Is Ethereum a software or a digital currency? Most of the people who are new to the area of digital currencies would not know what Ethereum is and how does it work? So in the below article, we will focus on what Ethereum is and what is its work process. Digital currencies mean something we can buy or sell, right? So we will also throw light on the facts on how we can get Ethereum and how can we invest in it.
And finally, any currency must be adequately secured for future investments, right? So, how can we store Ethereum? Are those methods considered safe? Answers to all these questions are given in the article to be followed below.
1. What is the differentiation between Ethereum and Ether?
Both the things sound similar right? But they are not. Ethereum and Ether are entirely different. In simple words, we can say that Ethereum is a blockchain platform, and Ether is a digital currency, which is the primary precursor of this blockchain-based platform.
A Russian programmer named Vitalik Buterin founded Ethereum in mid-2013. The praiseworthy thing here is that Vitalik is a college dropout from the University of Waterloo. In 2014, at the North American Bitcoin Conference in the USA, Ethereum’s concept was presented as a white paper by Vitalik Buterin.
So, fundamentally, we can define Ethereum as a unique blockchain-based platform for writing elegant contracts which are autonomous. It also helps create self-executing, decentralized apps only when specific coded instructions or conditions are met.
So, the primary question here will be how does Ethereum work? We can explain it in simple words like this, Suppose you give work to someone by the name X, and the work is to design a blog site or a website. So, you bestow the contract to Mr.X, and the fee to be paid to him is 30 ETH. But once the work gets completed, you aren’t satisfied and do not want to pay the fee to Mr.X.
This point is where the working process of Ethereum gets seen. So, when you feel the work is satisfactory and the instructions are met, Ethereum will only allow the payment fee of 30 ETH to reflect in Mr.X’s account. If the work is unsatisfactory, Mr.X will not receive the payout of 30 ETH.
What can we theorize from the above passage? We can conclude that Ethereum works as a third-party platform between the customer and the contractor and submits the payment fee to the contractor only when the person meets the conditions implied.
But before giving the work to the contractor, the consumer must state his requirements on the platform. The flip side is that the contractor wouldn't be receiving the payment even if the work is satisfactory for the customer. This step happens because the contractor will not meet the conditions mentioned. Because once the requirements are specified, and only if they are perceived accordingly, Ethereum will allow for the payment to reflect on the contractor's account.
These requirements get written as code on the platform. Once this code gets written, it cannot be hacked, altered, or tampered with. This feature justifies that Ethereum is a platform that helps perceive autonomous smart contracts.
Now, let us move on to Ether. Once you understand what Ethereum is, understanding Ether will become quite easy. In the above passages, I mentioned the value of the digital currency as 30 ETH, right? This ETH is nothing but the currency value-form of Ether.
So you would have got the difference by now. Ethereum is a platform that uses Ether as its digital currency. To simplify, let us call Ethereum a vehicle, and Ether is the fuel that runs the car. This analogy makes sense, right?
And those smart autonomous contracts conceived on the Ethereum platform are powered by Ether. Ether also helps in propelling the transactions which happen on the Ethereum blockchain. So, we can tell that Ether has one application that helps enable blockchain operations. And also, Ether can be bought and sold but not Ethereum.
2. The different ways to get Ethereum?
Once you have purchased Ethereum from any of the exchanges mentioned above, you can store it as funds and later exchange them, depending on your ease of use. But it is highly recommended to store them in secure wallets.
You can also buy Ethereum with cash. This method is quite useful to those living in countries where banking has lots of restrictions, and people have to resort to cash as a payment method.
In exchanges such as localethereum.com you can buy Ethereum through cash. The sellers are verified by email and phone, and the buyers can rate their efficiency after each trade transaction. Other exchanges offer this payment method, but localethereum.com is considered the most secure.
Ethereum can also be bought by not going through traditional verification methods such as KYC and verification of email and phone. In simple words, we can say that it can be bought anonymously. But to buy it anonymously, firstly, you should purchase another digital currency, Bitcoin.
Once you purchase Bitcoin, you can exchange it for Ethereum. These sorts of purchases can be done anonymously in marketplaces such as LocalBitcoin.com.
You can also buy Ethereum as a sort of investment. To buy Ethereum as an investment, you have to access the token sales and consider other types of investments, including blockchain.
And to buy Ethereum as an investment, you should hedge against the incumbent fiat system. This attribute will help in diversifying a traditional portfolio for your investment.
And lastly, you can also buy Ethereum for use. But for this, you must engage in trustless lending or borrowing. This gets referred to as trustless because this step of purchasing Ethereum is not considered secure. Hence, you cannot expect trust from most traders.
The best way to buy Ethereum for use is by utilizing the Ethereum Virtual Machine and smart contracts provided on the platform. The smart contracts are already described in this article in the above passages.
And last but not least, you can buy Ethereum for use by collecting rare digital items which can be exchanged according to your wish. You can participate in digital token sales for buying Ethereum.
3. What are some of the different Ethereum exchanges? Explain their pros and cons.
Before moving on to some of the different Ethereum exchanges, let us first focus on the types through which Ethereum gets exchanged.
There are three types through which Ethereum gets exchanged predominantly. They are Trading platforms, Brokers, and p2p marketplaces.
Let us now find out how Ethereum gets exchanged on these platforms.
3.1 Trading platforms: These digital currency platforms help connect buyers and sellers swiftly and efficiently through an online website. This process in the trading platforms happens automatically.
In trading platforms, the buyer states a price comfortable to him, and the platform helps him find a seller who has quoted a price similar to that of the buyer. In these platforms, there will be no direct communication between the buyer and the seller.
Regarding options at low prices, trading platforms are always considered the best. But they are also more complicated to use when compared with other options.
Some of the Best Ethereum Trading Platforms are:
3.2 Brokers: Brokers are nothing but third-party websites which help you in selling your Ethereum directly for premium usage. To be precise, brokers are considered the most comfortable exchanges to buy Ethereum. But trusting them always gets questioned, and they are much more expensive compared to other options.
Some of the Best Brokers to Buy Ethereum are:
3.3 p2p Marketplaces: The main difference between p2p marketplaces and trading platforms is that in p2p markets, the buyers and sellers get connected directly. So these platforms help interact between the buyer and the seller where they can negotiate their prices.
These websites also provide you with a wide array of options, including payment methods, and are also supported in most countries. The disadvantage of using these platforms is that they invite a lot of risks as you are purchasing Ethereum anonymously here. So the transaction cannot be deemed secure and trustworthy every time.
Because of the above attributes, only one p2p marketplace is considered the best for exchanging Ethereum, the Local Ethereum.
4. How to store Ethereum?
The main problem with most of the users lies in the storing of Ethereum securely. Purchasing Ethereum is quite easier than storing it securely. Ethereum, like other digital currencies, can be stored securely in wallets provided by different platforms.
The best platform is chosen based on the rate, the higher security range they offer, and the return on investment.
Digital currency wallets can be divided as follows:
4.1 Paper Wallets – These are considered the most secure for storing Ethereum
4.2 Hardware Wallets – Even these wallets are most secure for storing Ethereum
4.3 Desktop Wallets – These wallets provide reasonable security for storing Ethereum but are not as good as the other two mentioned above.
4.4 Hot Wallets – These wallets provide average security and are useful to only those people looking for wallets at low prices.
All digital currency wallets should have the qualities mentioned below to be the best currency wallet for storing Ethereum. They are:
4.1.1 Ease of use – All portfolios should have an elegant user interface that helps the customers to be more comfortable using these wallets.
4.1.2 Development community – These wallets should enclose a development community that is always active and should respond to the queries or problems of the customers.
4.1.3 Backup and Security – These wallets must house features such as backup and restore the user material and provide utmost security to its customers.
4.1.4 Private Keys – All wallets must enclose private keys within them to provide their customers with a more accessible level of control.
4.1.5 Compatibility – This feature should be actively included in all the wallets, as it will help them perform in all different operating systems.
5. Explain the different wallets available with their merits and demerits?
Many wallets are available in the digital market for storing Ethereum. Let us look at the best features these wallets offer and the demerits of using them.
5.1 Paper Wallets: Merits – These wallets are very secure when set up correctly. They are also useful when there are large amounts of Ether to be stored. The noteworthy feature of these wallets is that these wallets are entirely free.
Demerits – Paper wallets are vulnerable to water and fire and must be securely stored in a place that is not susceptible to any of the attributes mentioned above. It must also be kept from other people as they might steal your private key and exchange it.
Even you have to be very careful regarding your private key. These wallets are also difficult to use again and again. These wallets frequently take longer to set up, requiring a lot of patience.
5.2 Online Wallets: Merits – These wallets are considered best for traders and brokers. The reason is whenever you buy Ethereum at an exchange, if those exchanges have their portfolios, then it will be stored right away with them.
Another noteworthy feature is that these wallets allow you to sell a position quickly at any time. So you can precisely time your exchanges following the trends of the market.
Demerits – The high risk of using online wallets is that you don’t get the authority to own your private key. If you don’t hold your private key, it means you also don’t own your Ether. This attribute may lead to the loss of your money in case the wallet disappears suddenly or gets ruled out of existence.
Online wallets have higher threats in the form of hackers. If these online wallets are not provided with the utmost security, they will threaten hackers. They can easily hack into your wallets and steal your money.
5.3 Software Wallets: Merits – These wallets house user-friendly designs which will provide a pleasant feel to the customers when they use it. An excellent user-friendly design also means it will give the most straightforward way to use. These wallets also help import, send, and receive your private keys.
These wallets provide a more natural way to access your Ether and other currencies. In case of many purchases, the money can get quickly and easily transferred in case you have a software wallet.
Demerits – These wallets are prone to malware and keyloggers and are often considered highly risky.
These wallets have weaker backup and restore features installed within them, and most of the transactions get stored in the computer itself. They also have lazier options in providing security to the users.
5.4 Hardware wallets: Merits – The security provided in the hardware wallets is the best compared to other wallets mentioned above.
These wallets help in sending and receiving digital currency right from the device. But doing this often will lead to reducing the security of the machine.
Demerits – These hardware wallets should always use the firmware as a smart hacker can quickly attack them. The firmware needs installing, which takes a long time and requires patience from the user.
If the computer being used to access Ether is infected with a virus, the wallet will become vulnerable to infection and can get attacked.
There are many instances where the hardware wallet bought has already been tampered with or broken. So users should adequately investigate the device and look for any issues before purchasing it.
Some of the best Ethereum wallets of 2019 are:
Ledger Nano S
6. How and Where to use Ethereum?
Ethereum can be used anywhere with the presence of a desktop and a smartphone. There are many other ways to use Ethereum, like using Ethereum-based applications created only for the sake of using Ethereum. Some Ethereum-based applications are Gitcoin, Cent, CryptoKitties, and DAI.
These applications help you in using Ethereum efficiently. Ethereum can also be used with the help of digital currency wallets, which have already been mentioned above. And as previously mentioned, users with Ethereum can use it for joining and developing smart contracts. These smart contracts can also be used for creating decentralized applications.
Here is a list of companies that are accepting Ethereum:
Chicago Gem Shop
Laptop Power Bank
So, what is the bottom line here: The conclusion here is that Ethereum and Ether are quite different. There are various ways to get Ethereum and also methods to invest appropriately in it. But are there ways to securely store Ethereum? Are they prone to threats or not?
Yes, there are ways to store Ethereum securely, but all of them come with their disadvantages and advantages. And coming to the future of Ethereum, it is quite early to talk about its future. But we can surely say that with the advent of new technologies, some new features might be added to the Ethereum software.