Ethereum cryptocurrency guide advises where to buy and how to buy Ethereum. This guide also contains the markets, value, trading, investing, buying, selling, transactions, blockchain, mining, technology, advantages, risks, history, legislation, regulation, security, payment, networks and many other interesting facts about Ethereum as well its status in the world of cryptocurrencies.
Ethereum, Tuesday, 2018-08-14
- 1 What Is Ethereum?
- 2 Beginner's Guide to Ethereum
- 3 Where and How to Buy Ethereum?
- 4 Ethereum Markets
- 5 Where to Spend or Use Ethereum?
- 6 How Does Ethereum Work?
- 7 Ethereum Regulation
- 8 Is Ethereum Secure?
- 9 History of Ethereum?
- 10 Ethereum Videos and Tutorials
- 10.1 What is Ethereum - Presented by Stephan Tual, CCO
- 10.2 Ethereum's Vitalik Buterin - Decentralizing
- 10.3 DEVCON1: Ethereum Blockchain Protocol - Vitalik Buterin
- 10.4 Bitcoin vs. Ethereum - Which One Is A Better Investment Over The Next 10 Years?
- 10.5 Joseph Lubin - The Basics of Blockchain and Etherum
- 11 See Also
What Is Ethereum?
Ethereum is the rising star in the world of cryptocurrencies. It is an open source and decentralized platform that allows developers to create Distributed Apps (Dapps) and run without control, fraud, downtime, or third-party interference. It was launched in 2015 and has rapidly grown to become one of the most valuable cryptocurrencies. The value of its native asset (Ether) has grown by more than 6,800% since its launch in 2015 to hit a high of $480 (£358) by the third quarter of 2017.
The cryptocurrency is ranked third most valuable but second by market capitalization. Ethereum operates on the Ethereum blockchain that was first described in 2013 by one of the Bitcoin programmers, Vitalik Buterin. The total value of the ethers in circulation is more than $46 billion.
Ethereum is not just a platform and a cryptocurrency, it is also a programming language (Turing complete) operating on the blockchain to assist developers in creating and publishing apps. Ethereum operates on its platform-specific token (ether) that was described during the 2014 launch by Vitalik. You can use Ether as a digital cryptocurrency just like Bitcoin or apply it to run applications.
The platform can be used to decentralize, codify and secure anything on the globe. This is the reason that many companies have been trying their systems by integrating the Ethereum network, especially in apps development. One such big project is the Microsoft-ConsenSys partnership that provides Ethereum Blockchain as a Service (EBaaS) on the Microsoft Azure. This means that enterprise clients can directly access the cloud-based blockchain development environment.
The main goal of Ethereum is to become the ‘world computer’ and replacing the current internet third parties that store, transfer and track complex technologies. Ethereum replaces servers and clouds with thousands of distributed nodes operated by volunteers across the globe.
The ultimate mission is enabling different functionalities across the globe so that people can offer services on the best infrastructure. No one will have absolute control over transactions or your information, and no authority will be able to ban it.
Beginner's Guide to Ethereum
Ethereum has been referred to as the future of cryptocurrencies. To some, it is the ultimate change that has finally hit the globe. Ethereum is a very strong cryptocurrency started in 2014 by a young developer called Vitalik Buterin. While other cryptocurrencies were mainly focusing on simply sending and receiving payment, Ethereum followed a different route. The founder wanted to create a platform where developers could work and deploy their apps easily.
Today, though Ethereum has not grown to reach the levels of Bitcoin, its structures are considered stronger and more resilient. Its tech team starting with the Ethereum founder, Vitalik, has been vocal and easy to identify with in a manner that defies other cryptocurrencies.
The progressive adjustments to drive improvements in Ethereum have demonstrated its capacity to outgrow the founder’s vision and become the ultimate blockchain.
From enhanced anonymity to apps deployment and faster transaction pace, Ethereum has endeared itself to both small and big incorporations such as Intel and Microsoft that now want to partner and use its core. This is one cryptocurrency that you cannot afford to miss. Whether you want to start mining its network, buy some ethers on the exchanges, or work on apps, do not be left behind. The best place to start actually is here.
This is a comprehensive guide on Ethereum that brings you everything that you need to know about the cryptocurrency.
Where and How to Buy Ethereum?
Though Ethereum has continued to grow rapidly, new enthusiasts are still unsure of where and how to buy. First, it is important to appreciate that Ethereum is a digital currency that only exists in its network. Therefore, you must have the requisite wallet that can hold Ethereum. Here is how to go about buying Ethereum.
- Start by selecting an appropriate crypto wallet
- Ethereum can only be held in a digital wallet. These are special hardware, mobile apps, or web-based software that helps to store the private keys and public keys that point at your coins. Some great options include Ledger Nano S, Coinbase, or Jaxx.
- Buy Ethereum from different exchanges
- This is a great option because it allows interested users to acquire Ethereum direct into their wallets from the top exchanges. The exchange works like the Forex market. The price of Ethereum in exchanges depends on the supply and demand. Some great exchanges include Coinbase, Poloniex, and CIX.io.
- Buy direct from those with Ethereum
- If you live in cities where cryptocurrencies have gained a lot of popularity such as New York and Miami, you can get a person to literally sell you ether. This means you have a face-to-face meeting. Note that even in such meetings, the transfers have to be in the cryptocurrency wallets. The price and payments when it comes to face-to-face buyout are dependent on the trading parties.
- Ethereum ATMs
- These are crypto-ATMS that are operated by brokers or exchanges. Just like an ordinary ATM, the interface requires you to select the amount of ether to buy and price. Most of them accept fiat currencies through cards such as Credit Cards and VisaCrads. The great thing about the ATMs is that they are direct and do not involve third parties.
When you decide to enter the cryptocurrency world whether to trade, mine, or develop apps in the case of Ethereum, one must have thing is an appropriate digital wallet. The wallet allows you to store, send, and receive digital currencies such as Ether. People in Ethereum network can opt to use hardware wallets, web-based wallets, desktop wallets, mobile wallets, or paper wallets.
Note that though cryptocurrency wallets are used as a store for ethers and other native coins, the term storage is actually a misnomer. The Ethereum wallets store private keys that are special codes only known to you and the wallet. This is what makes the wallet personal. If you lose the wallet and the private keys, the chances are that they are gone forever.
The Ethereum wallets also store the public keys or addressed. This is the address that distinguishes the wallet in the network. When receiving payments for services in the network, what you share with the payer is the public address. The private keys should never be shared.
How to pick the best Ethereum wallets
Every cryptocurrency has its recommended wallet for users. In Ethereum, you should consider the Ethereum wallet or MyEtherWallet. The recommended wallets provide better integration to the Ethereum network and make transactions direct without involving third parties.
Very important! Some software offered as Ethereum wallets are actually malware. Make sure to only go for wallets that are provided by trusted companies. Here are the main things to factor when picking a great Ethereum wallet.
- Ensure it does not have a hacking history. This is an indication that the respective wallet team is highly committed to securing user’s digital currency in it.
- Make sure the wallet has a large following that can give good feedback about it.
- It should provide cold storage and secure backup services to make recovery easy in case the wallet gets lost.
- A great UI (user interface) that makes the wallet easy and convenient to use.
- A large development community that progressively improves the wallet for better results.
- Compatibility with the respective operating system. You should make sure to confirm this, especially when going for mobile wallets because most of them are highly specific.
The best Ethereum wallets
The following are the top Ethereum wallets users should consider. Remember that no single wallet is fully immune to attacks, loss or theft. You must take extra care of the Ethereum wallet all the time. Let us identify the most secure Ethereum wallets.
- Ledger Nano S (hardware wallet)
- This is one of the top Ethereum hardware wallets on the market today. The ethers are stored offline on the finger-sized hardware. Notably, the private keys are signed from the hardware and do not leave the wallet at any moment. The security of the Ledger Nano S is so strict that it can even be used on a hacked computer without worrying of getting attacked.
- Trezor (hardware wallet)
- Though Trezor was invented specifically for Bitcoin, it is equally effective for Ethereum. The ethers are stored offline on a special chip that is only activated when the owner signs with the right password.
- Exodus (Desktop wallet)
- This is a multi-cryptocurrency desktop wallet that has won affection from Ethereum users who target intensive trading. The wallet has ShapeShift (one of the leading cryptocurrency exchanges) built in it. Exodus also comes with great features such as direct email recovery as well as backup seed keys that can help to restore the wallet in case it is lost.
- Jaxx (mobile wallet)
- This is a multi-asset wallet designed by Decentral (a Canadian based company). It supports 13 cryptos including Ethereum. Most cryptocurrency traders opt for Jaxx because of its great UI and robust security features. Besides, it has a robust community that progressively improves all the features. The app is available for most operating systems including Android, Windows, Linux, Mac, OS, and iOS. Decentral has also indicated they are working on the hardware version of Jaxx wallet.
- Coinbase (web wallet)
- This is a US web-based wallet that was originally designed to support Bitcoin. However, they have expanded to include Ethereum and Litecoin in their system. The wallet is preferred by many Ethereum users because it is also a cryptocurrency market for regular trading.
- To get the Coinbase wallet, you need to sign on their website by providing personal information, get the public address and transfer some Ethers to it. The only problem with the wallet is that the private keys are stored on the servers, and the user only accesses them when sending clients.
- MetaMask (desktop wallet)
- This is one of the recommended wallets that provide more than currency storage services. MestaMask serves as a browser to help access the Ethereum network as well as the apps. The UI is very intuitive, and users can easily switch between the Ethereum network and their wallets.
- MyEtherWallet is a web-based wallet that operates slightly differently from other wallets. While other web-based wallets manage the private keys for you, MyEtherWallet allows users to take full control of the keys in their computers. As an open-source wallet that does not have third-party servers, users can actually write and access different smart contracts. It also has a BTC-Ether swap facility that makes it easy to take advantage of the changing markets for the two cryptocurrencies.
- EthAddress (paper wallet)
- If you are uncomfortable about using a web-based or mobile-based wallet, the other great option is picking a paper model. EthAdress is a paper wallet that allows users to print their private and public keys in a paper and keep them in a safe. Make sure that the address is not accessed by third parties.
Where to Buy Ethereum with Credit Card?
As the society advances towards a cashless system, the connection to fiat and conventional payment methods remains. In fact, new people joining the crypto world want to know whether they can buy Ethereum with cash. However, this is impossible when it comes to cryptocurrencies such as Ethereum. Here is an account of where to buy Ethereum using a credit card.
- Coinbase. This is a major exchange in the market that supports the top three cryptocurrencies, Bitcoin, Ethereum and Litecoin. In addition to providing great features, Coinbase also allows users to buy Ethereum using a credit card.
- CEX.io. This exchange is probably the most advanced in the crypto world today. It has a global presence and allows traders to buy Ethereum using multiple methods such as credit cards, fiat, and other cryptos. The charges for using the network are 0.2%.
- Coinmama. This is a great place to buy Ethereum even without having to verify the trading account. However, such buyouts come with great limitations. If you want to buy more, make sure to verify the account with additional details such as proof of address. Coinmama is available in most countries across the globe and accepts payment in credit cards.
- Bitpanda. This is a Bitcoin broker that has set a name for accepting credit cards during crypto assets purchase. Initially, it only allowed people to buy Bitcoins before expanding to include Ethereum.
One thing that every exchange or broker that allows traders to buy Ethereum with credit card requires is an updated crypto wallet and a loaded credit card. Besides, you should also confirm that the credit card company allows such transactions to avoid failure, penalty, or loss of funds.
Where to Buy Ethereum with PayPal?
For many people, the closest they have gone to digital money is PayPal. Because of its wide acceptance in multiple e-commerce stores, virtually everyone has a PayPal account. Therefore, if you want to buy Ethereum using PayPal, the first thing is ensuring that the account is verified. Then, you need to visit any of the following sites to create an account and buy Ethereum.
How to Buy Ethereum with Wire Transfer?
There is nothing that commands respect and trust in the society today as a bank. This is the reason why many people entrust them with their salary, mortgages, and even personal investment portfolios. Though there is no way to buy Ethereum using wire transfer directly, it is still possible through an appropriate exchange. Note that the transactions take longer because the seller must first confirm the bank account and ensure it has ample funds. In some cases, the Ethers are only transferred to your wallet after the money hits the exchange wallet.
To buy Ethereum using wire transfer required one to provide personal credentials such as personal names, proof of address, and be available to provide additional details that might be needed. The buyer should also open an account with the respective seller so that the ethers are transferred to the right wallet. Because of the complexities involved, the cost of transferring cash from bank to an exchange is more expensive. The following are four exchanges that allow traders buy Ethereum using wire transfers.
Where to Sell and Trade Ethereum?
For people who have been looking forward to trading in cryptos, the first step is picking an appropriate cryptocurrency. The Ethereum platform stands from others because of its technology and large community. You can invest in the cryptocurrency or trade it to make huge returns as the value grows with time. The following are the main places to sell and trade Ethereum.
- This is one of the US-based ether exchange platforms regulated by the government. What the regulation means is that Gemini standards of operations are close to those of a banking institution. For example, all the US Dollar deposits must be held at an FDIC-insurance bank while digital currencies are kept in cold storage. The focus targets helping to protect user’s deposits all the time.
- Gemini limits trading to only three currencies, Ether, Bitcoin, and Dollars. While this makes it easy to operate within the legal framework, traders who want to focus on other cryptocurrencies have no choice but look for a different platform. Besides, the platform is geo-specific and allows only users from the UK, The US, Singapore, Hong Kong, Japan, South Korea, and Canada to use it. If you opt for Gemini, it is important to appreciate that its community is relatively small, have no margin trading and customer support is average.
- This is a digital asset exchange that allows the Ether owner to trade securely using its advanced procedures. The platform allows traders to sell and trade securely even for their cryptos stored offline in cold storages. This minimizes the risk of getting hacked or having crypto assets stolen by criminals. Poloniex progressively monitors every activity on a 24/7 basis and closes every block that looks suspicious. This helps to prevent things from getting worse in case of an attack.
- Since the exchange was hacked in 2014, many people have always treated it with suspicion. Besides, the UI is relatively complex such that new users would require some time to learn to trade in it.
- This is one of the most advanced Ethereum trading platforms in the market today. Unlike other trading platforms, the liquidity providers in the network are assured of earning some interest by funding traders. The advanced trading graphing tools of the platform further help users to visualize orders, prices, and positions to make the right decisions.
- The biggest selling point for this platform is allowing users to make unlimited withdrawals and utilize multiple payment methods. This means that you can buy the preferred Ether with US dollars or Euros among other cryptocurrencies.
- This is a professional Ethereum trading platform based in China. The platform makes trading in Ethereum for other cryptos easy and fast. In addition, it also allows users to trade Ethers for the Chinese Yuan. The main strategies used by CHBT include a multi-signature wallet, cold storage, and multiple security layers.
- The key undoing of the CHBT exchange is that it is only available in China and does not accept other fiats except Chinese Yuan. This means that the exchange works like a Chinese only market.
- This is one of the fastest emerging platforms for trading Ether. It has a very intuitive interface and provides multiple digital cryptocurrencies. The advanced metrics of the network make it easy for users to follow the price trends and predictions to establish the best time and price to trade your Ether.
- Many people particularly enjoy the fast transactions on the network that make depositing and withdrawing crypto assets direct. Most transactions are completed within minutes.
These are just a few trading options for Ethereum that you can go for because of demonstrated reliability. However, there is no shortage of trading platforms where you can sell and trade Ethereum. These platforms are likely to continue growing in the near future as the demand to trade Ethereum for other cryptos or fiat continue rising.
How Much Are the Transaction Fees of Ethereum?
When Ethereum was founded by Vitalik, the target was to offer better services than Bitcoin and conventional organizations. This meant greater reliability, good customer support, and lower transactional fees.
The charges on Ethereum network are not fixed. However, they change over time based on the miners and users. Every computational on Ethereum network costs gas and so are the transfers. Gas is the internal pricing established to run transactions or contracts in the network.
Every computational step (OPCODE) demands a specific amount of gas paid in ethers. The fee can be calculated using this formula (required gas x gas price). Let us take an example here. If a transaction targets transferring 21000 gas, the present gas price is 0.00000005 ether, the transaction fee would be 0.00105 ether.
The good thing about Ethereum is that the fee is shown before a transaction can be flagged off. However, you should not read the transaction costs on Ethereum to be the only determinant of the amount that remains after sending ethers. In many cases, the cryptocurrency wallet and exchange used during transactions can deduct more funds to cater for their services.
Ethereum markets are cryptocurrency exchanges or websites where people can trade in the native ETH and other altcoins. Depending on the market, it might be possible to also exchange Ethereum for fiat currencies such as US Dollars or Euros. For people who want to trade professionally, it might be necessary to verify personal identity and acquire an account to access exclusive tools. The main types of Ethereum markets include.
- Trading platforms. These are sites that connect buyers and sellers who want to buy or sell Ethereum for other altcoins or fiat.
- Direct trading. These are special platforms that provide person to person trading opportunities for individuals. Note that unlike the common trading platforms where demand and supply set the market price, it is the sellers who set the exchange rates.
- Brokers. These are sites where anyone can purchase cryptocurrencies at the rates set by the broker. Most of the brokers operate like the exchanges.
The most important things to check when looking for Ethereum markets
When you set out looking for a good Ethereum market, it is important to do the homework accordingly. This is very important especially if you are buying Ethereum for the first time. Here are the main factors to consider.
- Reputation. This is the most crucial factor when picking a market. Here, you should read through reviews done by industry experts and individual users who have been on the respective websites.
- Fees. Many exchanges have a fee for using their platforms. If the fee is too high, the chances are that it will eat into your profits. Therefore, you should establish the fees for using the platform and even set simulations to know how much of your profit goes to the network and what remains.
- The verification requirements. Many Ethereum markets in the US and UK require some verification. While verification can take time in some cases, it is important in protecting the exchange against money laundering.
- Geo-restrictions. Some markets come with geographical limits. Some might be open to users only in Europe, Asia, or a specific country. It is, therefore, important to pick the market that allows people from your jurisdiction to use it.
The best Ethereum markets
- Though there are many markets available for Ethereum users, they are created differently. The best way to identify a great market is considering the security, user-friendliness, accessibility, and fees.
- The Coinbase
- This is a US-based market that was established to support Bitcoin trading. It has millions of clients globally and has grown to become one of the most popular markets for Ethereum in the globe. The market has a great UI that makes it easy to buy and sell ETH securely. In addition to serving as an Ethereum market, Coinbase is also a cryptocurrency wallet.
- One of the Coinbase’s best selling points is that the Ethers stored in it are insured. This means that you are sure of getting back ETH in case they get lost through cyber attacks. The market also has a special branch called GDAX for people who want to trade professionally or handle a lot of Ethers.
- This market was founded in 2011 for trading Bitcoins. However, it has grown to become the largest market for trading other cryptos including Ethereum, Ethereum Classic, Monero, and Ripple. The market has good exchange rates for Ethereum traders, low transaction fees, and rich features.
- The main drawback for Kraken is that it lacks an intuitive UI. Many people especially first time users find it very difficult to get started and trade like experts. The payment methods are also limited.
- This is perhaps the most diverse market for Ethereum and other crypto assets today. The market allows users to trade Ethereum for other cryptos as well as fiats. For people who want to trade Ethereum professionally, CEX.io allows them to personalize the dashboard for extra features. Many users prefer CEX.io because of its great reputation, has a worldwide support and offers great exchange rates. Besides, the exchange also supports the use of credit cards when buying Ethereum.
- This is a leading exchange market for many cryptocurrencies including Ethereum, Bitcoin, and Zcash. It is a great market for people who want to trade directly without needing to sign for accounts or using a specific platform for holding funds. Its reputation comes from its great UI, reasonable prices, and availability of multiple cryptos to trade for ETH.
- However, ShapeShift falls short falls short in some key areas including limited payment options and not allowing trade via fiat currencies. Despite these shortcomings, ShapeShift is one of the fastest growing markets with a lot of potential.
- This is one of the most renowned crypto brokers in the market today. As a broker, the target is simply helping people to buy Ethereum. The broker is preferred for allowing users to buy Ether using multiple methods such as MoneyGram, Credit Card and even the Western Union. It is an ideal place for people who want to make a direct purchase to their wallets without following complexities of the exchange.
- Note that Coinmama is best when used by traders in Europe. Though you can still buy Ether when located outside Europe, the process is very slow. The main disadvantage of the broker is its high exchange rates and premium fee for those using credit cards.
Value of Ethereum
Starting from 2014, Ethereum released and distributed the first Ether through its 42-day presale that netted 31,591 Bitcoins. This was an equivalent of about $18,439,086 by July 2014. By January 2016, one ETH was trading for $1.
In 2016, Ethereum implemented the famous DAO (Decentralized Autonomous Organization) that saw a whopping $150 million getting pumped into the network. DAO also made the value of ETH appreciate 15 folds to hit $14.80 by close of May 2016.
By March 2017, the price had grown to hit $52.31. While the lengthy period between 2014 to mid-2017 only saw moderate growth of Ether, the last quarter of 2017 has been explosive. By September, the price had shot up close to $400/ETH. Though the price growth and its publicity have been dwarfed by the explosion of Bitcoin growth, there is no doubt that Ethereum is equally making huge strides.
Many experts say that Ethereum investors have been on a fishing ride to cash on the opportunity that is Bitcoin in the last quarter of 2017. This brings us to the question; what exactly is the future of Ethereum value?
The Ethereum value looks very promising
While Ethereum’s sharp rise is considered a no-show because of the supersonic grow of Bitcoin, investors are still bullish about the long-term prospects. The forthcoming Devcon3 conference is expected to shed light on the future of the cryptocurrency.
Vitalik Buterin outlined a multi-layered guide that digs into some of the core issues that face the platform. Of particular focus is the network’s scalability. Also, Zamfir Vlad released a whitepaper for Casper, the new proof-of-stake consensus that has been under review. This is expected to be a game changer on the way the entire network operates.
Unlike other networks, many people have associated with Ethereum because some of the founders such as Vitalik are always there for them. Because the investors and network users can associate with the lead team, new apps that address the market demand are likely to continue growing the value of Ether on the long term.
Special approval from corporates a sign of sustained growth
Even if more people are fast to hit Bitcoin and join the faster-moving train, the corporates are seeing it differently. The sound basement of Ethereum, especially the focus on apps development, has won the trust of corporates. Their interest has sparked speculation that Ethereum could actually turn out stronger than Bitcoin in the long term.
In February, big companies in the Wall Street and techs seeking to join the fast-growing crypto world opted to pick Ethereum. The giants, including Intel, Microsoft and JP Morgan Chase among others founded the Enterprise Ethereum Alliance that targets to utilize Ethereum platform for integrating blockchain solutions to their infrastructure. This is a positive indicator of the things to come.
In another survey done by Nathaniel Popper of New York Times, many businesses remain bullish about Ethereum and its value. About 94% of the firms surveyed during the study indicated they felt positive about Ether tokens compared to 49% who felt the same for Bitcoin. One of these firms that remain bullish about Ethereum and Ether value is MGT Capital. The company indicated it was optimistic about Ethereum and would soon venture into Ethereum mining to raise its profitability.
Is It Profitable to Invest in Ethereum?
Investing in cryptos is the hottest thing today. Though little was known about the cryptos about a decade ago, the entry of blockchain technology in 2009 created a new way to look at the currencies and entire notion of investment. Most cryptocurrencies provide people with chances to invest in their native assets and expect to reap big over time. However, the number of cryptos that you can invest in has been growing at supersonic speed to hit over 1100 in only 9 years.
One of the best cryptos to invest in at the moment is Ethereum. Though its value trails Bitcoin from a distance in top exchanges, many are those who remain highly optimistic about investing there. Here are the main reasons why it is highly profitable to consider Ethereum for investment.
- Ethereum has more applications compared to Bitcoin
- From a broad viewpoint, cryptocurrencies have many selling points. They are anonymous, secure, and highly effective. However, the most important is the technology being used to run the network. The first blockchain technology was used by Bitcoin that created new blocks and attached them to the main public ledger. This guaranteed the cryptocurrency greater stability and security. However, Ethereum goes beyond this.
- Ethereum is crafted in Turing-complete language that allows it run any algorithm. This means that any script can operate on the Ethereum network. Therefore, Ethereum records things faster compared to other networks. While Bitcoin completes the transactions every ten minutes, it only takes 12 seconds in Ethereum. This makes Ethereum the best model to support any business program, solve issues and enjoy higher value for money.
- Support by many incorporations
- The progressive rise and stability of Ethereum can be associated with the unique support the cryptocurrency receives from top companies. When you get approval from companies such as Microsoft and JP Morgan Chase, it means that their massive analytical teams have evaluated and proved the value of the cryptocurrency is reliable. Recently, top companies in Wall Street formed the Ethereum Enterprise Alliance that seeks to tap into the tech capacity of Ethereum. Therefore, do not be left behind, place some investment in the network and see it grow over time.
- Ethereum is seen as a partner by banks and not a threat
- When you look at any cryptocurrency such as Bitcoin, the main target is making it easier for users to send cash easily and cheaply. This has made banks and governments to see the cryptocurrencies as direct threats to their existence. However, the design of Ethereum that allows even banks and institutions to create layers of networks and ride on the Ethereum core has redefined the relationship. Now every bank wants to be a partner with Ethereum. This means that any investment in the network will continue growing progressively.
- The Ethereum team is focused on delivering value
- While more people are rushing to cash on the Bitcoin because of its current price, it is surprising to hear most of them indicating about special attachment to Ethereum. The structures used in Ethereum guarantees users that their investment is in best hand. The lead team works tirelessly to keep the network safe and minimizing all risks. This is what has made many investors develop a lot of trust and expect high profits over time.
- A growing community and global appeal
- When people think of investments, they want to see something they can associate with in the long term. Many cryptocurrencies have failed in solidifying their global appeal by focusing only on the current market value. For example, when Zcash was launched, the hype was mainly created through media. However, it fell sharply within the first few minutes of entering the market. Investing in Ethereum is profitable because everyone in the crypto world can identify the unique structures and long-term projections. The appeal is expected to wither all obstacles that may be encountered on the way.
Where to Spend or Use Ethereum?
For many people getting into cryptocurrencies, the simple notion that Ethereum is an alternative currency leads them to the main question- where can I spend Ethereum? Many cryptocurrencies have been fighting for recognition so that users can apply them in their daily lives easier. For the three years that Ethereum has been in existence, it has won the trust of many traders and stores that allow their traders to pay using ETH.
- Overstock.com, one of the leading e-commerce giants, announced that it would start accepting Ethereum and other altcoins after entering into a partnership with ShapeShift (one of the largest cryptocurrency exchanges). This is a great turning point because people only need to visit ShapeShift to make a purchase at Overstock.com.
- Microsoft was part of the companies that founded the Enterprise Ethereum Alliance early in 2017 to facilitate adoption and use blockchain technologies in their infrastructure. The company also accepts Ethereum for payment of its software.
- Other places where you can use Ethereum include:
- Shopify (a popular e-commerce store).
- JP Morgan Chase.
- Credit Suisse.
- Antibiotic Research UK.
Note that even organizations that accept alternative cryptos such as Bitcoin only should be considered Ethereum compatible because the top 2 cryptos (Bitcoin and Ethereum) can be exchanged easily on most exchanges.
Can Ethereum Grow to Become a Major Payment Network?
Yes, Ethereum can grow to become the major payment network. As more users join the crypto world, the anticipation is getting better services than what banks and other providers offer. Though Ethereum has managed to outdo Bitcoin in the number of transactions it can handle per second, the founding team believes that it has a bigger potential that can rival competitors such as Visa.
Vitalik recently announced that they would be shifting the network from the current proof-of-work to proof-of-stake in the coming days to increase the efficiency of handling payments. Besides, the development team continues to work on new features that target making payments easy, fun, and reliable.
What holds the greatest potential in making Ethereum a major payment network is its link to more businesses. At last, people should be able to associate with Ethereum and see it just like they do the fiat currencies. This could become a reality as more e-commerce stores join the line of companies that have partnered with Ethereum.
Even though Ethereum path to becoming a major payment network remains on course, there is no doubt that a lot needs to be done. The Ethereum team has to craft more apps, do a lot of marketing and make ether a lifestyle. This could even be harder as more cryptos continue hitting the market every other day.
How Does Ethereum Work?
Ethereum operates like Bitcoin in that it uses a shared record of the transaction history. Each Node on the platform stores a copy of the transactions’ history. However, it differs from Bitcoin because the nodes only store the latest state of every smart contract in addition to other transactions.
For every Ethereum application, the network has to keep track of the state of the latest info on all the transactions. These include the user’s balances, smart contract’s codes, and location. To make it clearer, let us look at the way Bitcoin operates.
Bitcoin utilizes unspent transaction output to follow who owns how many Bitcoins. Well, the idea is very simple. Every time a transaction is completed, the Bitcoin network breaks the entire amount in the same way that a person would do with conventional cash. This includes issuing Bitcoins in a manner that makes Bitcoin look like common notes and coins.
Unlike in Bitcoin, Ethereum uses accounts. Look at them just like bank accounts. The ether tokens are captured on the user’s cryptocurrency wallet and can be easily ported to other accounts without having to handle actual coins and notes.
The Ethereum virtual machine and implementation of smart contracts
Every time a program is used in Ethereum, a network of nodes has to process it. Contracts that are done in a smart contract-specific programming language are put together into ‘bytecode’ that can be read and executed by EVM (Ethereum virtual machine). Every node in the Ethereum platform executes the contract using EVMs.
When a transaction is initiated, all nodes have to agree that the change actually took place. The main objective of the agreement/consensus is ensuring that Ethereum miners and nodes have the responsibility of transferring the shift from one state to another as opposed to a central authority like it happens in a bank or other services such as PayPal. In Bitcoin, the miners validate the BTC ownership from person to person. In Ethereum, it is EVM that executes the contracts based on the rules that a developer embedded.
The actual computation on EVM is done via a stack-based bytecode language. However, developers can write smart contracts using high-level languages like Serpent and Solidity that can be easily understood by humans. This means that users on the Ethereum network have greater autonomy in defining how and tagging their products’ prices.
Though other cryptocurrencies such as Bitcoin also had smart contracts, the implementation was restricted the scripting language. However, Ethereum makes it possible for developers to write completely new programs and execute them in the network. Ethereum goes a step further by allowing developers to own and dictate the smart contracts (autonomous agents). The smart contracts in the Ethereum network can be used to do the following;
- Act as a multi-signature account. This helps to ensure that funds are only spent when a specific percentage of people (nodes) on the network come to a consensus.
- Managing agreements between the users (senders and recipients).
- Offering utility to other contracts (the same way that software library works).
- Storing information about apps such as membership records or even domain registration.
Does Ethereum Use Blockchain Technology?
Yes, Ethereum uses Blockchain technology. Until recently, creating blockchain applications required a complex background in cryptography, coding, and mathematics. However, things have changed so much. Now, unimagined applications such as digitally recorded property assets and regulatory compliance & trading among others are being designed and deployed faster than any other time in the past. This is what Ethereum blockchain facilitates. It provides developers with the necessary tools to create decentralized apps.
Just like other cryptocurrencies, Ethereum is a distributed public blockchain network. While some differences are evident with other top blockchains such as Bitcoin and Litecoin, the most significant is its objective and capabilities.
In Bitcoin, users are offered only one application of Bitcoin technology; the peer-to-peer electronic cash system that facilitates online payments in Bitcoin. The blockchain technology in Bitcoin helps to track the Bitcoin ownership. In the Ethereum blockchain, the main objective is running programming code of any decentralized app. This means that the things that can be done using Ethereum blockchain are very many.
The Ethereum blockchain utilizes smart contracts are self-executing computer programs that only executes when specific conditions are met. This means that the blockchain removed the limitations experienced in other cryptocurrencies by allowing developers work on the apps they want. This means that users on the Ethereum network have access to very many apps that surpass anything they have ever imagined in the past.
Vitalik Buterin argued that he thought those in the Bitcoin community were not giving issues in the cryptocurrencies the right approach. They were simply after individual applications but never supported each other. Therefore, the Ethereum blockchain has to empower the users and create a system that other blockchains can easily run on it. It is simply opening the lid so that even other cryptocurrencies can still operate full throttle right on the Ethereum blockchain while executing as individual apps.
Perhaps the most important parties in the Ethereum network are the miners. They work tirelessly to generate ethers at a rate of 5 ethers for every mined block. However, this is not the sole purpose of mining in the Ethereum network.
If you use a conventional bank, the organization is responsible for maintaining accurate records of all the transactions. This ensures that cash in the bank system is not a result of scam, and the account holders do not issue it more than once. Unlike banks, Ethereum blockchain network uses an entirely new method of keeping accurate records.
Ethereum mining helps to verify transactions and add them to a public ledger the same way that Bitcoin operates. To put it differently, the blockchain technology and its network replace banks roles through mining.
Mining Ethereum involves using computers (nodes) spread in the network to make consensus about transactions and preventing fraud. Therefore, it is correct to say that miners are the core that maintains the Ethereum network.
How does Ethereum mining work?
Mining Ethereum operates almost like Bitcoin’s. For every block of transactions, Ethereum presents complex mathematical puzzles that miners have to solve to get rewarded in ether. It is only the first one to get it right that gets rewarded.
Miners run the block’s unique header metadata using a hash function and only altering the nonce values that impact the ultimate hashing value. If the miner identifies a hash matching the current target, that miner wins and gets rewarded for confirming that specific block.
More specifically, Ethereum miners run the block’s unique header metadata (including software and timestamp version) through a hash function (which returns a fixed-length, scrambled string of numbers and randomized letters), only changing the nonce value, which impacts the resulting hash value. Unlike in other networks, Ethereum miners find it extra difficult to cheat the network. The network uses proof-of-work that ensures every miner actually works to get the right answer for confirming transactions and adding new blocks.
It takes about 12-15 seconds for a miner to find a block. When miners commence solving a puzzle faster or slower than the given 12-15 seconds, the mining algorithm adjusts the mining difficulty. Notably, miners earn ethers on the network, and the profitability of the system is purely dependent on luck and computing power/ hashing power that go to it.
Ethereum mining uses proof-of-work algorithm referred as ethhash. This algorithm is memory dependent. Ethash further makes it harder to use specialized mining hardware that has become the ultimate mills for miners in Bitcoin and other cryptocurrency networks. By locking out specialized mining hardware such as ASIC, it means that more people can join the network and mine Ether to reduce the risk of a single entity ever taking control of over 51% of native ethers.
Picking an appropriate Ethereum mining hardware
Before starting to mine Ethereum, it is important to have a specific computer that is dedicated to that task only. The main types of hardware recommended for Ethereum mining are GPUs and CPUs. GPUs (graphics processing units) come with higher hashing rates compared to CPU (standard computers). This means that a GPU can help you solve more puzzles when mining Ethereum compared to CPU.
Setting up a GPU mining system for Ethereum can be complex. The target at this point is selecting the GPU that delivers higher hash rate performance, power consumption, and initial expenses of the card. It is important to carefully follow the rig setup recommendations or seek the assistance of an expert. It is very important to follow the Ethereum mining calculator that demonstrates returns that one should anticipate after installing and using a GPU. This will help you to curate the right expectations for mining the network.
Install the mining software
Once the mining hardware has been set, the next step is installing appropriate mining software. You need to run an Ethereum node so that your computer joins part of the larger Ethereum network. Some of the best mining software out there today is Geth or Ethminer. The software operates on operating systems such as Windows, Mac, Linux, and OS.
After installing the mining software, the computer becomes a node and can now start communicating with other nodes in the complex consensus system. The mining software also provides the appropriate UI for mining, sending cash and deploying smart contracts.
Before commencing mining, users can also test mine on their network. Note that this is just a trial to get you conversant with every feature or step in the mining procedure. Once you start mining Ethereum, the truth is that the process will be very complex. In fact, you might end up making little progress if working alone. A better way to optimize returns is using a mining pool.
Ethereum mining pools
Mining pools are collections of miners who consolidate their mining power to make it easier to crack the complex puzzles and confirming more Ethereum blocks. The profit realized during the mining process is shared depending on every pool member’s contributions.
When picking a mining pool, it is important to carefully check the terms and conditions, members, and reputation. You should particularly focus on the payment structure to ensure that the profits can easily flow to your cryptocurrency wallet with little or no complications.
You should also be extra careful to avoid falling into the hands of scammers who advertise their pools only to run away with your earnings. Note that most of these pools are designed to run for a specific time before getting terminated after hitting their targets. Where possible, you can even join some mining pools for greater returns.
What Are the Advantages of Ethereum?
Though the most notable cryptocurrency today is Bitcoin, Ethereum has also grown very fast. Indeed, it can be considered the fastest rising crypto because it has made tremendous strides in only three years while Bitcoin has had close to ten years to reach where it is. Therefore, what are the main advantages of Ethereum?
- Ethereum utilizes Turing language on its network
- The language has been very important in making smart contracts exchange in the network easy and fast. This has helped to eliminate third parties and guarantee the network of the latest technologies in the network.
- Ethereum is being backed by a lot of corporates
- Since its inception, many corporates see Ethereum as the ultimate link to help them move to the next level. The notion of providing a platform for writing apps has specifically endeared it to large corporates that see it as the best way to outdo competitors in the market. For example, the recent Ethereum Enterprise Alliance that has drawn huge giants such as Intel and Microsoft has made a lot of enterprises to develop trust in the network. Indeed, there is no other crypto that has this type of support.
- The cryptocurrency is more than just money
- When you look at Ethereum, it is not simply a platform for sending and receiving money like other cryptocurrencies. Rather, it provides a platform for implementing smart contracts as well as the EVM. This means that once you join the network, there are limitless activities that can be done. You can develop apps and deploy them on the network with your instructions.
- You can implement your own cryptocurrency
- While some might argue that Ethereum is simply another cryptocurrency, others see it as a pillar of the crypto world. As a member of the network, Ethereum allows you to create apps and run a completely independent cryptocurrency as a layer on top of Ethereum. In fact, this has been one of the reasons that a lot of cryptocurrencies are emerging since they do not have to start from scratch. Therefore, do not simply see yourself as a miner on the Ethereum network, you can actually work on a completely new cryptocurrency and run it as a layer on the Ethereum network.
- It makes it possible to send cash anywhere on the globe easy and fast
- Like other cryptocurrencies, Ethereum has the advantage of making every transaction anonymous. You can now send funds anywhere in the globe fast, cheaply, and anonymously without revealing your identity. This is very important especially for businesses that want to sell more without incurring chargebacks from clients.
- Ethereum provides users with multiple opportunities to make huge returns
- Though it might look like any other cryptocurrency from afar, Ethereum is different by offering multiple methods of making revenue. You can use smart contracts, deploy apps, or mine directly on the network. Some people even use the network to fund-raise for their startups.
What Are the Risks of Ethereum?
While Ethereum is a new type of cryptocurrency that inspires a lot of hope and trust, it does not mean that there are no risks associated with it. Like other cryptocurrencies, Ethereum is still a virtual currency and risks abound. Here are some of them.
- Ethereum comes with unique risks
- Most of the features and applications in Ethereum are new. In fact, even the Ethereum network is about three years. This means that most of the systems operations are still new and might require a longer time to test before being approved as tamper proof. For example, during the DAO attack, the lead team thought that everything was secure and free from tampering. However, they were hit hard and incurred huge losses. Though you might have a lot of trust in the network, you should never carry all the eggs in one basket. Invest even in other cryptocurrencies.
- The Ethereum transactions are irreversible
- Like other cryptocurrency networks, the Ethereum transactions are irreversible. Whether you were paying for a service, app, or sending some cash back home and made a mistake when keying the address, the funds are lost forever. There is no way to recover them back! It is because of this that people on the Ethereum network are advised to always double and triple check the address they provide when making payments to avoid making losses.
- The risk of losing your crypto assets
- Notably, Ethereum is different from cash and coins in that it is held in a digital wallet. Actually, there are no coins held in the wallet. Rather, you only have private and public keys. In most of the cases, these wallets are held by third parties especially when using web-based models. This raises the risk of getting the wallet and the stored ethers lost.
- The Ethereum value is market driven
- The value of Ethereum is dependent on the market demand. This means that just like the fiat currencies, the value can still fluctuate. Indeed, the value has been fluctuating in response to various situations such as banning of crypto ICOs in China and DAO attacks. This means that you can never be sure of steady growth of ether in the market. You have to contend with the fact that just like there are chances of making huge returns, it is also possible to make losses.
- The looming regulations that could go against Ethereum
- The current fast growth of cryptocurrencies has been linked to the unregulated nature in most countries. However, many governments are seeing cryptocurrencies as a threat to their ability to collect taxes because transactions are anonymous and totally informal. There is no way to net users and make them pay taxes. Because of this, most governments appear committed to outlawing cryptocurrencies from their jurisdictions. If this happens, users are likely to make huge losses.
- The number enterprises supporting Ethereum is still small
- For many people with interest in Ethereum as an alternative crypto, they wonder whether Ethers can be used to buy toys for kids, pay school fees, or home theater. Though some enterprises have come out to directly support Ethereum, it is still has a long way to go to gain complete acceptance. This means that if you have some ethers and want to make a purchase, a long chain of conversion that that involves progressive reduction through fees is involved
Though Ethereum remains very exciting, it is important to appreciate the associated risks and how to mitigate them. The secret is avoiding placing all the resources on the same network. Make sure to split it by placing some in Bitcoin, other networks, and even in a conventional bank.
What Happens if Ethereum Gets Lost?
For many people, the notion of digital currency and contrast with fiat currency remains unclear. If you have a few notes on US dollar, they can fall, get burnt, or a thief can steal them. If they get burnt, the notes are removed from the circulation. However, Ethereum works differently.
As a digital currency, losing Ethereum only means that you do not have access to them. In the real sense, you did not even have them physically. What you have as proof of identity is the private keys. The keys provide the link to the Ethereum stored in the crypto wallet.
Losing Ethereum means that you can no longer access them. If you lose the private keys, the ethers will still be in the network but cannot be accessed by anybody. They will also not be available for trading and will forever remain dormant. If you lose ethers by sending to the wrong address, the coins will still be in circulation, but someone else will be in control.
To prevent possible loss of your ethers, it is important to take extra care of your crypto wallet. If it is a hardware wallet, you could get a copy and store appropriately. If you prefer a web-based wallet, make sure to maintain regular backups.
When it comes to the regulating Cryptocurrencies, many governments have had to play a 'catch-up' because the blockchain technology is advancing very fast. Today, there are no regulations that govern the operations of Ethereum. Therefore, Ethereum remains legal in most countries. Most of the countries view the emergence of Cryptocurrencies with suspicion. The main reason for this is that the blockchain networks are owned by people using them. Any resulting revenue is difficult to trace and there is no clear method that administrations can use to generate revenue.
By mid-2017, many governments appeared angered with the fast growth of Ethereum and other blockchain technologies. They are seen as a direct replacement to the current financial institutions that are licensed and regulated by the administrations of the day.
Most countries have indicated they are in the process of establishing clear regulations that will govern cryptocurrencies. The main target areas of cryprocurrencies include;
- Initial Coin offering (ICOs).
- Cryptocurrencies trading.
- Cryptocurrencies and taxation.
- Book keeping in cryptocurrency networks.
- Public records disclosure with target of abating ponzi and scams.
- Clear definition whether the cryptos fall under cryptocurrencies fall under currencies or assets.
Is Ethereum Legal?
Ethereum is legal in most countries. Because no country has a clear legal framework on Ethereum and other cryptocurrencies operations, they remain legal and free to operate all the time. However, this has not stopped administrations from cracking them down when there is reason to believe that public interest is at stake. In China, ICOs were banned because it was realized they targeted stealing for unsuspecting people. Here is a closer look at the legality of Ethereum in different jurisdictions.
- The USA
- The US has classified Ethereum and other Cryptocurrencies as convertible digital currencies. Besides, the CFTC (Commodities Futures Trading Commission) has classified the Cryptocurrencies as commodities. This has opened a new viewpoint about the Ethereum because people will be required to pay capital gains tax. It is believed that the US is likely to follow this route when crafting the looming legislation.
- European Union
- In the EU, Ethereum is legal. To date, the European Union has not passed any legislation about Ethereum. However, it has stated that GST/VAT is not applicable when converting fiat to Ethereum. Following the ruling by the EU Court of Justice that indicated Cryptocurrencies be considered as a virtual currency and get exempted from VAT, it means that Ethereum is considered more of a currency than a commodity.
- The EU is in the process of setting a task force to study Ethereum and other Cryptocurrencies with a view to establishing a legal framework that will help the benefits trickle to all. One of the main proposals that the new team is poised to consider is making the exchanges and wallets the points of screening to identify and prevent suspicious activities.
- Ethereum is legal in China. However, the country's administration is looking at Cryptocurrencies with a lot of suspicions. In mid-2017, China banned ICOs in its jurisdiction. Ethereum operations in China have equally followed the same murky route with government indicating it is not opposed but will quash any crypto that tries to take away the capacity to collect taxes.
- While Russia is categorical that Ethereum and other cryptocurrencies are legal, the administration insists that the status might not last long. While the administration ruled out that it will not jump into regulating Ethereum and other cryptos, the focus appeared relatively hash. The Deputy Finance Minister pointed that it could be considered illegal to accept payment for services and products as illegal.
- Just like the four examples outlined above, it is clear that Ethereum remains legal in most countries. Other countries that consider Ethereum legal include Mexico, Switzerland, the UK, Sweden, Greece, Italy, and Malta.
- The status Quo means that most of these countries are on the roadmap to establishing legal frameworks that will guide Ethereum and other Cryptocurrencies related ICOs, trading, and extent of application. Therefore, you should continue investing in the fast-growing crypto assets and make hay when the sun is still shining before such legislation hit the news.
- Despite this, there are some concerns about the legislation of Ethereum and other networks. Many people feel that it will be like chasing the wind because the governments have to address the following issues.
- The Cryptocurrencies do not have specific organizations. They are not owned by any one individual. Rather, the nodes in its network that spans globally own everything.
- The blockchain technologies are transforming very fast. In just short ten years after Bitcoin was launched, over 1100 cryptos have hit the market. Therefore, how do you legislate cryptos that span from simply promoting social media content to complex ones such as Ethereum that focus on giving apps developers an opportunity to sell their software?
- Most of the transactions are anonymous and highly encrypted. Therefore, how will the legislation get into details of such anonymous entities using the Ethereum networks?
Ethereum and Taxes
One of the main problems that people have had to deal with when they get into the crypto world is about taxes. Because the transactions are anonymous and completely untraceable, should I pay taxes on the gains from the regular sale of ethers? Up to now, this is a gray area. Because there is no legislation that guides Ethereum, they are considered legal but the consideration of taxes remains personal.
Since Ethereum bypasses the centralized organizations such as banks, it means that users sending cash do not pay anything either to the bank or the tax authorities. This is what makes most administrations see Ethereum as a threat. Experts in taxation recommend that people trading ethers should carefully capture their transactions so that they can prove they are tax compliant.
In the US, cryptocurrencies such as Ethereum have been classified as commodities by the Commodity Futures Trading Commission. This means that any income coming from selling the coins is taxable. It is thought that this will be the direction the US will take when it finally passes the much-awaited cryptocurrency regulation.
In the EU, the approach has been more receptive. The target has been to identify the strengths of cryptocurrencies and harness them for all. Companies that are using ether as payment are however, expected to make tax deductions the same way they do when using fiat currencies.
To stay on the safe side of the law, the best thing is ensuring your transactions are appropriately captured and all taxes remitted to the authorities. Note that the US is known to take extreme caution through legislation to ensure that no one is left out the tax bracket. One good example to cite at this point is FATCA. While the legislation was passed as a reaction to the 2008-2009 financial crisis, it became the ultimate pillar to net tax evaders. While FATCA does not criminalize putting cash abroad, it makes it a criminal offense to fail to disclose such cash. Therefore, people should expect similar far-reaching laws that can follow their trading back to a full decade.
Does Ethereum Have a Consumer Protection?
Ethereum is perhaps the most open cryptocurrency in the globe today. While the management works hard to ensure that all the users can carry on with transactions anonymously, the lead team is known. This has been one of the main reasons for faster growth and trust in the network.
Consumer protection in the Ethereum is guaranteed through the Ethereum Foundation. However, the extent of involvement only touches specific management considerations such as motivating apps developers and ensuring that the cryptocurrency operates appropriately. Note that even with the foundation, the operations of the cryptocurrency and the foundation are still different such that no one can come and make a claim when funds are sent to the wrong address, or a wallet is lost.
All the users guarantee consumer protection in the Ethereum network. The much that the users can do is ensuring that the person who wants to transfer funds has them and the address is okay. Therefore, you must go an extra mile to protect your wallet by keeping the computer safe, updating the operating system, and not sharing the keys with anybody.
Illegal Activities with Ethereum
When cryptocurrencies entered the globe, the target was to create a new and more secure way of sending money and making transactions. However, the emphasis on anonymous transactions has attracted a lot of people including scammers who target stealing from investors. Notably, scammers find it extra easy to use networks such as Ethereum because there is no way they can be followed after money enters the crypto network.
Many scammers have been trying to test their systems on the Ethereum network with about 10% of the contracts in its network being related to Ponzi schemes. However, only about 0.05% of these contracts end up becoming actual Ponzi schemes.
When China banned ICOs in its jurisdiction, the reason it gave was that most of the initial coin offering turns out to be Ponzi schemes. One of the startups that wanted to issue an ICO and accept payment in Ethereum had no clear structures for the organization or handling the resulting funds.
The rise in illegal activities indicates that investors must be extra careful when buying Ethers especially from third parties. It is advisable only to select trusted exchanges and ensure that the private keys are properly secured.
Is Ethereum Secure?
Following the threatening DAO attack that took place in 2016, many people have been asking about the security of Ethereum network. When Ethereum suffered the DAO attack, it appears that the leading team learnt its lessons and worked harder to emerge more secure compared to other networks.
Notably, the security of the Ethereum is mainly dependent on the nodes that are distributed in its network. Today, Ethereum foundation has indicated that it intends to shift from the current proof of work to proof of stake that will make the network more secure. Besides, it will raise the network speed for confirming the transaction to only two seconds.
Ethereum is also considered more secure because it was the first to upgrade to Metropolis. This brings new features like enhanced privacy by incorporating the Zk-Snarks (a hashing algorithm currently being used by Zcash).
- Note! The security of your Ethereum node and wallet is still largely dependent on you.
While Ethereum uses the best brains you can think of in the market today to keep the network updated and also encrypts every blockchain transaction, it is important to note that your security largely depends on you. This means that you have to be extra careful with the computer used for mining, the selected market, and the Cryptocurrency wallet. Here are some best practices to keep your operations on Ethereum extra secure.
- Always ensure that you use the same computer to access Ethereum client whether for trading, mining or other transactions.
- Make sure that the Ethereum wallet keys are kept as securely as possible and away from third parties.
- You must always keep the operating system, the Ethereum client, and mining software updated.
- Make sure to pretest all the programs and roll out carefully. You must always be extra thorough by rolling out in phases to ensure that the node and your accounts remain free from attackers.
- Make sure to be aware of the blockchain properties. This is very important because when you fall below the recommendations, malicious odes can easily get their way into the system.
Just like other blockchains, it is very important to take the security of your operations at Ethereum personal. You need to be vigilante and store all ethers in cold storage most of the time.
Is Ethereum Anonymous?
Ethereum is touted as the most anonymous Cryptocurrency today. While this is no doubt debatable when compared to other emerging cryptos such as Zcash, there is no doubt that Ethereum is working tirelessly to help its users maintain highest possible levels of privacy. The anonymity of the smart contracts
On the part of smart contracts, Ethereum utilizes the Hawk mechanism that involves higher level cryptography to make every operation more anonymous. The encryption is taken to another level referred as cryptonomics where the computation trick involves the users sending their funds into a contract that stores the codes’ hashes.
However, when sending funds, the user sends the results while the other party can either send a transaction indicating the agreement with results or publish the contract code. At this point, the code distributes the funds appropriately to the provided public address.
The contract can use a security deposit as an incentive to require parties to participate honestly. This means that the system will be totally private by default. The info can only leak if there is a dispute.
The Ethereum ring signatures
This technology is highly promising in taking both token and identity application’s anonymity to the next level. A ring signature is simply a type of signature that demonstrates that a signer has the right private key matching the provided public keys/address without revealing the respective person’s identity.
The technology uses the ring signature algorithm that applies a mathematical function computed using the public key of the user's wallet. While knowing the private keys allows users to add any value they want, the signature brings a complete list of values that relate to a function applied to the previous value (and a seed). This produces a valid signature that requires the application of the private keys to close-the-loop for the transaction to complete. This means that because the rings can be produced, anyone in the network can verify it is actually a ring to confirm transactions but cannot in anyway link to the actual private keys. Advancing network privacy with best practices
Ethereum team recommends that users use special tricks to maintain utmost privacy all the time. This is perhaps the best way to avoid trace-backs by people who might want to know about the balances. For example, if you receive 50 ETH from a source X and another 50 ETH from a source Y, there is absolutely no way that other users can tell that the funds belong to you and not the senders. Besides, if you have 100 ETH, and send 50 ETH to another person and then transfer the remaining 50 ETH to a new account, no one can tell the changes of accounts and link them back to you.
The anonymity at this point is placed directly on your hand. You should, therefore, ensure that the accounts are changed regularly while taking great care not to confuse the private keys. The surest way of achieving this is vacating the older Ethereum wallets completely and sticking with the new one.
The future privacy challenge for Ethereum
At the moment, Ethereum biggest privacy threat is statistical. For the privacy-preserving scheme in Ethereum to actually be practical, the respective scheme must only alter a very small section of the blockchain in a transaction. However, even when the content is altered, some metadata will remain. Therefore, a tech professional can still figure out and fish something.
Has Ethereum Ever Been Hacked?
Yes, Ethereum was hacked in 2016 during the infamous DAO attack. On 18th June 2016, hackers managed to break and drain over 3.6 million ethers into a Child DAO that resembled the main Ethereum’s DAO. To understand the break-in, let us take a closer look at DAO.
DAO (decentralized autonomous organization) smart contract was designed by the Ethereum team to help codify the cryptocurrency rules as well as the decision-making apparatus. This means that DAO would help to eliminate the need for people and documents in governing and crafting structures using the decentralized control. In particular, DAO would operate in the following manner.
- A team of cryptography leaders would craft a smart contract to run the organization.
- An initial funding program would be initiated to fund DAO through the sale of tokens.
- DAO would commence the moment funding session was over and the target achieved.
- People would make proposals on the DAO system about spending the cash raised through the sale of tokens.
While this plan was very noble and anticipated to make the Ethereum a unique crypto, it never lived to see the light of the day when the attack took place. The attacker is believed to have been person/persons with insider information about DAO and how it would operate.
As the programmers were working on DAO with a very noble purpose, the attacker created a new version of DAO that was later referred as ‘Child DAO’ that had the same structure to the main DAO. Interestingly, the Ethereum legal team had raised some issues with DAO even before the attack happened. However, it was seen as a new project only known to few and, therefore, considered less vulnerable.
Since Child DAO resembled the main Dao in structure, vulnerabilities and limitations, it was impossible to access the ether raised from the tokens sale for a total of 28 days after the attack. The DAO team was also unsure of whether to cash it because it could have triggered an alarm and serious investigations. Besides, it was thought that the attacker might never get to access the ethers or spend any of it.
DAO attack and the soft fork
The attack resulted in a very serious disagreement at Ethereum’s leading team. The ultimate impact was the implementation of a soft fork (dividing Ethereum). Ethereum classic and Ethereum were formed to try and caution the users and advance the network. However, the two blockchains share a lot including the platform, mining methods, and implementation of smart contracts. But many people have a feeling that creating Ethereum was just like creating a new crypto that got support from the most progressive members of the team including Vitalik.
The Ethereum foundation was also established to cater for such issues that may emerge in future. It appears that Ethereum team learnt the hard way to redefine its blockchain and protect it. For example, it has been testing the new proof-of-stake to establish its efficiency before moving away from the current proof of work. Indeed, Vitalik has even proposed that all projects being implemented to have a cap of $10 million.
How Can I Restore Ethereum?
When people consider joining cryptocurrencies world, one of the concerns is about losing their altcoins. One thing that investors, developers, and miners in the Ethereum network should know is that losing Ethereum often means total loss. For example, if you send Ethereum to a wrong address, the loss is permanent. There is no way to recover the altcoins!
For those who lose their Ethereum through loss of wallets, it is possible to recover the ethers if they had kept a backup. Many wallet providers insist that users always maintain backups in cold storage so that they can easily restore the ethers in the case of a loss.
If your wallet was a desktop version and the computer crashed, an expert can help to retrieve the data from the drive and get your ethers back. For those who had kept a backup either in the cloud, cold storage, or as a paper wallet, here are the key steps to recovering ether.
- Make sure to locate the wallet.
- Generate the backup copy of the Ethereum wallet and run it.
- Restart the process and enter the private keys.
- Reconcile the backup with the Ethereum network and check the balance.
Note that different cpypto wallets might have varying recovery procedures. For those using web-based wallets, most of them have mechanisms of recovering lost ethers. You only need to prove that the wallet was yours using security questions. This works the same way that your email operates.
Why Do People Trust Ethereum?
When Ethereum debuted in 2014, many people were wondering what difference it could bring in a field that had already taken shape. But the model of Ethereum would take all of them by surprise. The cryptocurrency was well thought of to ensure that it delivered more than a platform for sending cash. For the last three years that Ethereum has been in operation, it has gained more trust from people because of the following.
- The Ethereum foundation remains vocal on issues in the network
- Every time that people talk about cryptocurrencies, the first thing that hits them is the notion of anonymity. In fact, most of the cryptos are run in top secret, and there are no signs of ever knowing the founders or those closely associated with it. However, this is different with Ethereum.
- The foundation has been in the limelight to associate with people and address issues that emerge along the way. For example, Vitalik (the founder) has recently made a presentation indicating that the network would shift from the current proof or work algorithm to proof or stake. By interacting with people more often, Ethereum has won their trust.
- Ethereum has demonstrated commitment to continuous improvement
- The Ethereum lead team has demonstrated the commitment to keeping improving the network. This has made people know that someone is always looking ahead to them and ensuring they are protected. They can, therefore, relax without worrying that their info will be lost or their ethers siphoned.
- Progressive increase in value of ether
- Though Bitcoin value has hit the roof, many people argue that the demand is coming from buyers who want to cash in and rake handsome profits as opposed to holding deep trust in the network. However, people who stick with Ethereum believe that it guarantees them more than a platform for sending cash. They can see multiple ways of enhancing their businesses through smart contracts and even deploying apps.
- Ethereum is led by a tech-savvy team
- Nothing inspires trust in a community than getting leaders who understand the task bestowed upon them. Unlike other cryptos that are crafted by people with the target of cashing highest returns, Ethereum is different. It has an enthusiastic team that comprises of cryptography and blockchain professionals who are willing to go to any lengthy to keep the network safe and makes it better.
- Lessons are learnt and implemented with vitality
- When Ethereum experienced the DAO Child attack, the situation was probably the lowest point of the cryptocurrency. However, the lessons were learnt and they help to inform every other decision on the network. For example, all decisions are first tested and only implemented in phases after the DAO attack. It is because of this that Ethereum has taken a lot of time to test the anticipated proof of stake for its system.
- Ethereum makes it easier for more people to join and mine its network
- One of the main characteristics of Bitcoin is the special requirement for mining equipment. You can only mine Bitcoin profitably by acquiring the expensive ASIC mining hardware. However, this has created a scenario where only a few very rich people who can afford the hardware have the opportunity to mine. Unlike in Bitcoin, Ethereum ethhash algorithm allows users to mine using their computers. This means that more people can join without worrying about a single person/party mining over 51% of the native coins.
History of Ethereum?
The history of Ethereum demonstrates a network built out of the commitment to take blockchain to the next level. But it is the events that occurred in its lifeline that have proven the resilience of Ethereum and won a lot of trust from users. Here are the main occurrences in the Ethereum history.
Ethereum was first described in 2013 by a young computing expert called Vitalik Butein. Vitalik released a whitepaper that described all the details of the Ethereum protocol and smart contracts architecture. Prior to this white paper, Vitalik was involved in Bitcoin where he identified key flaws and decided to craft better methods of addressing them. However, he wanted Ethereum to be a different platform that could empower users and make them see their businesses and personal lives in a completely different way. In January 2014, Vitalik activated the Ethereum.
The multiple languages meant that more developers could easily join the network to create and deploy apps using smart contracts. This was the beginning of early optimism because Vitalik had managed to finally steer the cryptocurrency analogy from simply a platform for sending cash to an enterprise. From businesses to individuals, there was no doubt that Ethereum had something in store.
The Ethereum foundation
Notably, while working on the cryptocurrency technology is the first part, the hardest one is funding. Most of the operations are complex and require a lot of resources. This is always a challenge to startups because not many people know about the new network or even have trust in it.
To be able to kick start the large network of developers, investors, miners, and other stakeholders, Ethereum announced the first pre-sale of its ether tokens (native currency). But this was never easy for Ethereum. The blockchain was established on the heels of numerous attacks and Ponzi schemes the previous two years related to Bitcoin. An urgent solution had to be sought. Ethereum had to form the Ethereum foundation to navigate the complex legal and technical connotations of a pre-sale offering in June of 2014.
On 1st July 2014, Ethereum distributed the first allocation of Ethers through the 42 days pre-sale offering the yielded 31,591 Bitcoins (about $18,439,086 by then). The amount was used to meet related legal issues and motivate early developers on the Ethereum network.
One notable thing that comes out at this point is that Ethereum structures gained roots at the earliest stages of development. Unlike other cryptocurrencies that mainly operated without a clear lead, Ethereum Foundation took the responsibility of spearheading the cryptocurrency. This might have been a lesson learnt from the anonymity maintained in Bitcoin and the uncertainty created by the followers.
The Ethereum development
Having launched a successful presale, Ethereum set wanted to move with speed and demonstrate how its new model works. It anticipated proving people who thought that smart contracts were too ambitious wrong. The development was formalized under ETH/DEV (a non-profit organization that operates all the development in Ethereum and comprising of Vitalik Buterin, Gavin Wood, and Jeffrey Wilcke as the directors.
The interest in the network grew rapidly in 2014 as the lead team worked on multiple Proof-of-Concept (PoC) releases for the community to test. At this early stage, the lead team also used the Ethereum blog to keep the community informed and excited about the projects on the network.
The interest in Ethereum was particularly notable as developers mainly targeted testing their apps and establishing whether the system would bring results. Though it was still not clear how a new layer of cryptocurrency would work on top of the Ethereum Core, most developers who later hatched the ideas of creating new cryptos indicate they were close followers of the Ethereum lead team from the beginning.
The developer conference (DEVCON-0) was organized by the Ethereum lead team as it targeted to bring together developers and demonstrated what was happening at cryptocurrency. Notably, some early crypto enthusiasts indicated that the vigor of the Ethereum team could ultimately make it one of the best cryptocurrency in the market in future.
The developer conference was used by the Ethereum lead team to try and understand what developers needed to move to the next level. Because the Ethereum lead team was made of developers, they understood that identifying issues that affected the developers’ community would make most of them jump in and help to take the network to the next level.
This conference was very crucial in crafting structures for enhanced network security reliability and anonymity. It also oiled the relationship between the network and developers who were thought as a crucial pillar in taking the network ahead.
The Ethereum development grants
By April of 2015, Ethereum announced the development grants program that provided funding to developers who contributed to the platform. This was one of the remedies arising from the previous conference. The Ethereum team had noted with concern that most of the developers failed to make a significant contribution because they lacked ample funding.
The grants created a new way to net more developers and helping them to concentrate without worrying about the funding. Most of the apps contributed to the network were studied by experts to extract helpful ideas that would take the network to the next level. The Ethereum team also took the time to sieve the most potential developers and get them on board to deliver greater value to the target audience. The grants program is one of the most crucial components of Ethereum even today.
The security audit and bug bounty
In 2014 and 2015, Ethereum released multiple proof-of-concepts to developers resulting in the POM open test net referred as the Olympic. During this conference, the developers were invited to come and test the Ethereum limits for a reward. This was one of the early efforts of the cryptocurrency to ensure that the network was tamperproof and guarantee users of the extra safety of their ethers.
Ethereum went a step further in the subsequent year to create an Ethereum Bounty Program that provided rewards in BTC for developers who identified vulnerabilities. Search for vulnerabilities became a core part of Ethereum to help it guarantee extra security to all users at a time when a lot of users were starting to join and want to get associated with Ethereum.
The security audit was extended to expert security firms that checked every structure to identify and seal all loopholes on the Ethereum network, VM, proof of work, and other areas. The security audit was extended to legal connotations that targeted identifying areas of legal consideration that could obscure growth.
The Frontier launch and devcon-1
The Ethereum frontier network was launched at the end of June 2015 and targeted kick-starting developers to create smart contracts and decentralized apps. It was also at this point that miners started coming in to help secure the Ethereum network and earn through confirming transactions. When frontier was released, the main target was to test it before launching the main version. However, it turned out to be the first milestone with great capabilities than previously anticipated.
By the end of 2015, Ethereum held another developer conference in London. The five-day event brought over 100 presentations, lightning talks, and crucial discussions about security blockchain technologies. The conference brought together developers, thinkers, business executives, and investors with interest in seeking the blockchain technology move to the next level. Some of the big multinationals present included IBM, UBS, and Microsoft. Microsoft announced it would start offering Ethereum blockchain as a service on its Azure.
This conference was seen by many as a game changer in that Ethereum was pulling a lot of interest even from multinationals. This notion helped the cryptocurrency to continue gaining value and win trust from users and developers.
The DAO attack and Ethereum soft fork
In 2016, Ethereum was gaining momentum and working smoothly towards the realization of the smart contracts. This was a great consideration because it was part of the core that formed the network establishment. The decentralized autonomous organization project went on through the planning and funding phases when the attack happened.
As the Ethereum team was working on DAO, an attacker was also using the same structure to create an alternative DAO (later given the term DAO CHILD). Because DAO had the same structure as the main DAO, the attacker managed to break into Ethereum and steal $150 million. This affected the Ethereum value that shot down 15 folds. But the Ethereum woes were far from over. The community entered into a serious debate as it tried to come up with the best solution to the issue.
Ultimately, they agreed to implement a soft fork. This involved breaking Ethereum into two (Ethereum and Ethereum Classic). While the impact of the fork remains a hot-button issue, Ethereum learnt its lessons and appears set to prevent a repeat of such attack.
The Ethereum price changes
Though the price of Ethereum was sluggish in the first two years, it has recently shot up and become the second most valuable cryptocurrency by market capitalization. Even with huge disruptions such as the DAO attack and recent burning of ICOs in China, the price of Ethereum has weathered the setbacks to grow to more than $400/ETH by the last quarter of 2017.
With the Ethereum Foundation well set to implement the new proof-of-stake algorithm, there is no doubt that the price and value of ether will go to higher levels. The history of Ethereum demonstrates the highly resilient network that works hard to win the trust of all and guarantee the best to all.
The Ethereum lead team appears poised to deliver even more and proof that the original vision can be achieved. They are progressively working on new features, partnerships, and targets that could easily make Ethereum the best cryptocurrency in the globe in the coming days.
Who Created Ethereum?
Ethereum was created by Vitalik Buterin (Native name: Виталий Дмитриевич Бутерин), a young Russian-Canadian developer from Toronto. Vitalik developed an interest in Bitcoin around 2011 and started thinking of how he could use the technology to offer better services and products. He was convinced that with proper support and progressive development, blockchain technology would provide services well beyond financial realms. How work made him get recognized as a Thiel Fellow in 2014. He was also awarded $100,000 for his work.
One of the most notable things about Vitalik is his team work capabilities. Though his idea was noble, he appreciated that it was impossible to implement it on his own. Therefore, he sought whelp and brought onboard experts in cryptography, applications development, and finances to become part of the core team. This capability is what has made Ethereum to grow from strength to strength even in times of scandals.
Ethereum Videos and Tutorials
What is Ethereum - Presented by Stephan Tual, CCO
Ethereum's Vitalik Buterin - Decentralizing
DEVCON1: Ethereum Blockchain Protocol - Vitalik Buterin
Bitcoin vs. Ethereum - Which One Is A Better Investment Over The Next 10 Years?
Joseph Lubin - The Basics of Blockchain and Etherum
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