The Perfect Beginner’s Guide on Ethereum Coins

The Perfect Beginner’s Guide on Ethereum Coins

Ethereum Coins

Are you considering buying some cryptocurrency, and you can’t figure out clearly – what are Ethereum coins? Let’s take a tour!

Chances are high you are here because you woke up this morning thinking, “what is Ethereum, and how does it work?”

You were not certain, so you consulted your neighbor and they also didn’t know, either! It’s fine, though- by reading this guide you are going to know everything about one of the most exciting cryptocurrencies worldwide – Ethereum.

In this article, we will be covering everything from what Ethereum is, to how you can actually purchase it, and where to keep your newly-acquired Ethereum coins. 

Read also: The Perfect Beginner’s Guide on How to Buy Ethereum

A Brief History: What is Ethereum

Vitalik Buterin

Vitalik Buterin was introduced to Bitcoin by his father at the age of 17, in 2012. At that young age, he became very interested in Bitcoin technology. He became one of the writers for Bitcoin Magazine and recommended improvements to Bitcoin technology. When his suggestions weren’t implemented, he opted to develop his own cryptocurrency instead.

His concept was Ethereum. It went live in 2015. Since its launch, the price of Ethereum coin has been going up. The current (20/10/2021) ‘market cap’ stands at $250 bn. So, why is the value of Ethereum going up?

‘Market cap’ is the total value of all cryptocurrency (Ethereum coin) combined.

Ethereum technology has a lot of potentials to transform our world. Let’s have a look at what this technology is and what makes it so special. Shall we?

Ethereum For Starters

NB: If you are not a starter, you should perhaps still read this, just in case!

It is simpler to understand what Ethereum is when we first get to understand what Ethereum technology is trying to replace. Let’s have a look at an example:

Alice uses Google Docs to write tutorials. She can edit her work and share it with whoever she wants. A day comes when Google Docs is hacked, or the government forbids using it, so Alice loses all her work.

Now Alice makes up her mind that she will only use a word processor to write her tutorials, so the safety of her work will be guaranteed. However, it isn’t secure, is it? Alice’s computer can be stolen, hacked into, or broken.

Alice is desperate now, so she decides to put her laptop on sale and purchase a notepad, pencil, and some stamps instead. Job done!

Alice’s problem in this example is that she wants the speed and convenience of the internet, but with the safety and control of her paper and pencil. So, how is Ethereum going to fix this?

Ethereum coins

Read also: The Perfect Beginner’s Guide on Dogecoin

Ethereum makes it possible to utilize the power of the internet without trusting apps like Google, Facebook, or your online bank with your personal data.

Apps such as Google and Facebook collect and keep data of their hundreds of million users in servers. This implies that the collected data is stored at very few locations (referred to as centralization). In the event that one of these locations is attacked, we are all in big trouble!

Ethereum works by eliminating the necessity of trusting lots of apps with private data. It fulfills this through decentralization using ‘blockchain’ technology.

Basics of Blockchain

Ethereum’s type of internet is one where clouds and servers are substituted with a network of systems known as nodes. These nodes play the role of maintaining and storing a shared database called a blockchain.

The blockchain network has thousands of nodes that store information in the entire blockchain. The safety of the network and the data in the network are directly proportional to the number of nodes available in the network. Any information that you key into this record can only be altered by you. It is not kept in a central server, or on your computer – it is kept across all nodes in the network.

The data kept on the blockchain is proved by ‘consensus’. This means that more than half of the computers or nodes in the network must reconcile and agree that information is correct before it can be admitted into the blockchain.

Attacking this type of system is almost impossible since you would need to have control of more than half of the blockchain network to compel a consensus and agreement. Even if you managed to get control of more than half of the nodes, it would drain you so much cash to execute the entire attack, that it wouldn’t be worth your effort.

As stated earlier, blockchain technology was not invented by Ethereum. Bitcoin did the invention. However, Ethereum is using it and enhancing it in some incredible ways. So, let’s have a look at the Ethereum blockchain.

Ethereum Explained: Blockchain 2.0 and its application

The Ethereum blockchain, also known as Blockchain 2.0, functions using similar technology as Bitcoin, although more advanced. It performs much more than the Bitcoin blockchain. It fulfills this in two main ways.

Smart contracts

The design of the Ethereum blockchain is such that transactions can only happen when certain terms are fulfilled. The guidelines deciding these terms are called smart contracts.

For instance, imagine a soft drink vending machine. If Tracy wants a can of coke from a vending machine, she needs enough cash to pay for it. If she doesn’t have enough cash, she won’t get her can of coke. A smart contract for this purchase might look like this:

IF Tracy puts $2 in the vending machine THEN the vending machine will give Tracy a can of coke.

The moment a smart contract is written, it can’t be altered. This is why they are referred to as ‘trustless’ transactions. There is no burden of trusting people on the network- if the terms of the contract aren’t fulfilled, then it won’t happen.

Isn’t this amazing?! A trustless global network that never goes offline!

dApps

Read also: The Perfect Beginner’s Guide on Ethereum Classic

dApps or decentralized applications are applications that do not operate on a traditional central server. As an alternative, they operate on a blockchain- using it to decentralize their server.

At the center of Ethereum’s beliefs and design, you will find dApps. The founders of Ethereum wanted users of the Ethereum community to learn it and build on it. 

Developers on Ethereum blockchain use a unique coding language known as Solidity to develop dApps. Since solidity is almost similar to JavaScript (one of the commonly used coding languages), it motivates programmers to develop new and exciting dApps. It is just a matter of time before these apps begin to replace or compete with centralized apps in industries such as e-commerce, social media, online banking, and email. 

A Quick Recap

Let’s quickly take a look at the first portion of that question we asked at the beginning: What is Ethereum?

What have we known so far?

Simply put, we have known that Ethereum is a blockchain that permits the user to develop dApps and smart contracts – it has the capacity to transform the internet forever.

Without much delay, and having a good idea of what Ethereum is, let’s delve into the second part of that question: how does it work?

How Does Ethereum Work?

The currency used on the Ethereum blockchain is known as Ether. Often, the two are confused but it’s easier if you try to remember that Ether is the currency while Ethereum is the system.

If you want to conduct any transaction on the system, you will require some Ether. Ether is often referred to as ‘gas’ because it fuels the Ethereum system. The bigger the task, the more gas you need.

Whenever Ethereum is being discussed, it is highly unlikely that the question of Bitcoin VS Ethereum will fail to pop up. People often compare the coins that fuel the two platforms and as such, we will take time to explain the main differences.

Bitcoin

Bitcoin is digital money. The Bitcoin blockchain permits the manual peer-to-peer transfer of digital cash. If Sharon wants to pay Jared 15BTC (Bitcoin) to paint her car, without using a bank, she can use Bitcoin. This is how it looks; Sharon sends 15BTC (Bitcoin) to Jared.

There is a limit to the number of Bitcoin that can exist (21 million), so it can be a reliable store of value, like diamond or gold.

The average time for a confirmed transaction on the Bitcoin blockchain is 60 minutes. However, they can be as quick as 10 minutes.

Ether

As earlier mentioned, Ether is the fuel for the automated smart contracts in the Ethereum network. If Sharon wants to pay Jared 15ETH to paint her car, she can use an Ethereum smart contract. The agreement would look like this; IF Jared paints Sharon’s car THEN 15ETH will be sent to Jared. Therefore, as you can observe, Ether and Bitcoin can be used in almost a similar way. The only difference is the smart contract technology won’t allow Sharon to pay Jared until Jared has painted Sharon’s car. Jared won’t get paid if he doesn’t paint Sharon’s car, so he can’t cheat! This system can also be used to guide all kinds of transactions.

There is no limit to the number of Ether that can exist. However, it is likely that the amount of Ether won’t go above 100,000,000 for a very long time.

Transactions on the Ethereum platform are very quick- they just take seconds.

What is Ethereum Mining

In both Ethereum and Bitcoin, new currency (Ether and Bitcoin) is created through ‘mining’. Nodes or computers on a blockchain network must confirm transactions; these computers are in turn rewarded with a new coin. For instance, an Ethereum miner or node is rewarded with a new Ether.

The process of creating a new Ether coin is referred to as mining because it is similar to diamond or gold mining. But now instead of digging in the ground, the miners verify transactions.

Mining Ether through verification of transactions is called ‘proof-of-work(PoW) mining. This is because the computers have to indicate that it has completed the task to receive their reward of Ether coins. The downside about PoW mining is that it needs a lot of computer power which translates to a lot of electricity, making it uneconomical and a climatic hazard.

Ethereum miner

Soon, developers of Ethereum are looking forward to commencing using an alternative method called Proof-of-Stake (PoS). This method needs much less electricity. Therefore, it is way better for the conservation of energy and the planet!

In Proof-of-Stake, users with a lot of Ether are chosen at random to confirm transactions. Rewards in this method of mining are given in form of fees rather than a new currency.

NOTE: Users that are randomly selected in PoS to confirm transactions are called ‘Stakers’ or ‘Stakeholders’.

What is Ethereum Storage?

Since Ether does not leave the Ethereum network, you will need a ‘wallet’ or Ethereum address to keep your coins.

Your wallet won’t contain any Ether coins, but it will have the codes needed to access them. These codes are referred to as private keys. If you forget your private key, you lose your coins. So, settling for a good wallet is very key! You can choose from any of the four types of wallets that are available.

Hardware Wallets

Hard wallets are physical storage devices, similar to USB sticks. An example of more expensive hardware wallets is the Ledger Nano S. It offers secure offline key storage. Nonetheless, just like a real bunch of keys, a hardware wallet can be misplaced. So, be careful how and where you put it!

Desktop Wallets

This wallet enables you to store your private and public keys directly onto your computer. This alternative uses a password which you mustn’t forget. It also occupies a lot of storage space on your computer. 

Mobile Wallets

Mobile wallets are just like desktop wallets but take up less storage space. They are good for keeping your private and public keys on your smartphone. 

Web Wallets

Web wallets allow you the flexibility of keeping your private keys online. They have the least safety index and we suggest not using them unless when storing amounts of Ether that you can be comfortable to lose.

Paper Wallets

Paper wallets, as the name suggests, are pieces of paper with your access codes printed on them. Their advantage is that they can’t be hacked. However, you need to remember where you keep them otherwise you will lose your coins.

A wallet can either be hot storage or cold storage. Hot storage is when a wallet is connected to the internet while cold storage is when it is not connected to the internet. For maximum security when storing private keys, use a combination of both cold and hot wallets. 

Now you have a good idea of what Ethereum storage entails and which wallet to settle for. Let’s look at where you can buy Ethereum coins.

Where to Buy Ethereum?

Ether can be bought from three main sources:

Brokerages

These are coin exchanges that buy and sell Ethereum coins for a fee. They are easy to use but may turn out to be expensive in the long run due to the transaction fee. You can use them to purchase Ethereum coins with your fiat currency (EUR, USD, etc.) with a bank transfer or using a debit/credit card.

Trading Platforms

These platforms connect the sellers and the buyers in exchange using a middleman. Traders use this to trade one cryptocurrency for another. For instance, buying NEO with Litecoin, or selling Ether for Bitcoin.

Peer-to-peer platforms

These platforms allow sellers and buyers to contact each other directly to agree on prices. This option carries more risk compared to the first two since you are trading directly with a stranger. There are no middlemen, so there is no fee charged. 

What is Ethereum Doing Now?

Many dApps are being developed on Ethereum’s blockchain. A form of fundraising called an ICO (Initial Coin Offering) is being used to pay for them. Therefore, knowing what activity is Ethereum engaged in currently is quite useful.

Initial Coin Offering (ICO) gives developers an opportunity to sell the idea of their product to raise funds for its creation- same as Kickstarter, but now for dApps.

What is Ethereum Going to be Doing in the Future?

Imagine all the various types of transactions that are conducted in everyday life. Renting an apartment, buying or selling a car, placing a bet on the World Cup Final. They all entail trusting strangers with your cash and information. Ethereum sorts this issue, which implies it has lots of potentials to be exploited in the future. 

So, now after reading this guide, we hope that you not only know what Ethereum is but also how it works.

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