Cryptocurrency is taking over.
Not just the financial scene, but conversations in every bar, gym and business across the country.
It sometimes feels like every other colleague or friend is a bona fide crypto expert (they’re not).
But if you still feel like you’re slightly behind, we’ve got you covered!
This article should cover everything you need to know about Ethereum (Eth).
Welcome to Ethereum Explained Simply.
The Key Points
Why Ethereum Is So Popular?
Over the past few years, cryptocurrency, Bitcoin, and blockchain technology have gained huge traction across the world.
Whilst you may still be sceptical about investing your hard earned cash…
It’s certainly smart to have a good understanding of Ethereum (and cryptocurrency in general).
Cryptocurrency is founded on the concept of decentralized finance or “DeFi”.
Failing to educate yourself on this important development would leave you with huge financial blindspots.
Remember, the more you learn, the more you earn.
Is Ethereum Better Than Bitcoin?
We can’t start an Ethereum Explained Simply article without mentioning Bitcoin.
The pioneer off the cryptocurrency universe… Without which, Ethereum would likely never have come into existence.
While Bitcoin has been front and center in the media, there is another name that has contributed considerably to the rise of blockchain.
Ethereum (Eth) has played an important role in the history of decentralized finance. It also currently sits as the second most popular cryptocurrency in the world.
For a relatively unknown entity, the importance of Ethereum in cryptocurrency and finance cannot be underestimated.
In fact, many experts argue that Ethereum will even become more valuable than Bitcoin over the next few years.
But what does this platform and cryptocurrency offer over Bitcoin?
Let’s first break down exactly what Ethereum is, its history and the current status of Ethereum in the global landscape.
Perhaps most importantly, is Ethereum a good investment for you?
What Is Ethereum?
The name “Ethereum” is as ambiguous as its spelling (is it Etheruem or Ethereum?).
Ethereum (Eth) can be used to refer to two closely related concepts; a Blockchain network and a cryptocurrency token.
The Decentralized Network - Ethereum:
At its core, the decentralized network known as Ethereum is a piece of technology that enables its users to affordably send and receive cryptocurrency.
This can be done almost completely anonymously, like most blockchain networks.
However, while the original intent of blockchain was to be used for DeFi transactions, Ethereum can be used as an open-source network to create a wide variety of decentralized applications (DApps).
The Ethereum platform has simplified the blockchain process, lowering the bar for developers and allowing them to create their own DApps using the network’s architecture.
These applications range from simple games to industry-defining blockchain networks.
The Cryptocurrency - Ethereum
Each unit of the cryptocurrency Ethereum is also known as Ether (ETH) and it was created as a byproduct of the decentralized open-source network.
As of this month, only Bitcoin sits above Ethereum on the list of the most valuable cryptocurrencies in the world.
Ether utilizes a specific token format labeled ERC-20, which has become a standard for any token traded on the Ethereum blockchain.
This standard ensures that any tokens created on the Ethereum blockchain follow the same protocol and can be used and traded within the platform.
What Is The History Of Ethereum?
Prior to the invention of Bitcoin, the only way to digitally spend money was through intermediaries or brokers licensed by the government.
Bitcoin changed all of that with the introduction of a decentralized platform to exchange money digitally.
This system was called the blockchain.
Blockchain completely bypasses the need for these intermediaries. It’s decentralized system uses the entire network of computers connected to it to complete transactions.
This makes the blockchain impossible to manipulate by any single entity.
The success of Blockchain in decentralizing the financial system made people wonder what else could be decentralized with this technology (such as NFTs)
This significantly increased the potential of blockchain technology, making it an even bigger opportunity than Bitcoin itself.
Who Founded Ethereum?
The idea behind Ethereum was initiated by a computer programmer named Vitalik Buterin.
Vitalik was one of the earliest Cryptocurrency enthusiasts, and in 2011, co-founded The Bitcoin Magazine (one of the most popular cryptocurrency publications).
He was just 17-years old at the time.
Vitalik wanted to create a solution to every other case that didn’t have a specialized platform like the blockchain.
After releasing the whitepaper for Ethereum which describes the potential of the network in 2013, Vitalik and his team launched a fundraising campaign where backers were sold Ether (Ethereum tokens) in 2014.
The campaign was a huge success. Vitalik and the Ethereum cofounders were able to raise over $18 million.
By 2015, the first version of Ethereum called Frontier went live and there has been steady growth since then.
Will Ethereum Keep Going Up?
While the platform is still very young, there is a general acknowledgment of the potential of Ethereum.
But there have certainly been some challenges since its inception.
Ethereum still faces the major scalability issue that Bitcoin is currently facing.
There have also been a few instances where the security of the platform has come into question.
One of these instances was in 2016 when $50 million worth of Ether Tokens were stolen by some unidentified hackers.
This brought about distrust from the community and eventually led to a “hard fork” which spun off a newer version of Ether (ETH), and left an older version now known as Ethereum Classic (ETC).
This new version had new protocols and algorithms that fixed many of the problems and is what many people now know today.
This all sounds promising… but will Ethereum’s price keep going up?
Keep reading our Ethereum Explained Simply guide to find out.
Ethereum Vs Bitcoin Investments
What's The Difference Between Bitcoin And Ethereum?
Since its inception, Ethereum has always been compared to its predecessor, Bitcoin.
Even though Bitcoin and Ethereum share a lot of common traits (with both being decentralized currencies using blockchain technology), there are a few key distinctions.
The most significant difference is the method of exchange:
- Bitcoin is exclusively exchanged as a cryptocurrency and essentially operates as a value holder. Much like gold – a store of value for centuries.
- Ethereum is much more versatile due to the functionality its blockchain provides. Ether can be exchanged and used as a value holder, but it can also be exchanged with the use of smart contracts.
These smart contracts are one of the biggest advantages Ethereum has over Bitcoin.
It provides an incredible amount of functionality to the blockchain and any DApps developed on it.
These smart contracts are essentially just small computer programs that can be run automatically when certain conditions are met.
This provides a whole new range of uses for cryptocurrencies and the blockchain they are built on.
Should I invest in Ethereum Or Bitcoin?
Was this your first question when you heard about Ethereum?
Whether to invest in Bitcoin or Ethereum is a constant conundrum.
You’ll find that many Bitcoin Maximalists won’t go anywhere near another cryptocurrency.
However, we would argue that diversification is key. Traditionally, a more diversified stock portfolio reduces risk (as per our guide to index funds).
Cryptocurrency is no different.
By owning more than one cryptocurrency, if Bitcoin crashes, you may still be in profit when holding Ethereum (or any of the best cryptocurrency to invest in 2022).
The only problem here is that Ethereum’s price, like most cryptocurrencies, is linked to Bitcoin. If there is a huge Bitcoin crash, chances are the rest of the crypto market will soon follow suit.
Which leads to the question…
Is Ethereum Still A Good Investment?
Are you still considering whether to invest in Ethereum Vs Bitcoin?
Then you probably want to know which one will make you more money.
‘Cos that’s why we’re all here right?
Well, it may surprise you to know that many people invest in a chosen cryptocurrency simply because they believe in the project or tech.
If you’re one of these people, then you probably already know which project you believe in. Which means it probably is a good investment for you personally (in my humble opinion).
However if we’re reducing it to hard cash profit… this can be tricky.
As I’m writing this article, Ethereum is at an all time high. This means if you had bought Ethereum at any time since it’s inception (and held onto it)… you’d be in profit!
Technically speaking, this would mean that yes, Ethereum is a good investment.
Unfortunately, this won’t always be the case.
Many an intrepid investor has lost money on Ethereum’s rise to the top. Especially those who have “panic sold” following a dip.
The question of whether Ethereum is a good investment therefore comes down to how you plan to use it.
Buying and holding? This has previously been the best way for beginners to make a profit from Ethereum. Over the past year, investing in Ethereum has been much more profitable than investing in Bitcoin.
Planning to invest in NFTs? You’ll likely need to invest in Ethereum first – most of the NFT platforms use Ethereum (or more rarely, Solana)
Planning to day trade Ethereum? Unless you know what you’re doing… tread lightly!
Ultimately only you can decide whether Ethereum is a good investment… we’re simply offering the information.
The Flippening - Will Ethereum Beat Bitcoin?
The Flippening is coming…
Sounds like a horror movie right?
(it certainly would be a nightmare for Bitcoin maximalists).
The Flippening is actually a term to describe the moment that Ethereum surpasses Bitcoin. At that moment, Ethereum would be the most valuable cryptocurrency, holding the highest market capitalization (cap).
This doesn’t mean a single Eth would worth more than a single Bitcoin. As Ethereum has a much higher circulating volume, even at much lower prices, it can “beat” Bitcoin in terms of market cap.
This would be a huge feat! Bitcoin has dominated the cryptocurrency market since it’s inception. However over the past 4-years, Bitcoins market cap has dropped from 87% to around 60%. A large chunk of that is because of Ethereum.
If you think there is a good chance “the flippening” will happen, then Ethereum could be a very rewarding investment.
What Is Ethereum 2.0 And Why Does It Matter?
In the past few years, an upgrade to the Ethereum network was scheduled by its developers.
This much anticipated upgrade was to be called Ethereum 2.0 or ETH2.
Its primary purpose was to increase the transaction capacity of Ethereum while reducing fees and making the network more sustainable.
Ethereum 2.0 is also expected to solve the scalability issues faced by Bitcoin and the base Ethereum. This will be through a process called sharding. Sharding is a way to separate a database into smaller and more manageable pieces.
One of the biggest ways Ethereum looks to encourage sustainability is by transferring from a proof of work consensus algorithm to proof of stake. Bitcoin uses a “Proof of work” system that rewards its miners for solving complex equations and maintaining the network. This requires a considerable amount of power and has become a point of contention for many users.
Ethereum has historically used proof of work as well, but increasing pressure and limited scaling has encouraged the team to explore proof of stake consensus. This lowers power requirements considerably and is less dependent on mining computer hardware.
If the plans for Ethereum 2.0 end up being successful, it will be a big advantage to the global financial system.
In Ethereums current state, network congestion is common and “gas” (transaction fees) have begun to increase steadily. Ethereum 2.0 seeks to improve on its architecture and processes to ensure it can continue to grow and support the increasing attention it has garnered.
Best Place To Buy Ethereum
We can’t write an Ethereum Explained Simply guide without telling you the best place to buy ethereum!
Of course, many of you will already know where to buy Ethereum.
So we’ll keep this quick and simple!
- Download the Coinbase app or sign-up online.
- Select Ethereum, choose the value you want to purchase and then enter your card details.
- That’s it! It’s that easy!
There are of course other places to buy Ethereum online. However there’s value in getting started quickly and easily. Remember, the best time to invest was 6 years ago but the second best time is right now.
You can always consider other platforms in future if you want. Equally, once you’re more familiar with cryptocurrency, you could transfer your tokens across to Coinbase Pro for free. You could consider starting with Coinbase Pro however it’s more complex and uses wire transfer payments – which takes longer.
Signing up to Coinbase here also gets you a FREE bonus $10 in Bitcoin when you invest your first $100 (in any cryptocurrency).
Ethereum Vs Litecoin
What Is Litecoin?
What Is The Difference Between Ethereum And Litecoin?
- Crypto Type – Ether is the cryptocurrency created by the Ethereum blockchain platform. Whereas Litecoin is a peer-to-peer cryptocurrency in it’s own right.
- Transaction Fees – Litecoin generally has much cheaper transaction fees compared to Ethereum. In fact, Ethereum gas fees are one of Ethereum’s greatest drawbacks.
- Supply – Litecoin has a maximum supply of 84 million. Ethereum has “unlimited supply”*
- Purpose – As with Bitcoin, Litecoin has no specific functionality, beyond storing value. Ethereum has multiple use cases.
- Transaction speed – Ethereum is much faster to mine, allowing for a faster transaction speed compared to Litecoin. Litecoin transactions are added to freshly mined blocks which delays transaction speed. This makes Ethereum more efficienct for small transactions.
*This is not strictly true. Ethereum has a form of limited supply – a maximum of 18 million Eth can be supplied per year.
Should I Invest In Ethereum Or Litecoin?
We can’t end an Ethereum Explained Simply article without discussing investment potential.
Selecting your favored cryptocurrency can be tricky (made a little easier with the best cryptocurrencies to invest in 2022)
Before we get into this part, remember that anything we write is our opinion and does not constitute advice… we’re not your financial advisor.
However, if we were your financial advisor we may be strongly recommending investing in multiple cryptocurrencies rather than focusing on one.Building a diverse crypto portfolio is a way of mitigating risk. Going all in on a single project leaves you very exposed and should that project fail… you’re screwed.
Now does this mean we’re big fans of Litecoin?
Nope. Litecoin has been a slow burner compared to the meteoric rise of Ethereum in 2021. Additionally, Litecoin’s lack of function disadvantages the coin in comparison.
Ethereum on the other hand has seen reliable and exponential gains. Becoming one of the largest vehicles for purchasing NFTs has certainly helped (as per our guide to NFTs).
It’s feasibly much harder to image Ethereum crashing and disappearing, having built an ecosystem around itself. It’s still not impossible however.
Ultimately, the decision is up to you. However we recommend investing in cryptocurrencies that you believe in, not just anticipate making a quick buck from.
This ensures continued interest in the project and increased likelihood of hodling until you see some returns.
Concluding Ethereum Explained Simply
Hopefully you now feel like an Ethereum expert!
Many of those in the financial independence community remain sceptical of cryptocurrency.
What is your approach going to be?
Remember, the smart advice with cryptocurrency is to only invest what you can afford to lose. Consider balancing your portfolio by investing in index funds.
Thanks for joining us for Ethereum explained simply.
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