When you mention crypto, most people will think of Bitcoin and Ethereum first. In fact, Ethereum (Ether or ETH) is one of the most popular cryptocurrencies; it shares the biggest limelight with Bitcoin and is the second largest in terms of market share and market capitalization. However, Ethereum covers more angles than just being a digital currency on the blockchain.
In this article, we cover all aspects, from what it is to the pros and cons of Ethereum.
What is Ethereum?
Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of fraud or third-party interference.
Ethereum is not just a platform but also a programming language (Turing complete) running on a blockchain, helping developers to build and publish distributed applications, tokenized assets, and decentralized financial services.
History of Ethereum
Ethereum was first proposed in 2013 by Vitalik Buterin, a then 19-year-old programmer. He was inspired by Bitcoin, but he didn’t like that the Bitcoin platform was limited to only supporting financial transactions.
He wanted to create something else that was better and addressed the flaws of Bitcoin. Also, Buterin proposed to unify DApp development and function in the blockchain.
Ethereum was crowdfunded in 2014, and the network went live in 2015. With that came Ethereum 1.0, which drew developers to Ethereum with their DApp ideas.
Since then, Ethereum has grown to become one of the largest blockchain platforms in the world, with a market capitalization of over $20 billion.
Ethereum has faced its share of challenges since then, including exploitation of a security flaw that led to a “hard fork” of Ethereum. Still, it has also grown a lot since then, and we are seeing Ethereum 2.0 now with significant improvements like proof of stake.
Ethereum vs. Ether
The native cryptocurrency of Ethereum is Ether or ETH. It is the second-largest crypto by market capitalization and share and has held strong to that second spot for a long time. Ether is what you purchase as a store of value, to pay for goods/services, or as investments on the Ethereum blockchain.
Ethereum is the network and blockchain on which data can be stored, and decentralized apps can be hosted. Enterprises can also leverage Ethereum for managing large volumes of sensitive data and take their company to the blockchain to ensure better levels of security, assurance, and safety at scale.
How Ethereum Works
Ethereum is a decentralized platform that runs smart contracts. Smart contracts are stored on the Ethereum blockchain, a public ledger containing all the transaction data from the network.
The Ethereum network exists on several computers around the world thanks to users that participate as nodes rather than having things stored on a server like AWS or some other server service. As a result, the Ethereum network is decentralized and secure.
This system runs on a decentralized computer called the Ethereum Virtual Machine (EVM). Note that the EVM runs the smart contracts on the Ethereum network, ensuring that all the contracts are executed correctly and securely. Each of those “nodes” holds a copy of that computer.
Each transaction on the network is stored in the Ethereum blockchain, but before such transactions are successful, miners must approve them. Mining comes from the proof of work method that Ethereum uses, which requires a huge amount of computing power. From Ethereum 2.0, Ethereum will work on proof of stake where validators can approve transactions based on their staked coins.
Once a transaction occurs, it is published on the blockchain, making it public and tamperproof. One more thing about transactions, before they can be approved, the initiator of the transaction must pay what is called a gas fee in Ether.
A portion of that fee is given to the miner or validator for their time and effort. Gas fees also help to prevent spam in the network.
The main advantage of Ethereum over other blockchain platforms is that it is Turing complete, which means it can support any decentralized application. Bitcoin, on the other hand, is limited to only supporting financial transactions.
Why buy Ethereum?
If you’re looking for an investment that has the potential to appreciate in value, Ethereum is a good option.
Expanding Developer Community
In the time Ethereum has been in existence, it has revolutionized the cryptocurrency market. The team behind the technology, which comprises over 250,000 developers, is admired by many, and that strong support can help Ethereum innovate, grow faster, and be more secure.
More than a Cryptocurrency
Unlike Bitcoin, which is mostly just for financial transactions only, Ethereum is more than being a currency. The network supports smart contracts, decentralized application and finance, and more, all of which have become big sell points for businesses innovating and investing in the blockchain.
Also, it facilitates Initial Coin Offerings with the ERC-20 token technology, which has likely fueled the growth in the number of altcoins in existence.
As a result, more solutions will rely on the Ethereum blockchain, potentially leading to better longevity which could translate into better growth of your investment.
Ethereum 2.0 should be one of the biggest reasons to buy Ethereum. With Ethereum 2.0, the security and speed of transactions, amongst others, will be greatly improved. We have covered that in detail already in our Ethereum 2.0 article.
Popular Crypto with Possibilities
Ethereum is the second-most popular crypto, so many users will still flock to invest, which could mean growth. Also, it has a lower barrier to entry than Bitcoin at the moment; the value of one Bitcoin to a dollar has been in five figures while Ether is still in the lower range of four figures. It could also mean that the value of a Bitcoin may not be able to get a 100% growth, but Ether might.
Due to the possibility of building decentralized applications on the Ethereum blockchain, businesses are attracted, both large and small. That can also influence the continuous growth and existence of Ethereum in years to come.
How Much Should I Invest in Ethereum?
There’s no exact amount that you should put into Ethereum. A good rule of thumb would be to invest only what you can afford to lose. That may be $20 for some or $10,000 for others.
Ethereum, like every other cryptocurrency, is volatile, so you can lose or gain much. You can never really tell how the market will go; everything is speculative.
While Ethereum has the possibility of turning your investment into millions over time, it also can turn it into nothing. Sure, there is demand and good market sentiment right now, but you don’t know how things will be in the next few years.
You can also research to find out what potential financial laws, occurrences, or crypto-specific news could negatively or positively affect the market before you get into it.
Start with the amount you can afford to lose, just in case the market goes negative, and you lose some value. Then go from there.
How to Buy Ethereum
If you’re interested in buying Ethereum, there are a few different ways you can do it.
You can buy Ethereum with fiat currency (USD, EUR, GBP, etc.) on exchanges such as Coinbase, Kraken, or Bitstamp.
You can also buy Ethereum with cryptocurrency on exchanges such as Binance or Huobi.
The process of buying Ethereum on each platform differs. However, expect a process like this:
- Sign up on the platform
- Go to the buy/trade section
- Buy or trade by doing one of the following:
- Select Ethereum as the currency you want to buy and input the value you want, then purchase or
- Select a cryptocurrency that you already have and select Ethereum, then trade that cryptocurrency for Ethereum
For beginners to crypto, using Coinbase or Binance is best. Experienced users can use decentralized exchanges and wallets like Metamask + Transak.
How to Grow Ethereum
Investing in cryptocurrency should be more than just purchasing the coin. After purchasing, what next?
There are various strategies you can use to grow your Ethereum investment; staking, holding, crypto lending, and yield farming are some of them, amongst others.
What is Crypto Staking?
Crypto staking is providing your coins to a staking pool or working as a validator (to do the heavy lifting as well) by putting your coins down to work against dishonesty in the Ethereum network and approve transactions. By staking coins, it ensures that validators in the proof of stake consensus have their skin in the game to ensure the good of the network.
In return, you receive rewards in the native currency of the Ethereum blockchain, which is Ether. The bigger your stake, the higher the chance you (the validator) or the validator of your staking pool has to propose a new block in the chain and collect a reward.
Staking is used in the Proof of Stake consensus. With Ethereum moving to proof of stake with Ethereum 2.0, you can earn a considerable amount of crypto using crypto staking strategies. Some centralized platforms, including Coinbase and Binance, also allow users to stake their Ethereum.
The process of staking, just like buying, differs by platform. In most cases, you only have to go to the staking section on that website, connect your crypto wallet, type in the amount of Ethereum you want to stake, and then approve the transaction by paying the gas fees through your wallet.
What Is Holding?
Crypto holding or HOLDing is a tactic where you purchase Ethereum and leave it in your crypto wallet in hopes that the value of Ethereum rises and then you can sell for a profit. This strategy is a very speculative one as you have to hope the value of Ethereum rises so you can benefit from it.
To do crypto holding, simply buy Ethereum, as we have shown you in the how to buy Ethereum section, then leave it in a safe crypto wallet such as Metamask and periodically check on the value of Ethereum to know when the best time is to sell for a profit.
What is Crypto Lending?
Crypto lending is giving your Ethereum out to people who need it, and in return, you earn interest. This works like traditional lending, where you give money to someone, and the person pays you back at the agreed time with interest.
To ensure your crypto is safe with this strategy, it is advisable that you use crypto lending platforms like Compound Finance to lend your crypto so you have a system in place to liquidate the borrower’s collateral if they don’t pay back on time, thus helping you retrieve your Ethereum.
What is Crypto Yield Farming?
Crypto yield farming is delegating your Ethereum to decentralized exchanges and platforms to provide liquidity for crypto transactions on the platform. In return, you will receive a percentage of the gas fees.
When doing yield farming, you can’t only delegate Ethereum. Usually, you will delegate Ether and one other currency in a 50:50 ratio, and that amount is converted to the liquidity token of the platform while still holding the value of the coins you put in.
Yield farming can bring you loads of growth but also risks. We have covered it in depth in our crypto yield farming article.
Pros and Cons of Ethereum
Pros of Ethereum
We have covered a lot of the pros in the “why buy Ethereum” section. Here, we will give a short overview of each pro.
- It’s flexible: as mentioned before, Ethereum can be used to build all sorts of decentralized applications. This gives developers a lot of freedom and flexibility in creating new apps.
- It has a large community: because Ethereum is one of the most popular blockchain platforms, it has a large and growing community of developers, users, and businesses.
- It’s faster than Bitcoin: Ethereum transactions are confirmed in seconds, faster than Bitcoin transactions. Also, the network can process more transactions in a minute than Bitcoin.
Cons of Ethereum
1. It has scalability problems
Unlike Bitcoin, which can only handle financial transactions, Ethereum is more than that. It acts as a ledger, a smart contracts platform, a network on which DeFi applications can be built, and so on. These many areas can lead to vulnerabilities. However, its multifunctionality is also one of the reasons Ethereum is very attractive to many investors.
2. High gas fees
The amount you pay on the Ethereum network to approve your transactions is way higher than gas fees on blockchains like Celo. Miners tend to choose transactions with the highest gas fees to be validated first, leading to higher fees to get transactions validated in the congested network. Hopefully, proof of stake will mitigate this.
3. Ether is not Capped
Bitcoin is capped at 21 million coins, and most other cryptocurrencies are also capped. However, Ether is not. That may be seen as a pro by many, but by some, it is a con. Having no cap may mean it will lack scarcity because an unlimited amount of Ether can exist. If too much of it floods the market, it may result in a devaluation of profits, but this is only speculation.
4. Purchasing Ethereum can be risky
This con is not specific to Ethereum, as it can be a con for all cryptocurrencies. All crypto coins are highly volatile, resulting in a profit or loss depending on what the volatility leads to. The price of Ether goes up and down, and that rate can be at a 50% increase or decrease.
5. Affected by Bitcoin
Although this shouldn’t be, we have seen a correlation between a drop in the price of bitcoin and other cryptocurrencies, including Ether. A fall in the value of Bitcoin usually has a habit of dragging ETH down as well.
Despite these challenges, Ethereum has grown to become one of the largest blockchain platforms in the world, with a market capitalization of over $100 billion. If you’re looking for an investment that has the potential to appreciate in value, Ethereum may be a good option. Just be sure to research the risks before you invest.
Ethereum vs. Bitcoin and Celo
When it comes to cryptocurrency, there are many different options to choose from. But if you’re just getting started, you might wonder which is the best?
Bitcoin, Ethereum, and Celo are all popular cryptocurrencies with their own unique benefits and drawbacks. So, which one is the best? Let’s take a look at each one to find out.
Is Ethereum Better Than Bitcoin?
The advantage of Ethereum over Bitcoin is that it can support many different types of decentralized applications. At the same time, Bitcoin was designed to be digital cash only, which is limited to supporting only financial transactions.
Bitcoin is still the largest, with over $600 billion in market capitalization. It is decentralized and peer-to-peer, offering a high degree of security. However, Bitcoin transactions can be slow and expensive, and the network is not scalable.
Ethereum took the whole digital cash thing to a new level to leverage blockchain technology to be more than just financial transactions for other use cases. Ethereum is the second-largest cryptocurrency, with a market capitalization of over $100 billion. Ethereum is a decentralized platform that runs smart contracts and offers a high degree of flexibility.
Furthermore, the price to entry is lower on Ethereum and may be more affordable to purchase than Bitcoin. Plus, with its lower value, there is a possibility we can see a 100% or more increase in value compared to the same happening with Bitcoin.
In addition, Ethereum has the potential to develop faster than Bitcoin; it is said that Ethereum has the most core developers (not including community project developers) in the crypto industry. Its number is twice as many as Bitcoin’s.
Due to all the factors above, some people believe that Ethereum has the potential to overtake bitcoin, especially with Ethereum’s move to the proof of stake consensus and more use cases and utility.
Ethereum vs. Celo
Celo is a new kid on the block that wants to improve upon what Ethereum started by making it easier and more affordable to use cryptocurrency.
It was designed to be more scalable and user-friendly than other cryptocurrencies. Celo offers fast and free transactions, and a number of major companies back it.
Celo’s main advantage over Ethereum is its scalability; Celo can process up to 1000 transactions per second, while Ethereum can only handle around 30 (though 2.0 may improve this).
Also, Celo is designed to be more user-friendly than Ethereum, with an emphasis on simplifying the process of sending and receiving payments, and gas fees on Celo are way lower (as low as $0.01).
In addition, Celo was designed to support mobile users. So, you can easily perform transactions on the blockchain on your mobile phone and even send crypto to others simply by sending it to their phone numbers, even without knowing the other party’s public address. This is something you can’t do on Ethereum.
Furthermore, Celo has its native currency called the Celo Dollar (cUSD), which is pegged to the US dollar. This stablecoin can be used to send and receive payments without worrying about cryptocurrency prices’ volatility.
Which Cryptocurrency is Best?
We have looked at the pros and cons of Ethereum and even compared it with two popular cryptocurrencies.
Answering which crypto is best depends on what you’re looking for.
If you’re looking for a cryptocurrency with a high degree of security and decentralization, then Bitcoin is a good choice.
However, if you’re looking for a platform that supports smart contracts and decentralized applications while still being secure and flexible, then Ethereum is a better option.
If you’re looking for a platform that is more user-friendly, fast, convenient, and scalable with lower gas fees, then Celo is the best choice.
Ultimately, it’s up to you to decide which cryptocurrency is the best for you.
Ethereum is one of the most popular and well-known cryptocurrencies, with a market capitalization of over $100 billion. Ethereum is a decentralized platform that runs smart contracts and offers a high degree of flexibility.
Many people believe that Ethereum has the potential to overtake Bitcoin, especially with Ethereum’s move to the proof-of-stake consensus and more use cases and utility. However, Ethereum faces challenges, such as scalability issues and competition from other cryptocurrencies.
What do you think about Ethereum? Do you believe it has the potential to overtake Bitcoin and other cryptocurrencies? Let us know in the comments below!