What is Ethereum (ETH)? A complete Beginners Guide

Are you curious about Ethereum, the open-source blockchain platform that has been gaining traction around the world? Since its launch in 2015, Ethereum has revolutionized the way we think about smart contracts and decentralized applications, offering users unprecedented levels of security and flexibility.

Author: Edith Reads   -   Last updated: 21/01/2023
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The world of cryptocurrency is evolving rapidly, and Ethereum is leading the charge. With its innovative blockchain platform, Ethereum has revolutionized the way digital currencies are used and invested in. From its use of decentralized applications to smart contracts, Ethereum offers a variety of possibilities when it comes to investing. Get ready to discover the power of Ethereum as you dive into this article. You’ll learn what it is, how it works and its different areas of application.

What is Ethereum?

The Ethereum organization website describes Ethereum as an open-sourced “technology that lets you send cryptocurrency to everyone at a small fee.” It also refers to it as a blockchain that “powers (decentralized) applications that anyone can use and no one can take down” and an open-sourced ledger technology that is inspired by Bitcoin blockchain technology.Etherreum Logo

Launched close to 6 years after Bitcoin’s debut, Ethereum was aimed at solving the inherent challenges facing the Bitcoin blockchain, especially scalability and ease of use. In effect, Ethereum founders came up with a highly interactive and the first programmable blockchain technology.

It set a target for a decentralized internet and effectively made it possible for developers to create, host, and launch decentralized applications, smart contract-based programs, and other blockchain-based protocols. In powering this technology and ecosystem, the Ethereum blockchain introduced the Ether tokens that are used to facilitate transactions on the platform.

Today, Ethereum has turned into the most widely used blockchain technology based on the number of developers and programs hosted on the platform. Ether, on the other hand, has assumed the near-permanent position as the second-largest cryptocurrency by market capitalization.

How is Ethereum Created?

Ethereum is one of the most ubiquitous and advanced distributed blockchain networks out there. Like Bitcoin, Ethereum is created through a process known as mining, in which miners use computing hardware to solve complex cryptographic puzzles. These puzzles are designed to harden the network against potential attackers. After successful solutions are found, these miners are rewarded with Ether (ETH), the native token of the network, created from nothing in the process.

What is the Purpose of Ethereum?

1. Smart Contracts

One of the primary purposes of Ethereum is to enable users to create secure, automated contracts without any third-party interference. This means that transactions are processed and settled faster than with traditional methods, as there is no need for manual verification or authentication. As a result, smart contracts have become increasingly popular in areas such as finance and insurance.

2. Decentralized Autonomous Organizations (DAOs)

The use of decentralized autonomous organizations (DAOs) on the Ethereum network allows users to bypass traditional business structures and create a more efficient structure for managing their operations and resources. DAOs are governed by rules encoded into a set of smart contracts. These rules can be modified or amended if necessary. As a result, it is possible to ensure all stakeholders involved in a project have equal rights and responsibilities – making it easier to manage projects without relying on centralized authority figures or corporate bureaucracy.

3. Asset Tokenization

Ethereum makes it possible to tokenize almost any type of asset – from real estate properties to stocks – by creating digital tokens which represent ownership of these assets on a blockchain ledger. By doing so, asset owners can benefit from increased liquidity since they can now easily trade and transfer their assets in exchange for other digital currencies or fiat (e.g., USD). This also opens up new opportunities for investors who want access to previously illiquid markets, such as real estate or art investing.

4. Distributed Computing Platforms

Another key purpose of Ethereum is its ability to provide distributed computing platforms for various types of applications and services built on top of the blockchain network. By using distributed computing platforms, developers can create dApps that are more secure than those built on traditional platforms. They can do so while still being able to leverage existing infrastructure investments like cloud services or databases without having to completely redesign their applications from scratch every time they need an upgrade or patching process.

5. Decentralized Applications (dApps)

Finally, one of the main purposes of Ethereum is its ability to enable developers to build decentralized applications (dApps). The dApps built on top of Ethereum can be used in many different ways. Their uses range from financial services like loan services or crowdfunding campaigns to gaming apps or social networks that allow users to control their own data instead of relying on third-party service providers like Facebook or Google. The possibilities are endless when it comes to building dApps with Ethereum!

How Does Ethereum Work?

Ethereum stands out from other cryptocurrencies with its own native programming language, allowing developers to write more complex codes and create applications that operate on the Ethereum network. All instructions executed by these programs must be paid for in Ether, the cryptocurrency underlying the Ethereum platform.Ethereum dApp

These payments are collected in a public database which acts as a ledger, and security and records all transactions on the Ethereum blockchain. To maintain consensus on the blockchain and prevent malicious actors from exploiting it, a mechanism called ‘mining’ is used that validates, processes and confirms all transactions executed by nodes on their network.. The overall result is a tamper-proof platform that enables the fully automated execution of business processes without an intermediary or central authority.

How to Mine Ethereum?

Mining Ethereum requires specialized computer hardware and software due to the complexity of its cryptographic puzzles. To begin mining Ethereum, you’ll need to install a specialized piece of software known as “mining software.” This will enable your computer to connect with the Ethereum network, manage energy consumption levels, and access Ethereum blocks in order to start solving puzzles.

After installing your mining software, you’ll need to configure it with your wallet address so that all payments made during the mining process are sent directly to you. Once everything is set up, you can begin the process by joining a mining pool, which is a group of miners that cooperate in order to increase their chances of finding blocks and earning Ether tokens. Finally, make sure that you monitor your energy usage and profits closely in order to maximize your efficiency as an Ethereum miner.

How to Buy Ethereum?

Buying Ethereum is an exciting way to get involved in cryptocurrencies. It’s relatively straightforward; all you need to do is find a reputable crypto exchange and create an account. Once your account is activated, you’ll need to deposit your funds. Depending on the exchange, this can be done through bank transfers or credit card purchases. With the funds in your account, it’s then a simple matter of searching for Ethereum, deciding on the amount you wish to purchase, and clicking ‘Buy’. You will then own some of the world’s second-largest cryptocurrencies! Buying Ethereum can perhaps be seen as only the beginning of a journey into the world of blockchain technology – with numerous other avenues to explore such as trading and smart contracts.

How Is Ethereum Used?

Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference. It serves as both a platform for decentralized applications and a digital currency known as Ether.

Ethereum has practical applications in many industries, such as finance, insurance, and cybersecurity due to its secure framework and innovative design. For example, it can be used to facilitate smart contract agreements for buying real estate or distributing money for services rendered based on predetermined conditions. This type of technology offers the potential to eliminate the need for intermediaries in financial transactions, allows more people to access the banking system and financial services, and provides more trust between users because it offers a reliable settlement system.

Not only can individuals track their Ether value and exchange it, but they can also use Ethereum to create organizations, tokens, or manage projects. It’s being used in the financial sector to create legally-binding agreements and keep track of stock trades and assets. Moreover, it can be utilized for legal documents, insurance claims, record keeping for medical records, and much more.

Ultimately, Ethereum has the potential to revolutionize many sectors of society as its technology evolves.

How is Ethereum (ETH) Different from Bitcoin?

Bitcoin and Ethereum are both revolutionary blockchain technologies that power two of the most popular cryptocurrencies. However, Bitcoin is the pioneer blockchain and cryptocurrency as it was created in 2009, while Ethereum launched later in 2015. The creation of Ethereum, according to its founder Vitalik Buterin, was born of the need to address some of the key challenges facing the Bitcoin blockchain.

By coming up with Ethereum, Vitalik sought to decentralize the internet by providing a medium on which clients can build highly decentralized apps and programs. Bitcoin, on the other hand, seeks to disrupt the global finance sector by replacing fat currency as the preferred medium of exchange. But these aren’t the only differences between Ethereum and Bitcoin. Here’s a look at their other key differences.

Purpose

The primary difference between Ethereum and Bitcoin is the purpose each of these coins seeks to serve. Bitcoin aims to provide an alternative to traditional fiat currencies, mediums of exchange, and store of value products, like Gold. Ethereum, on the other hand, seeks to provide a platform for building decentralized applications and programs.

Supply

Bitcoin’s greatest strength against fiat currencies is its limited supply of 21 million Bitcoins that seeks to curb inflation. There, however, is no limit to the number of Ether that will ever exist.

Transaction Processing Speeds

The transaction speeds for Ethereum are relatively high, with block confirmation taking no more than a few seconds. Bitcoin processing speeds, by contrast, are slow as it takes several minutes to confirm a block.

Proof of work algorithm

Interestingly, both blockchain technologies currently use the energy-intensive proof of work consensus algorithm to secure their networks. But while the Ethereum blockchain uses Ethash proof of work algorithm that falls within the Keccak hash function, Bitcoin embraces the SHA-256 proof of work algorithm that falls within the SHA-2 family of hashing functions. In 2020, however, the Ethereum Foundation announced that it would be abandoning the proof of work consensus mechanism in favour of the energy-conscious proof of stake mechanism with the launch of Ethereum 2.0 soon.

Ethereum (ETH) Historical Price Performance

Ethereum tokens were introduced to the public through a public sale in the summer of 2014 but only hit the crypto markets in August 2015. According to CoinMarketCap, Ethereum ended its first day of trading in the open crypto markets, on 8th August 2015, valued at $0.75. Within a week, it had doubled this price and was trading above $1.8 on 14th August.

But this uptrend quickly reversed, the Eth token prices started plummeting and hit the current all-time low of $0.41 on 21st October 2015. Soon after, the cryptocurrency started a rather meek climb that saw its prices rise above $10 for the first time in March 2016. Throughout the first quarter of 2017, the altcoin traded within this price level and had a hard time breaking above $20.

Ethereum coin fortunes would, however, change in March 2017 when its prices started setting base momentum for the market-wide rally that swept the crypto industry at the end of that year. By the end of March, for instance, ETH prices broke above $50 and rallied to reach $400 by 12th June. This price then consolidated and dropped to $175 in mid-July. It would then embark on a spirited value appreciation that saw its peak at around $1400 on 13th January 2018.

Then China banned crypto trading in the country and expelled all crypto exchanges forcing a slow decline in ETH prices throughout 2018. By December, one ETH token was trading around the $80 price level. Ethereum’s depressing price performance continued throughout 2019 and in the first half of 2020. In July 2019, the coin prices rose above $300 momentarily in July before tripping and settling between $100 and $200.

The coin started rallying again in the last quarter of 2020 and sustained this momentum throughout the first half of 2021, which helped it hit the current all-time price of $4362.35 on 12th May. But less than a week later, China forced the market to its knees when it banned Bitcoins – again – and expelled crypto miners in the country.

The CoinMarketCap ranks Ethereum as the second most valuable cryptocurrency project with a live market capitalization of $280.59 Billion.

What Factors Influence Ethereum Price?

Here are some of the factors that have had the greatest influence on Ethereum price in the past. They are expected to play a crucial role in shaping its future price action.

Bitcoin price action: Ethereum price is highly correlated to Bitcoin’s price action. Looking at both their price charts you will see that Ethereum prices have always climbed when Bitcoin rallied and dropped as soon as it started plummeting. This is not expected to change any time soon.

Adoption and acceptance: The acceptance and adoption of both the Ethereum blockchain and token by the crypto community and off-chain corporates have played a key role in driving its prices this high. Every usable program that launches here creates more demand for scarce ETH tokens and leads to a spike in prices.

Updates and upgrades: Updates and upgrades to the Eth blockchain – like the much-anticipated ETH 2.0 launch have also played a key role in influencing ETH token prices because they help improve its ease of use and expand its scalability.

Om-chain developments: A lot of revolutionary DApps, programs and protocols have launched on the Ethereum blockchain and exposed it to more users. DeFi and Dapps, have especially helped increase the demand for Ethereum tokens, which effectively boosts their prices.

Regulation: The threat of regulation for the crypto industry by different governments and finance industry regulators has also impacted ETH prices negatively. You can see it in the fact that every time a nation banned crypto or sought to regulate a part of the industry, ETH prices slumped.

Conclusion

Ethereum is a revolutionary technology that has the potential to revolutionize the way we do business and interact with each other. Its blockchain-based platform provides an unparalleled degree of transparency, trust, and security for transactions of all kinds. It has already made major strides in introducing concepts such as smart contracts and decentralization, allowing more people to take control of their own financial transactions. We hope this guide makes a good place to start in your Ethereum investment journey.

Frequently Asked Questions (FAQs)

Ethereum makes money primarily through transaction fees, also known as gas fees. When users submit a transaction to the Ethereum blockchain, they have to pay a fee in Ether (ETH) to the miners who process and confirm the transaction. Additionally, Ethereum developers can create digital tokens that are used within their smart contracts and applications, which can generate revenue for their platforms.

Yes, Ethereum is a cryptocurrency. It is the second-largest cryptocurrency by market cap, after Bitcoin. Ethereum is used to pay for transactions on the network, incentivize miners who process transactions and secure the network, and create and execute smart contracts. Ethereum has its own crypto token, Ether (ETH).

Ethereum mining is the process of verifying transactions on the Ethereum blockchain and then adding them to the public ledger. Miners are rewarded with Ether (ETH) for their work, which helps ensure the security and reliability of the network.

Ethereum Price is 1,678.59 USD2 (Price updates hourly)!

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