical equations that confirm each transaction on the network and add new blocks to the system’s blockchain. Participants are given cryptocurrency tokens as an incentive. These tokens are known as Ether in the Ethereum system (ETH).

Ether, like Bitcoin, may be used to buy and trade goods and services. Its price has also risen rapidly in recent years, making it a de facto speculative investment. However, Ethereum is unique in that users may create apps that “run” on the blockchain in the same way that software “runs” on a computer. Personal data can be stored and transferred, and sophisticated financial transactions can be handled using these programs.

“Ethereum is different from Bitcoin in that the network may do computations as part of the mining process,” explains Ken Fromm, the Enterprise Ethereum Alliance’s head of education and development.

Ethereum and the Internet’s Decentralization

It’s helpful to first understand intermediaries before you can understand Ethereum.

Intermediaries are becoming commonplace. They assist us with a variety of digital duties behind the scenes. Gmail, for example, allows us to send emails. We can use Venmo to send $10 to a pal.

This implies that our personal information, financial information, and other sensitive information is mostly stored on other people’s computers — in clouds and servers owned by firms such as Facebook, Google, and PayPal.

According to proponents of decentralization, this arrangement can be problematic. It opens the door to censorship, as the intermediary can step in and prevent a user from doing any action, such as buying a specific stock or posting a specific message on social media, or even block them entirely.

Ethereum’s goal is to revolutionize the way programs work on the internet by removing intermediaries and replacing them with smart contracts that implement rules automatically.

How Do I Invest in It?

Here’s how you can include Ethereum in your portfolio.

  1. Choose a trading platform.

It’s critical to figure out which trading platform is suitable for you. Coinbase, Kraken, Bitstamp, Gemini, Binance, and Bitfinex are just a few of the largest cryptocurrency exchanges. Ethereum is available on all of these exchanges. Fiat exchanges or cryptocurrency-to-cryptocurrency exchanges are two types of cryptocurrency trading platforms (C2C). To avoid the chance of being a victim of fraud, make sure you trust the trading platform you use. When considering an exchange, ask the following questions: 

  • Where is the headquarters? 
  • Do they have a license?
  • Is their website safe to use?
  • How safe are your assets?
  • Who are the top executives in charge?

Binance is the most profitable exchange in the world. Coinbase Exchange is the most popular exchange in the United States.

  1. Register for an account

The next step is to open an account once you’ve chosen a trading platform that meets your requirements. You will be asked to enter information such as your name, address, social security number, and other forms of identification. Once you’ve decided on a site, you can usually open an account in a matter of minutes.

The final step in the account opening procedure is usually verifying the account. You must validate your account in one or more ways with almost all exchangers.

  1. Make a currency deposit

The next step is to fund your account with currency. After verifying your payment information on fiat currency sites, this can be pretty simple. Simply transfer funds from your bank account or a debit card you have on file. You can invest as little as $5 or as much as $1,000 or more on cryptocurrency exchanges because the minimum investment is usually low. It can be a little more difficult to deposit money in a C2C exchange. You must send cryptocurrency by code from one location to another on these exchanges. It takes a little longer to transfer codes, usually up to an hour.

  1. Start trading

You can start buying Ethereum and other cryptocurrencies on the exchange after you have a confirmed account and money deposited into it. Each exchange has its own interface, but expect to confirm transactions and then wait for processing time, which can vary depending on the total amount of transactions requested.

  1. Keep your Ethereum safe.

After your Ethereum purchase has been completed, you must store your cryptocurrency. While some platforms will store it for you, some people choose to keep their investments on their own to lessen the risk of losing them to a hack.

This is logical, but it’s also worth noting that the majority of big exchanges guarantee their clients’ holdings and frequently store the majority of their funds offline to avoid huge theft. Furthermore, in the past, hacked exchanges have always compensated for any losses.

However, if you want to keep your crypto safe, you can move it to one of two types of third-party wallets:

  • Hot Wallet: A hot wallet is an online wallet that can be accessed via a computer or smartphone.

They’re convenient and frequently given at no additional cost by cryptocurrency exchange platforms, however, you can use your own if you’d rather keep your crypto off the exchange. They are, however, more vulnerable to security breaches because they are still connected to the internet.

  • Cold Wallet: Meanwhile, cold wallets are external devices that are not connected to the internet. They normally cost between $50 to $200 depending on the style, though there are even more expensive versions available.

Finally, Ethereum is a very popular cryptocurrency, with over 116 million coins in circulation. However, just because it’s a well-known cryptocurrency doesn’t imply it’s good for you.

Before investing in a volatile asset like Ether, make sure you’ve done your homework and that you invest with funds that you can risk.


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