Ethereum: What is it and how do you invest in it?

In this article:

Ethereum is a combination of platform, digital currency, and programming code.

One of a cohort of increasingly popular cryptocurrencies, it operates as a decentralized, open-source "programmable" blockchain platform, and forms the basis of the digital coin known as ether (ETH-USD), the largest digital coin after Bitcoin (BTC-USD) by market cap.

Read the latest cryptocurrency and bitcoin news from Yahoo Finance

Ethereum utilizes its own programming language known as Solidity, and the number of ether which can be created is unlimited. This week, the platform is expected to make a network change to streamline transaction fees — but also destroy coins in a way that boosts ether's spot price.

Co-founded by Russian-Canadian programmer Vitalik Buterin in 2013, development of the project began crowdfunding in 2014, with the network going live in July 2015.

Ethereum blockchain allows developers to create, deploy, and use decentralized applications on it. Otherwise known as decentralized finance or DeFi applications ("dapps"), these apps are able to provide many financial services without the need for a middleman such as a brokerage, bank, or exchange — thus making transactions cheaper.

An example of such a service is the ability to borrow or lend ether for interest. When ethereum users utilize dapps, they must pay fees known as “gas,” which is the price set by the supply and demand between ethereum miners to successfully perform a transaction on the blockchain.

Additionally, NFTs (non-fungible tokens) can be created and exchanged within the ethereum platform. NFTs, which have surged in popularity in recent months, serve as non-interchangeable digital tokens which can be bought and sold, and are connected to tangible items in the real world, or digital properties such as art. Many other cryptocurrencies such as Golem (GLM-USD) also operate within the ethereum blockchain, and have used the platform for initial coin offerings (ICOs).

Ethereum 2.0

Ethereum 2.0, otherwise known as eth2 (or Serenity), is an ongoing series of upgrades to its platform that aims to improve the platform’s scalability, speed, and security to allow for greater transaction volume, reduced bottlenecks, and lower fees.

Ethereum 2.0 also entails the transition to a proof of stake (PoS) protocol from the blockchain’s current proof of work (PoW) protocol.

How do you invest in/buy ethereum?

Like many other cryptocurrencies, ethereum can be bought and sold through cryptocurrency exchange platforms such as Coinbase (COIN) and Binance. Trades are usually occurring on these exchanges 24/7, unlike stock exchanges. These exchanges are merely platforms that match cryptocurrency buyers with sellers and vice versa. Some of these exchanges may charge fees for transactions.

An important thing to note is that cryptocurrency exchanges are not the same as cryptocurrency wallets. A cryptocurrency wallet is a place that digitally stores your cryptocurrency after it has been purchased. Wallets can come in the form of hosted wallets (most popular and easiest to set up) in which a third party holds an owner’s crypto for them, non-custodial wallets (software that puts owners in complete control of their crypto), or hardware wallets (physical devices which store crypto offline). Some platforms provide users with a wallet in addition to services offered by its exchange.

How do you mine ethereum?

In addition to purchasing it from an exchange, mining is another way to acquire ether. Similar to bitcoin, ethereum is “mined” using computers to solve cryptographic math puzzles, and validate transactions to the blockchain ledger. As users’ computers solve these equations, they can contribute to the building of the blockchain, and reap a reward in return in the form of ether.

Three ways to mine ethereum are via: pool, cloud, or mining alone. Each of these methods has their own advantages and disadvantages, along with their respective barriers to entry. Pool mining is the easiest and fastest way to begin mining ethereum.

Read the latest financial and business news from Yahoo Finance

Advertisement