Today, Bitcoin, Ethereum, and Binance Coin are the three largest cryptocurrencies by market cap. While Bitcoin and Ethereum in combination hold an overwhelming majority of this market cap, the purposes behind their design and evolution is quite different.
What Is Ethereum?
Fundamentally, Ethereum is a blockchain platform with its own cryptocurrency called Ether (ETH) or Ethereum.
Similar to the construct of Bitcoin, Ethereum is a blockchain network that utilizes a decentralized public ledger. Much like Bitcoin, Ethereum’s decentralized public ledger relies upon a network of uninterested parties to verify and record all Ethereum based transactions. The network’s users can create and use “decentralized applications”, or “dApps”, on the Ethereum platform.
The contracts and the agreements written into the Ethereum code exist across a distributed, decentralized blockchain network. There is no third party that is required to police or perform these smart contracts since it is the computer code that controls the contract execution.
How is Ethereum Different from Bitcoin?
Ethereum distinguishes itself from Bitcoin as “the world’s programmable blockchain.” Unlike Bitcoin, Ethereum can be utilized as a blockchain technology that has applications for financial services, games, and apps.
As such, Ethereum was created to allow users to create smart contracts and distributed applications (dApps).
For example, a smart contract is a self-executing contract where the terms of the contract between a first party (e.g., a buyer) and a second party (e.g., a seller) are captured within the written lines of computer code. Smart contracts can be executed between remote and anonymous parties without a central authority, a legal system, or any other type of external enforcement mechanism.
Smart Contract (Source: theengineeringprojects.com)
In contrast to smart contracts, Distributed Applications (“dApps”) run simultaneously on different systems. DApps operate on a point-to-point or a Peer-2-Peer (“P2P”) network, like a blockchain network.
How to Buy Ethereum
Among cryptocurrencies, Ethereum presently has the second-highest market value at $560 billion, falling behind Bitcoin’s $1.24 trillion, and leading Binance Coin’s third-place market cap of $108.3 billion. ETH has experienced an incredible year-to-date market value gain of 450.26%.
Total Cryptocurrency Market Cap (Source: CoinMarketCap)
With this incredible market value gain and as can be seen from the total market cap graph provided above, Ethereum has captured almost 20% of the entire cryptocurrency market cap.
If these Ethereum financial metrics have piqued your interest, here is how you can add some ETH to your investment portfolio.
Identify A Trading Platform
As the second most popular cryptocurrency, Ethereum can be purchased on any of a number of different trading platforms or cryptocurrency exchanges. Crypto exchanges allow you to act as a buyer and/or seller by exchanging your fiat money (US dollars) for cryptocurrencies like Bitcoin or Ethereum.
Some popular crypto exchange choices include OKEx, Binance, Crypto.com, Coinbase, eToro, Kraken, Bitstamp, Gemini, and Bitfinex.
In considering a trading platform, you should investigate whether you want to use a fiat exchange or a crypto-to-crypto exchange.
A fiat exchange will accept your fiat or ordinary currency as a deposit which can then be used to purchase your ETH. A crypto-to-crypto exchange allows you to deposit your existing crypto coins, which you can then exchange for ETH.
In identifying a desired trading platform, you should also research the transaction fee structures as fees charged against your account can vary from one exchange to another.
Create Your Trading Account
Once you have selected a trading platform, you must establish a trading account. To establish a trading account, you will have to provide certain personal information, like your name, address, social security number, and perhaps one or more forms of identification. The exchange will then proceed to verify your personal information so that you can finalize your trading account.
Deposit a Balance into Your New Account
After verification, you can deposit a balance into your account. If your account is on a fiat exchange, you can link your account directly to an existing bank account, a credit card, or a debit card. Fiat or ordinary currency can then be directly deposited into your account so that you can begin trading.
If your established account is on a crypto-to-crypto exchange, depositing your existing cryptocurrency can be a little more complicated. To deposit your cryptocurrency into these accounts you must send the code for your coins that you want to be deposited. This may take longer than an hour or two to deposit, depending on the type of cryptocurrency and the type of exchange.
Begin Trading
Now that you have a verified account with a balance, you can begin purchasing ETH. Depending on the amount of your purchase and the current market price (today’s current price of $4,077), you will probably be buying a portion of an ETH share. This portion will be shown as either a percentage or a dollar amount.
Store Your ETH
Once you purchase your ETH, you can use your exchange account to store this purchased amount. Alternatively, you can use a digital wallet like the Coinomi wallet to store and manage your ETH.
Digital wallets (Source: Ledger.com)
A digital wallet is a location where you can securely store your ETH. You actually do not store your ETH as a physical coin, but rather you store the keys that provide access to your ETH on the blockchain.
There are different types of crypto wallets such as a “hot” wallet (software) or a “cold” wallet (hardware).
There are two types of “hot” wallets. There are software wallets and online wallets. These two types of wallets require an internet connection that allows you to gain access to your ETH stored in your online wallet, hence the name “hot” wallet.
Perhaps the most secure type of wallet is called a “cold” wallet. A “cold” wallet is a digital wallet that stores your private keys offline on a physical device, such as a USB drive. Cold wallets are referred to as “cold” as they are, unlike a “hot” wallet, not actively linked to the internet.
How to Mine Ethereum 2022
The Ethereum blockchain is validated and updated by members connected to its network. New blocks are added to this public ledger by successful miners. A successful miner is one who uses sophisticated computers (like an Ethereum ASIC miner and GPU’s) to be the first to solve a computational problem and will receive a reward in the form of ETH.
A new block is written to the ETH blockchain every 15 seconds. Currently, this award is 2 ETHS plus all the transaction and gas fees that are contained in the new block written to the public ledger.
There are three different ETH mining methods.
Pool Mining
Mining Pools (Source: macaubusiness)
In pool mining, you pay a fee to add your hashpower to other miners that are working collectively to pool their assets. If anyone within the pool solves the sophisticated computational problem, the ETH reward is split among the pool participants according to their hashpower contribution.
Solo Mining
Rather than being part of a collective effort in a mining pool, you may decide to mine ETH on your own. Solo mining can be difficult as you are trying to solve the cryptograph puzzle in a very time sensitive manner against many other miners.
Cloud Mining
With cloud mining, you do not own any of the computer hardware. Rather, you rent someone else’s computing hardware and have this other party mine ETH for you. In return for the payment of rent, you earn a portion of the mining rewards.
How to Stake Ethereum
Ethereum is changing its blockchain infrastructure. Currently, Ethereum or Ethereum 1.0 uses a proof of work (PoW) consensus to approve each new block to the blockchain. Ethereum 1.0 is beginning to transition to Ethereum 2.0 which will utilize Ethereum proof of stake (PoS) consensus.
When compared to PoW networks that require energy-intensive data mining via costly hardware used to confirm blocks, Ethereum proof of stake offers certain advantages such as speed, security, and efficiency.
You earn the title of block validator when you stake or loan your ETH to the Ethereum proof of stake blockchain. Validators are important for distributed ledgers as they are allowed to organize transactions in blocks and write these new blocks to the ledger. They play a similar role as miners in PoW blockchains.
Instead of having to use computing hardware to perform intensive calculations, validators are required to deposit a stake in the form of collateral. This collateral in the form of Ethereum acts as a guarantee that the validator will provide accurate entries into the blockchain ledger which helps to provide a secure network. For performing this important work, validators are rewarded with ETH, which are provided by transaction fees paid by users or issuance of new coins.
Anyone who owns Ethereum can stake their tokens onto the ETH 2.0 chain. Owners of ETH can stake their tokens individually or may utilize a staking pool.
Ethereum Price Prediction
As can be seen from the one-year price action of ETH provided below, ETH prices can be volatile. Recently, the market value of one ETH was fluctuating between a low of about $1,800 in July 2021 and a high of about $4,800 one month later. Presently, ETH sits at about $4,000.
Ethereum One Year Price Action (Source: CoinDesk)
If you can stomach this volatility, then you should consider purchasing ETH. It is the second most popular coin behind the well-known Bitcoin. And because it is the “programmable blockchain,” the applicability of this coin is growing as the development of NFTs, smart contracts, and dApps continues to experience explosive growth.
Conclusion
Before you add ETH or other cryptocurrencies to your investment portfolio, you might consider heeding the advice of some investment professionals suggesting that you limit your crypto investments given their speculative nature.
For example, some investment professionals suggest that you limit your exposure to only 5% of your entire investment portfolio, keeping in mind that this could be wiped out at any minute. You should also keep in mind that cryptocurrencies are not currently regulated and could undertake massive price swings, based on potential regulations or statements made in social media.