Ethereum 101: What is it & how do I get some?
What you will learn:
This article is for Ethereum novices, and gives the first-time user some special tips on how to get started. It is a step-by-step guide on how to buy and store Ethereum, as well a basic explanation of the many innovations it has to offer. In this article, we will cover:
- The basics of Ethereum
- Why it’s different from bitcoin
- Where to buy and sell Ethereum
- How to store your Ethereum
What is Ethereum?
Ethereum is a “second generation” cryptocurrency platform which expands upon bitcoin’s original idea of the blockchain. It allows anybody to develop applications to interface with the Ethereum Virtual Machine (EVM), opening up a wide variety of possibilities for financial problem solving. Like bitcoin, Ethereum is decentralized, meaning it is not controlled by any government or individual, but instead reliant upon a dispersed, worldwide network of users. Ethereum was created by Vitalik Buterin, who launched the software after an extended crowdfunding period in 2014, at the age of 20. He is considered to be a programmer wunderkind with exceptional coding skills and a revolutionary way of thinking about the future of global finance.
What does Ethereum Do?
In addition to acting as a cryptocurrency (ether, or ETH), the EVM software acts as a platform to let developers write applications that run on top of the Ethereum network. Many of these applications involve the automation of complex financial transactions. Others are digital autonomous organizations (DAOs), which attempt to carry out the procedures and functions of a business or corporation autonomously, non-reliant on human intervention.
Why is Ethereum Better Than Bitcoin?
Ethereum isn’t necessarily better than bitcoin, but it certainly is more exciting. Unlike the bitcoin network, the EVM allows anyone to create an Ethereum-based application, some of which have had stunning crowdfunding successes in 2017. Ethereum’s versatility and open-ended API gives it an edge over the rigid and closed structure of bitcoin’s software, helping to spark an incredible 2,800% rise in the price of ETH this year alone. Several Ethereum-based decentralized applications (known as DApps) are vowing to disrupt financial systems worldwide in an effort to restore financial power and control to the individual.
Why Should I Care?
Simply put, Ethereum is currently taking the crypto world by storm. With stories like Russian president Vladimir Putin’s recent meeting with Ethereum founder Vitalik Buterin on the sidelines of an economic conference, the record-breaking crowdfunding generated in support of Ethereum-based projects and ICOs over the last 6 months, and ETH’s recent climb to a record $400+ in price, Ethereum is the talk of the crypto town. Some analysts have even predicted that the price of ETH may someday surpass the price of BTC, because its potential applications are seemingly, for the moment, limitless.
How Do I Buy ETH?
Though it was only available for purchase with bitcoin until recently, ether is now offered for trade in multiple world currencies at some of the biggest bitcoin exchanges. The biggest ETH markets are as follows:
Poloniex – Cryptocurrencies trades only, does not accept fiat currency for ETH, handles about 50% of all ETH trading volume.
Kraken – An old and trusted bitcoin exchange that supports a large number of currencies to trade for ETH.
Bitfinex – The longest-standing bitcoin exchange, in operation since 2011, now offers currency pairs with ETH, mainly in USD and EUR pairings.
The process of registering an account for most of the above-listed exchanges is extremely similar to that outlined in our Bitcoin 101 article. In the following example of how to purchase Ethereum, we will again be using Coinbase as our selected vendor.
There are 3 basic steps to signing up for any exchange.
Step 1: Register.
Enter your name, email address, and password into the Coinbase “Sign Up” form to begin the registration process. You will have to set up a 2-Factor Authentication method (2-FA), so have your cell phone handy after you receive your registration confirmation email. Also be sure to memorize your password or write it down by hand, and keep it in a safe place that you will remember.
Step 2: Attach Payment Method.
Coinbase accepts a wide variety of payment methods, including debit and credit cards. The fastest transfer method is credit card, though the fee is slightly higher than if you purchase bitcoin with money from your bank account. Don’t be frustrated if Coinbase wants a week or longer to verify your information; this is the standard amount of time it takes them to clear the red tape necessary to set up a new user account. You can also link your PayPal account to your Coinbase account, allowing you to use PayPal money to purchase or sell ether.
Step 3: Buy Some ETH.
Now that your payment method has been activated, you can decide how much ether (the base cryptocurrency that helps operate the EVM) you want to buy. You can buy much less than 1 full ETH coin. Simply type in the decimal value of the amount you want to buy, as low as 0.01 ETH (that would be 1/100th of 1 ETH coin. You will pay the rate shown on your screen. Because ether is volatile and may drop or rise tremendously in a period of just a few minutes, be sure to check that the price you are paying is acceptable to you before clicking “Continue.”
Where do I store my ETH?
Much like bitcoin, ether is stored in a special, coin-specific wallet known as an Ethereum wallet. Coinbase will automatically generate an Ethereum “Contract Address” for you, which is a string of letters and numbers that is 42 characters long, and usually looks something like this:
If you are not planning on trading or using your ETH for other purposes, Coinbase’s Ethereum wallet is one of the best and easiest-to-use out there, so it’s a perfectly reasonable decision to leave your Ethereum there after purchasing it. If you are interested in checking out Ethereum’s advanced functionalities, here is a list of recommended Ethereum wallets compiled earlier this year.
Unfortunately, Ethereum wallets aren’t quite as intuitive or user-friendly as bitcoin wallets. This is because Ethereum employs advanced software functionalities that allow it to automate and execute complicated financial transactions, such as smart contracts and escrow services. Despite the intimidating nature of its complexity, Ethereum’s software “under the hood” is essentially the same as bitcoin’s. Ethereum is blockchain-based, miners are rewarded 5 ETH for successfully adding new blocks to the chain, and software changes are made only through a consensus mechanism.
How Do I Send and Receive ETH?
Most cryptocurrencies (bitcoin and ether included) are stored and sent from a user-specific address to another user-specific address for the same coin. Important Reminder: You cannot send bitcoin to an Ethereum address or vice versa; if you attempt to do this you run the risk of losing the entire amount of coin you are trying to send. You can only send coins to the same type of coin wallet. Coin networks won’t recognize addresses and transactions that belong to a different coin network, and the best case scenario is that your transaction gets rejected by the network.
Let’s say you want to send some ether to a different Ethereum address. From Coinbase’s main menu, click the “Send/Request” option and set the cryptocurrency being sent to “ETH.”
Next, simply type in the amount of Ethereum (or the dollar equivalent) that you wish to send, and copy and paste the recipient Ethereum address into the “Recipient” field. Make sure that you enter the address exactly as it is supposed to be, or again you run the risk of losing coins into the great void. Much like with bitcoin, there are no chargebacks with Ethereum, meaning you cannot reverse a transaction once it has been sent and confirmed by the network.
After hitting “Confirm,” you will see a confirmation screen that summarizes the transaction you just made. Also like bitcoin, an Ethereum transaction is not considered to be valid until it has at least one miner confirmation, at which point the transaction will become part of the blockchain and officially completed.
What Can I Do with Ethereum?
Although it might be cliché to say that Ethereum can do just about anything, it’s the reality of the situation, with the potential for the usefulness of Ethereum-based applications limited only by human imagination and creativity. Some of the DApps currently available or in the works include:
Branche – a financial services tool whose stated mission is to “make basic financial interactions more accessible and positive for everyone involved.”
TrustStamp – attempts to streamline the user verification process by allowing users to associate selected social media and e-commerce accounts to their personalized “Trust Stamp,” offers “Safe & Easy Identity Verification for Everyone.”
If you have the background and/or motivation, you can also create your own DApp using the Ethereum Virtual Machine.
Wrapping It Up
In this article, we explored the basics of Ethereum: what ether is, how to buy ether, and where to store ether. There is a lot more to learn than what we covered here. If you would like to know more about bitcoin, a good place to start is ethereum.org, a user-friendly site dedicated to the explanation of all things Ethereum. There are also several good YouTube tutorials that quickly outline the essentials of Ethereum through a slideshow presentation.
In summation, Ethereum expands on bitcoin’s original idea by adding a developer interface component to the Ethereum network, known as the Ethereum Virtual Machine. Ethereum employs blockchain technology like bitcoin to maintain a decentralized record of all transactions, and also has a system for rewarding miners with ETH for successfully adding new blocks to the chain. With millions of dollars being poured into Ethereum-based DApps on a monthly basis, its potential to act as a launching pad for novel innovations to benefit society, and its unexpected, tremendous price run this year, it makes it generally a more exciting coin than bitcoin.