After Bitcoin, Ethereum is considered to be the second most popular cryptocurrency worldwide. However, unlike Bitcoin, or even other types of virtual cryptocurrencies, Ethereum is much more than just a medium of exchange. Or even a store of value, in some cases. So, Ethereum calls itself a decentralized computing network instead, which is built based on blockchain technology.
What is Ethereum?
So, Ethereum works on the basis of blockchain technology, pretty much how all the cryptocurrencies function. In simpler words, you can say that blockchain is a distributed, decentralized public ledger where transactions are verified and recorded.
Here, distributed refers to a sense that when people participate in the Ethereum network, they all hold an identical copy of the ledger, which allows them to see all the past transactions. Again, decentralized does not mean that a single entity operates or manages the Ethereum network. Instead, the network is managed by all those distributed ledger holders!
Transactions that take place in blockchain technology use cryptocurrency. Here, people solve complex mathematical equations, which, in turn, confirm each of the transactions on the network. In addition, this also allows people to add new blocks to the blockchain. When this happens, people get rewards in the form of cryptocurrency tokens. Similarly, in the Ethereum network, there are tokens too. But these are called Ether, or ETH.
The difference between Ethereum and Ether
Ether is a digital currency that you can use for financial transactions, as a store of value, or as a type of investment. On the other hand, Ethereum is a blockchain network. This network is where Ether is held and exchanged. However, the Ethereum network offers multiple functions outside of Ether.
Furthermore, the Ethereum network can be used to store data or even run decentralized applications. Let’s consider an example.
Suppose that you host software on a server that is owned and operated by Amazon or Google. Here, these companies will control your data. Now, let’s suppose that you host applications on the Ethereum network. Here, you will get control over your data. In addition, since there is no central authority handling and managing everything, you also have unrestricted use of the application!
Smart contracts, also called self-executing contracts, are among the best use cases involving the Ethereum network and Ether. Just like any other contract, here as well, two parties agree to the delivery of goods or services in the future.
However, unlike the conventional contracts where a lawyer is needed for such contracts, there are no lawyers required for the case of smart contracts. Instead, both the parties code the contract on the Ethereum network. Once all the conditions are met, the contract self-executes and delivers the Ether between the appropriate parties!
The difference between Bitcoin and Ethereum
Even though most people tend to get confused between Bitcoin and Ethereum and use them interchangeably, there are many differences between these two.
The primary use of Bitcoin is as a virtual currency and store of value. Similarly, Ether works as a virtual currency and store of value too. However, there is a slight bit of difference here. The Ethereum network can even create and run applications, smart contracts, and other types of transactions too. Bitcoin, however, does not offer such functionalities. It only works as a virtual currency and store of value. On the Ethereum network, transactions are processed more quickly.
And the last difference would be in the number of tokens. Bitcoin will release not more than 21 million tokens, but the Ethereum network has no such limit on the number of tokens that can be released.
What are the benefits of the Ethereum network?
Ethereum is popular among users across the world, and this is because of its spectacular benefits. Here are some of the benefits of Ethereum:
a) An extensive, existing network
The benefits of Ethereum have been tested through several years of operation and many trading hands. Now, the network has a large, committed community across the globe and the largest ecosystem in cryptocurrency and blockchain.
b) Multiple functions
Apart from being used as a virtual currency, Ethereum has plenty of other functions too. For example, it can be used to execute smart contracts, store data for several third-party applications, and process multiple types of financial transactions.
c) Constant improvement and innovation
The vast community of Ethereum developers constantly looks for ways to improve the network and develop new applications.
d) Avoids third-party intermediaries
Ethereum has a decentralized network that allows its users to leave behind third-party intermediaries, such as banks for certain financial transactions, lawyers who interpret contracts, or even third-party web services.
What are the disadvantages of Ethereum?
With every good thing comes the bad, and the same goes with Ethereum. Even though it has some impressive benefits, there are certain downsides too. These are some of the disadvantages of Ethereum:
a) Increasing transaction costs
The Ethereum network has gotten quite popular across the world. This, in turn, has led to an increase in its transaction costs. In February 2021, Ethereum’s transaction fees, which is also popularly known as “gas,” recorded an amount of $23 per transaction. This number can be good if you are earning money as a miner. However, it may not be that good if you are using the Ethereum network.
Bitcoin itself rewards transaction verifiers, whereas, in Ethereum, the network requires the participating users of the transaction to cover the additional fee.
b) Possibility of crypto inflation
Ethereum has an annual limit of releasing 18 million Ether every year. However, there is no limit on the lifetime number of coins. This suggests that, as an investment, Ethereum may work more like dollars and not like Bitcoin.
c) A steep learning curve for developers
As the Ethereum network migrates from centralized to decentralized networks, it may get slightly tricky for developers to keep learning, resulting in a steep learning curve.
d) Unspecified future
Over the years, Ethereum has been improving and evolving continuously. Additionally, the ongoing development of Ehtereum offers its users greater efficiency and better functionality. However, these constant changes are creating uncertainty for some applications and deals in use.
While it may sound complicated, buying Ethereum is easier than you think. Here are the steps that you can follow to buy Ethereum:
a) Determine your risk level
There is no lying about the fact that buying Ethereum can get a little risky. Even though all investments come with a small amount of risk, cryptocurrencies are slightly more vulnerable to fluctuations in prices.
This is why it is essential that you consider how much of a risk you are willing to take by investing in Ethereum. Many experts recommend that you should not invest more than you can afford to lose.
b) Select a crypto exchange
Buying Ethereum is a little different than buying mutual funds or stocks. Cryptocurrencies are not traded on major exchange platforms like New York Stock Exchange (NYSE). In addition, most brokerages do not even offer crypto investing.
So, you need to first create an account on a crypto exchange. These exchanges allow buyers and sellers to exchange with fiat currency, such as dollars, for cryptocurrencies.
c) Fund your account
Once you create your account, you need to fund it then. You can use your bank account to deposit money in your crypto exchange account. Or, you can use other methods such as debit cards, credit cards, or even PayPal. Remember to review the crypto exchange fees when you fund your account.
You are usually limited by market hours when you buy mutual funds, stocks, or exchange-traded funds. However, it is not the case with cryptocurrencies. Since these are decentralized currencies, you can buy or sell them around the clock.
To buy Ethereum, enter the ticker symbol, ETH, in the “buy” field. Then, enter the amount in that field. If you do not want to buy a complete Ethereum or do not have a sufficient amount in your account, you can buy a fraction of one. For instance, if the Ethereum price is $1,000 and you invest $50, you will buy 5% of an Ether coin.
Store your Ethereum
You have to store your Ethereum after your purchase gets processed. While some platforms may automatically save it for you, some people prefer to do it themselves to reduce the risk of losing it to a hack. However, many major exchanges insure their users’ holdings. They may also store a majority of the assets offline to avoid major thefts!
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If you have recently started to read about Ethereum, it may take some time for you to understand everything properly. In addition, it is also recommended that you do your own research before investing in Ethereum. You can consult with your friends and family members who have already invested in Ethereum before going ahead with your decision of the same. A thorough understanding of the Ethereum network and its functionality is extremely important!
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