If you're here then you've probably heard some combination of the words Blockchain, Ether, Cryptocurrency, Ethereum and decentralized apps over the last few months. Let's break those down to really understand what Ethereum is, how it's different from other cryptocurrencies and how you can invest in it!
Cryptocurrencies have been taking off this year. A number of them are at their all time highs! Just look at the rise in the value of Ethereum over the last 3 months.
In technical terms Ethereum is a decentralized, peer-to-peer network that is an extension of a cryptocurrency network.
In simple terms, Ethereum is a world computer and might change how we interact online just like the internet did 25 years ago.
Traditionally, developers had to host their applications on servers they built or rented from a hosting company. Ethereum, on the other hand, lets developers store and run their applications on the Ethereum blockchain. Since a blockchain is essentially a network of nodes (computers), developers pay to use the network using what's called Ether – the cryptocurrency everyone else is interested in. (Shown below: value of Ether at the time of writing).
One of the most exciting advantages of running applications on Ethereum is that developers will be able to create Smart Contracts that could be executed under very specific conditions. It's like escrow without the need for a third party; which is a massive leap in making the internet an open and fair platform on which anyone can transact with anyone else without an intermediary to hold everyone accountable.
Before we delve any further into the subject let's get a quick overview of what Blockchain is.
What is Blockchain?
Blockchain is not a currency, and it's not Bitcoin. All it is is a different type of data structure. Much like you store a bunch of records in a table, a Blockchain can be used to do the same thing but in a different form - blocks of data that cannot be edited once they're created and stored in the blockchain. It's more complicated than that but just enough to give you a general idea. You can use Alcamy to learn more about Blockchain for free.
Both Ethereum and Bitcoin are built on Blockchain but with several fundamental differences.
Most cryptocurrencies are limited to transacting a digital asset (eg. Bitcoins) between different addresses with the help of a Blockchain data structure as a digital ledger to keep track of everything. Ethereum, however, adds to this model by letting developers also store data from their applications and run smart contracts as explained earlier.
Should you invest in Ethereum?
There are a number of reasons you'd want to invest in Ethereum. Even though its value can be quite volatile, it's an incredible opportunity to be part of in these early years. Putting your money in Ethereum comes with considerable risk as it's tied to the success of the Ethereum platform; which hopes to power the internet and global communities in a new, open and democratic manner.
If you believe in the technology then you should consider making an investment. Given the current trend, even a small investment has the potential to make some hefty returns in the long run.
How to buy your first cryptocurrency coins
Buying Ethereum is in fact much easier than you think. You can do it online with a credit card through one of the many exchanges available. I primarily recommend Coinbase to all my friends; they boast over 7.5 million users, support 32 countries and their mobile app and website make it extremely simple to keep track of any of your cryptocurrencies.
If you're wondering how it works: Once you purchase your cryptocurrency it's stored in your 'digital wallet' which is essentially a collection of private keys that give you access to use your money. This means if you lose these keys you will lose access to your money; which is why most exchanges like Coinbase encrypt and store your digital wallets offline.
Four things to keep in mind:
- Watch out for transaction fees. Different exchanges charge different amounts to buy, sell and transfer cryptocurrencies.
- Figure out how you'd convert back to your local currency. Some exchanges don't support certain conversions. In most cases, you can transfer out to an exchange that does allow it quite easily.
- Cryptocurrencies tend to be extremely volatile and less forgiving. Try not to panic if its value suddenly drops. Focus on the overall trend and try not to invest anything you aren't willing to loose.
- Eventually the success of Ethereum is tied to the success of the overall technology. So don't just track the value of Ether, keep an eye on the whole ecosystem.
– Happy investing! 💸
If you're interested in learning more about Ethereum check out the topic on Alcamy.
Note: The information provided in this article is intended for informational purposes only and is not intended to constitute investment, financial, legal, tax or accounting advice.