What Is Ether (ETH) And How Does It Work?

Ethereum

Launched in 2015, Ethereum is an open-source, blockchain-based, decentralized software platform used for its cryptocurrency, ether. It enables SmartContracts and Distributed Applications (ĐApps) to be built and run without any downtime, fraud, control, or interference from a third party.

Ethereum is not just a platform but also a programming language (Turing complete) running on a blockchain, helping developers to build and publish distributed applications.

Ether (ETH)

Ether (ETH), the cryptocurrency of the Ethereum network, is arguably the second most popular digital token after bitcoin (BTC).

Ether can be used to buy and sell goods and services, like Bitcoin. It's also seen rapid gains in price over recent years, making it a de-facto speculative investment. But what's unique about Ethereum is that users can build applications that "run" on the blockchain like software "runs" on a computer. These applications can store and transfer personal data or handle complex financial transactions.

Bitcoin vs. Ether

What Bitcoin does for money, Ethereum does for contracts. Ethereum's innovation is that it allows you to write Smart Contracts: basically, any digital agreement where you can say "if this" happens, "then something else happens."

Bitcoin itself is two things: (1) it's a digital currency known bitcoin (lowercase, also referred to as BTC) and Bitcoin is a technology (also known more generally as blockchain). Both are called the same thing which admittedly can be confusing for newbies.

Bitcoin = The name of the Bitcoin network

bitcoin = The currency (or BTC) 

With Ethereum it's similar but slightly different: the token is called ether (or ETH) and the network is Ethereum.

Ethereum = The Ethereum network

ether = The token (of ETH)

You can use Bitcoin to send or receive money or to purchase goods at popular sites like Overstock.com, Namecheap, or Tesla. You can also hold your bitcoin as an investment, or for long term storage of value (kind of like how people invest in gold). 

Ether is not as popular as BTC for purchasing goods. At the moment ether is mainly being used by developers building applications on top of it. Over time, and as more apps are developed, the value of ether will likely move from being speculative (as it is now), to more useful in everyday life. 

How to invest Ether (ETH)?

Coinbase is the most popular and easiest place to buy both bitcoin and ethereum. Other popular exchanges where you can buy Bitcoin and Ethereum include Gdax (owned by Coinbase), or Kraken. 

Also, you can invest Ethereum CFD; while there is no actual ownership, an Ethereum CFD gives investors exposure to the risk and rewards associated with owning Ethereum.

Trading Ethereum CFDs allows you to perform trades quickly, without the need to sign up for a cryptocurrency wallet or register on a cryptocurrency exchange.

Future Trend

Purpose Investments, CI Global Asset Management, and Evolve ETFs have all received approval to launch exchange-traded funds (ETF) in Canada that offer exposure to ether.

All three ethereum ETFs will begin trading on April 20.

“While bitcoin tends to get a lot of attention as it was the first major cryptocurrency, what ether and the Ethereum ecosystem represent is one of the most exciting new technology visions today in society,” Som Seif, founder and CEO of Purpose Investments, said in a statement.  

The long-term growth of any cryptocurrency (or indeed business) depends on useful applications being found for its assets.

If Bitcoin goes on to become a widely accepted form of currency, or the Ethereum network becomes an established standard for distributed computing, then the value of these assets is likely to continue to grow.

On the other hand, in technology, there is always something snapping at the heels of the front-runners. Newer and more efficient algorithms could replace either Bitcoin or Ethereum.

Additionally, both face the threat of government regulation. The value of many cryptocurrencies (including Bitcoin and Ethereum) have moved downwards since the start of the year, which has been attributed to threats of their trade being regulated by governments in China and Korea.

The price of bitcoin tumbled over the weekend and was down as much as 19.5% from record highs posted by the popular cryptocurrency in the past week. The price of ether, the second-biggest token by market value, dropped as much as 18% and fell below $2,000 on Sunday before more recently trading at over $2,150. 

An unverified report on Twitter claimed that the U.S. Treasury Department could be looking to crack down on financial institutions for money laundering using cryptocurrency.

Turkey's central bank banned the use of cryptocurrencies and crypto assets for purchases citing possible "irreparable" damage and transaction risks.

What is clear is that the huge increases in value we have seen over the last five years has largely been due to speculative investment – people buying them in the hope that they will be able to sell them for more money to someone else in the future.

This is often a recipe for inflated prices and an inevitable crash back down to earth – something that many believe could happen at any time and may have already started. 

Ultimately, achieving sustainable growth will be dependent on useful applications. More businesses accepting Bitcoin as a method of payment, and more applications becoming widely used and supported on the Ethereum network.