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Ethereum and Ether



Ethereum is the best-known and most popular blockchain platform after Bitcoin, and its cryptocurrency is called Ether. Presented in 2013 in a whitepaper by Vitalik Buterin, Ethereum was the first blockchain platform to run smart contracts and dApps after its ICO in 2014.


What differentiates Ethereum from simple cryptocurrencies like Bitcoin is that the blockchain was designed to execute decentralised prorams. Simply put, Ethereum can do much more than Bitcoin. The token of the Ethereum blockchain is the cryptocurrency Ether (ETH), which is operated and managed decentrally by all Ether miners. Unlike Bitcoin, ETH does not have a maximum spending amount; Ether is not deflationary. As a public blockchain, anyone who wants to can engage in Ethereum mining.


With the cryptocurrency Ether, you can send money worldwide in seconds, and Ether is also accepted as a means of payment by some online merchants. However, many traders prefer trading with Ether.



VALUE OF ETHER


2015

Ether made it above the 2.50 USD mark in August 2015, but dropped again significantly by the end of the year, ending 2015 at just under 0.94 USD.


2016

Ether started the year strongly and cracked the 1 USD mark again on 11 January, and even the 2 USD mark on 25 January. Having already reached USD 10 in March, several months of volatile sideways movements followed until the price plummeted noticeably in November. At the end of the year, ETH stood at 7.91 USD, almost 800 % annual return.


2017

The year 2017, known for its crypto boom, quickly propelled Ether to unprecedented heights. On 12.03., USD 20 was exceeded for the first time, on 29.03. even USD 50 and on 20.05. the USD 100 mark. After some sideways oscillation, Ether started to make further gains in August, reaching 362 USD on 30 August. After moving sideways, it continued to climb in November, and by the end of the year ETH stood at an incredible 710 USD.


2018

A brilliant kickoff took Ether from 710 USD to over 1,000 USD right on 04.01., and on 15.01. the all-time high was reached at 1,290 USD. After that, it gradually went downhill, and in March Ether hovered around the 700 USD mark. After further losses, the price recovered somewhat from May until it continued to fall at the end of June. In September, the price fell below USD 200, and by the end of the year, 1 ETH was only worth USD 134.


2019

The first 4 months of 2019 brought only unspectacular oscillations around the 150 USD mark, before a strong upswing began in May; on 25 June, ETH had reached its high for the year of 300 USD. After some sideways movement, a constant price decline came into effect, and a year-end price of 129 USD meant a zero return over the year.


2020

High volatility has characterised the price development in 2020 so far. By the end of February, the ETH price had doubled to just under USD 261, the Corona crash led to USD 95 on 13.03. The price is slowly recovering, always fluctuating strongly and is currently - after the announcement of Ethereum 2.0 - at just under USD 240.



ETHEREUM AND BITCOIN - IMPORTANT DIFFERENCES


By differentiating Ethereum from Bitcoin, the advantages and characteristics of Ethereum can be presented even better. First, let's look at the similarities: Ethereum and Bitcoin are decentralised, public blockchains. This means that anyone can join as a miner and all past ETH transactions are publicly viewable (via a blockchain explorer).


The main difference is the purpose and capabilities of the two platforms:

  • Bitcoin was explicitly developed to design a digital, decentralised cryptocurrency - all the functions of the Bitcoin blockchain are geared towards conducting currency transactions. The blockchain documents between which wallet addresses BTC are transferred.

  • Ethereum, on the other hand, pursues a higher goal, namely to serve as a "global cybercomputer" for the execution of programmed smart contracts and dApps. Miners here earn the crypto token Ether, which powers the Ethereum blockchain. As well as being a tradable cryptocurrency, Ether is also used by developers to pay for transactions and services on the network.


ETHEREUM (ETH) VS. ETHEREUM CLASSIC (ETC)


After the momentous hack of DAO, a start-up fund launched by Ethereum in 2017, a vote was held among the Ethereum community. In order to reverse the hack, the blockchain history was changed, which was a scandal for some because it contradicted the blockchain idea of immutability.


The dispute was insurmountable, so it finally came to a split - after the hard fork, the original Ethereum blockchain was continued as "Ethereum Classic (ETC)", Ethereum (ETH) is the further development of the project.


Vitalik Buterin continues to be the driving force behind Ethereum (ETH) - the modern platform on which virtually all dApps are hosted. Ethereum Classic has continued the original Ethereum code, but is only respected by a few developers and companies.



ADVANTAGES AND DISADVANTAGES OF ETHEREUM


Advantages
  • dApp platform: Ethereum was and is the most important blockchain platform for smart contracts and dApps. Even though challengers like EOS, Tron or Cardano have entered the competition for the "King of dApps", Ethereum has been able to hold its own in a big way. Hundreds of crypto projects rely on Ethereum, and the DeFi boom has spurred this on. Ethereum 2.0 will make the blockchain even more dominant.

  • Proof-of-stoke mechanism: while Bitcoin and other cryptocurrencies still rely on the expensive proof-of-works, Ethereum will soon switch completely to PoS. Ethereum will then be faster, more efficient and more scalable.

  • Large developer community: There are tens of thousands of blockchain developers worldwide who design dApps on the Ethereum blockchain. These guarantee that the most exciting crypto projects will continue to be hosted on Ethereum in the future and that competitors like Tron and EOS will lose out. The regular meetups also ensure that the Ethereum blockchain is constantly being developed.

Disadvantages
  • Little recognised means of payment: To date, Ethereum is hardly recognised as a means of payment by online merchants and points of sale. So when you buy Ethereum, you can almost only use it for trading or buying other tokens on crypto exchanges

  • Competition in the dApp war: in recent months, the battle for the "King of dApps", the most popular blockchain platform for smart contracts and dApps is heating up. EOS, Tron and NEO have also gained more and more developers and are hosting more and more dApps, leaving Ethereum with competition to contend with.

  • Lengthy transition to Ethereum 2.0: On 01.07.2020, Ethereum finally announced a 3-phase switch to Ethereum 2.0. Before that, the update is supposed to bring great innovations and improvements, but the multi-year switch means uncertainty for miners, programmers and also investors. There are many switch points where there could be delays or problems.

  • Proof-of-Stake: The new Proof-of-Stake (PoS) consensus mechanism is supposed to increase the scalability of the Ethereum blockchain up to 100,000 transactions per second (TPS). However, there is also heavy criticism of this mechanism because it could lead to the concentration of mining power in the hands of a few miners. In any case, one will have to own 32 ETH and make a fixed deposit ("staking") in order to be able to become active as an Ethereum miner in the future.



ETHER, THE CRYPTOCURRENCY OF ETHEREUM


Again, to clarify: Ether is the cryptocurrency of the Ethereum blockchain, so strictly speaking you can only buy Ether and not "buy Ethereum". Ether is a cryptocurrency that you can transfer back and forth between individual Ether wallets or earn by mining the Ethereum blockchain, similar to Bitcoin.


Ether Wallets - Storing Ether Tokens Safely

You need to get your own Ethereum wallet to store your Ether tokens, you can't use your Bitcoin wallet for this! Remember that each cryptocurrency must be stored in its own wallet with an individual wallet address! If you want to hold and trade Ether in the short term, you can use smaller amounts in your Ether wallet at your broker (e.g. eToro), but you should store larger amounts in a hardware wallet.


From your Ether wallet you can send Ether to friends or acquaintances, provided you know their Ether wallet address. Of course, you can also receive money by telling the sender your wallet address.


Keep in mind that you must never share your private key, otherwise strangers can loot the Ether from your wallet.

Gas - speed up Ether transactions

Another special feature of Ethereum is "gas", a means of prioritising and accelerating the execution of an ETH transaction. For each Ether transaction, a small transaction fee has to be paid, with which the miners of the blockchain are remunerated for their work performance. Generally, transactions are carried out sequentially according to when they are requested.


However, when demand is high, there can be a queue of transactions to be processed - currently the Ethereum blockchain can only process around 20 transactions per second (TPS). With Gas, the possibility was created to put one's own transaction in front of others with a surcharge (Gas costs fees) and to initiate a prioritised execution.


When you initiate a transaction, you can choose a gas number from around 21,000 - the more gas, the higher the priority. The amount of your transaction fee is determined by the general transaction fee (which varies with network usage) and the level of gas you choose.


The concept of gas was actually envisaged by Buterin for Ethereum to prevent the abusive execution of smart contracts and thus increase the security of the network. Because each transaction costs gas, only those who are willing to pay for it will have the transaction executed.


TECHNICLA BASICS OF THE ETHEREUM BLOCKCHAIN


Ethereum Mining - How transactions are processed

Ethereum is a public, decentralised blockchain that any user can join as a miner. Each miner who installs an Ethereum mining client on their computer or mining device represents a node in the network. Initially, the proof-of-work consensus mechanism, which is also used by the Bitcoin Blackchain, was used for mining.


However, because each node has to validate each transaction before a new block can be created, this processing is resource-intensive, expensive and slow. That is why Ethereum is gradually switching to the proof-of-stake consensus mechanism. Here, each node must deposit a sum of ETH tokens as a stake ("stoke") - the higher the stake, the higher the mining reward if one is selected as the responsible miner.


The switch to proof-of-stake is to be completed by 2021 at the latest, making Ethereum faster, more efficient and more scalable (up to 100,000 TPS). However, critics complain that PoS could lead to the concentration of mining power in the hands of a few miners, which could mean less security due to increased centralisation. Overall, however, the majority of Ethereum fans are in favour of the changeover.


Those who want to become active in Ethereum mining have to invest in mining hardware, or can alternatively switch to a cloud mining service.


Smart contracts - intelligent, self-executing contracts

When Vitalik Buterin presented the vision of his blockchain platform, he spoke of Ethereum as a next-generation platform that could execute smart contracts and decentralised applications. Buterin confessed that blockchain technology could be used to create "much more than just Bitcoin" and cryptocurrencies.


Smart contracts are if-then conditions written in the form of program code that automatically lead to the execution of a transaction (the because condition) when the if condition is met.


The idea of a smart contract, which had already been introduced by Nick Szabo in 1992, could finally be realised securely by means of the blockchain. What makes smart contracts so powerful is the automation of many processes, such as the transfer of currency amounts.


What are dApps - decentralised applications?

If you combine several smart contracts around a specific use case, you can programme an entire application, such as an online game. Because this application is not executed on a central server, but via smart contracts on all nodes of the Ethereum network, it is called a decentralised application (dApp).


Ethereum has the programming language Soldity, in which smart contracts can be programmed. Ethereum is the world's most popular platform for running dApps. Most of these are online gambling, crypto exchanges or decentralised finance services.


Use cases - What Ethereum is used for

As a platform for decentralised applications, Ethereum can be used to decentralise almost all previously centralised services. Thus, the decentralised cryptocurrency can be understood as a dApp, but there are already hundreds of other use cases.


Many online casinos are built on Ethereum to prove compliance with all rules, laws and random functions through smart contracts. Ether is accepted as a means of payment. Several start-ups have developed parametric insurance products on the Ethereum blockchain - self-executing insurance policies that can detect the occurrence of predefined criteria and execute compensation payments within minutes.


However, the three most exciting use cases are Ethereum as:

  • ICO platform,

  • the decentralised financial services (DeFi) sector, and

  • the decentralised autonomous organisations (DAO).


Ethereum as an ICO platform - The ERC-20 token standard

Ethereum was created as a platform for the transfer of digital assets. Other cryptocurrencies or so-called tokens can therefore also be transferred via Ethereum. This is why the ERC-20 token standard was developed, so that crypto projects can issue their own cryptocurrency via the Ethereum blockchain. Such tokens have been used as an internal means of payment for online services; they are similar to a voucher for a particular transaction.


Many projects that have funded via an Initial Coin Offering (ICO) in the past have launched their cryptocurrency as an ERC-20 token. Because so many exciting crypto projects use the Ethereum Blockchain, the platform is so significant and powerful. The success of many crypto projects depends on the further development of Ethereum, and at the same time the success of these projects is also a benefit for Ethereum.


Decentralised Autonomous Organisation (DAO)

A decentralised autonomous organisation (DAO) is an organisation that operates completely autonomously, decentrally and without a single CEO. DAOs are governed by program code, effectively a combination of interacting smart contracts hosted on the Ethereum blockchain. The goal of a DAO is to use the blockchain for a novel and highly autonomous, secure form of organisation in which individual actors do not even need to know or trust each other because they can trust the code of the Ethereum protocol.


With the code, the rules, regulations and standard processes of an organisation are replaced and automated. A DAO is controlled by all token holders, where each individual token is not considered a share with ownership rights, but a contribution with associated voting rights. The more tokens a person owns, the more voting rights they have.


Decentralised Finance (DeFi) on Ethereum

Decentralised Finance (DeFi) is possibly the most exciting crypto trend of 2020. Because so many decentralised finance apps have been launched on Ethereum, an entire decentralised ecosystem has emerged that represents an alternative to the classic centralised finance and banking system.


For example, it is possible to open a kind of savings account with Ethereum and receive interest for depositing ETH, you can take out a loan (crypto-lending) or use other services. The most important projects are DAO Maker and Lend.



THE ETHEREUM ENTERPRISE ALLIANCE


In 2017, Ethereum caused a real euphoria as more and more companies realised the exciting application possibilities of smart contracts and dApps. Soon, the Ethereum Enterprise Alliance was formed with more than 100 large companies, including well-known corporations such as Microsoft, Intel and VMWare, consulting firm Accenture and banks such as Santander or Sberbank. Together, they want to explore promising use cases in pilot projects and drive innovation with the Ethereum blockchain.


Even though the alliance shows great support for the Ethereum blockchain, critics complain that little has been developed to date, and some members have since left the alliance again.



FREQUENTLY ASKED QUESTIONS AROUND ETHEREUM


What is Ethereum explained simply?

Ethereum is a blockchain platform that can run smart contracts and decentralised applications. Ether is the cryptocurrency of the blockchain, which is paid for the payment of transactions and execution of contracts. Anyone can buy Ether (ETH) as a cryptocurrency and send it as money, pay for it at certain points of sale or keep ETH as an investment in an Ether wallet.


What are the disadvantages of Ethereum?

The cryptocurrency Ether is - like other cryptocurrencies - relatively volatile and subject to high fluctuations in value. As an investor, you should be aware of this. Compared to Bitcoin, Ether is less well-known and rarely accepted as a means of payment. Disadvantages of the Ethereum blockchain are its limited scalability and the slow conversion also consensus mechanism "Proof-of-Stoke". In times of high demand, slow transaction times and high transaction fees can occur.


Where can you buy Ethereum seriously?

The easiest way to buy Ether is through online brokers such as eToro and Plus500. An alternative can be crypto exchanges like Binance, but they are difficult to use for beginners.


Where should you store the Ether?

Real Ether tokens must be stored in a separate ETH-compatible wallet, a Bitcoin wallet must not be used! There are many ETH-compatible wallets, such as desktop wallets or the particularly secure hardware wallets.

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