You may have heard a lot about Ethereum, a form of cryptocurrency that’s been around since 2015 and was created as an alternative to Bitcoin. Here’s what you need to know about it in a nutshell.
First, Ethereum is not actually the name of the cryptocurrency. Rather, it’s the name of a specific blockchain, a decentralized distributed electronic ledger that keeps track of all transactions in a public manner, as well as the name of a programming language to run and develop upon that blockchain.
Bitcoin uses blockchain too, of course, but the Ethereum blockchain is more sophisticated and can be used to run applications.
Ether, also known by the ticker symbol ETH, is the cryptocurrency “token” derived from the Ethereum blockchain. It’s just one of hundreds of possible applications for the Ethereum blockchain, which is also used to verify NFTs, business contracts and other financial instruments.
What is Ether, and how does it differ from Ethereum?
Because we assume that most readers are here to learn about how to get rich using cryptocurrencies, Ether is what this piece will focus on.
Ether is the second-largest cryptocurrency by market capitalization after Bitcoin. According to Investopedia, the two are the only cryptocurrencies in whose futures you can trade on the Chicago Mercantile Exchange. As of this writing on April 30, 2021, one Ether token was worth about $2,750.
Ether is not only a cryptocurrency token that can be bought and sold, but it’s also how you pay for transactions and for running applications on the Ethereum blockchain network. The price of a transaction in Ether is called “gas.” The more computational power an Ethereum transaction uses, the higher the price of “gas.”
Right now, Ether tokens are “mined” like Bitcoin, through “work” performed by computers solving mathematical problems. But the operators of Ethereum are working on shifting the entire process to a “proof of stake” instead of a “proof of work” model. (No, we don’t understand how that’s going to work either.)
That change, which will be called Ethereum 2.0, is expected to be done by 2024, and you can already track its future cryptocurrency tokens, ETH2, on Coinbase.
Unlike Bitcoin, which caps out at 21 million possible tokens (not to be reached for more than a century), the supply of Ether tokens is indefinite. That creates less of a crisis of supply; while ETH tokens cost a lot less than Bitcoin, they’re easier to mine. New blocks on the Ethereum blockchain are created several times each minute, as opposed to several times each hour with the Bitcoin blockchain.
There’s also a related cryptocurrency token, Ether Classic (ETC). It’s derived from Ethereum Classic, a “fork” of the original Ethereum blockchain that was created in 2016 after $50 million in Ether was stolen from a smart-contract platform based on Ethereum.
The operators of Ethereum chose to “reverse” the theft and wipe it from the blockchain ledger; the operators of Ethereum Classic acknowledged the theft and carried on. Just don’t get ETH and ETC mixed up; the latter was worth only $34 USD per token as of this writing.
How can I buy Ethereum and Ether tokens?
To purchase Ether tokens, you can go to a cryptocurrency exchange such as Binance, Bitfinex, Coinbase or Gemini, among others. (The Ethereum website has a few tips.) You’ll need to create an account, which includes verifying your identity (a process that might take a couple of days), on the exchange that you choose.
Then you add real money — dollars, pounds, euros, etc. — to the account, which creates a reserve from which you can draw to purchase cryptocurrency tokens. If you already hold some cryptocurrencies, you can add those too. Once that process is completed, you can purchase Ether or other cryptocurrency tokens and watch your holdings grow or shrink, as the case may be.
After you’ve accumulated enough Ether to be satisfied, you can withdraw it into a cryptocurrency savings account maintained by a third party, or a cryptocurrency “wallet” that you maintain yourself on your computer or in a specialized hardware device. Alternately, you can cash out your Ether holdings by selling them for U.S. dollars, other nationally backed currencies, or other cryptocurrencies.
How is Ethereum performing?
Right now Ether is on an upward trajectory, having risen from about $1,900 USD to about $2,750 USD in the past month, although there were a couple of dips in the past 10 days. Its current USD exchange rate is about 10 times what it was in July 2020, so there’s definitely money to be made.
Be careful, though. Ether’s previous peak was at about $1,400 USD in January 2018. Within three months, it had slid to about $400 USD, then recovered a bit before bottoming out again at about $80 USD in December 2018. Someone who had bought Ether at its peak would have lost nearly 95% of their stake — unless they held onto it until now.
Because the Ethereum blockchain and programming language can be used for a whole lot of other things than getting rich quickly, several top-shelf companies and financial firms, including Microsoft, JPMorgan Chase, Intel and MasterCard, have significant stakes in it.
That indicates the underpinnings of the Ether currency will be around for quite a while, unlike some other cryptocurrencies (cough, Dogecoin!) that may be riskier investments.