Ethereum, and its token Ether, is the second-biggest cryptocurrency by market capitalisation, after Bitcoin. The best way to explain the goal and purpose of Ethereum would be to call it a technology platform rather than a product. So while, Bitcoin is a product of its platform that can be exchanged or stored, like currency, Ethereum was created as a platform to enable other applications to be created without having to build the underlying platform technology each time.
In this step-by-step guide, we’ll explain the purpose of Ethereum, it’s token Ether and talking everything a beginner needs to know about how to invest in Ethereum.
How do I buy Ethereum in Australia?
How do I invest in Ethereum?
Where do I keep my Ethereum?
When people talk about Ethereum, they’re usually referring to Ether – the digital asset/token/cryptocurrency of the Ethereum blockchain. Unlike with Bitcoin, Ethereum and Ether are used interchangeably. Bitcoin was easy to understand because it was a currency – like the Dollar or Euro. Most people who talk about Bitcoin aren’t necessarily concerned about the underlying technology called Blockchain – even though they might have heard of the concept.
It’s slightly different with Ethereum where both the technology and the cryptocurrency are relevant and have different purposes. Ethereum – the name given to the blockchain platform – is the platform upon which other applications can be built.
Ether, is the cryptocurrency of the Ethereum blockchain, which means that you can use it to transact with Ethereum applications, in addition to it functioning as a currency like Bitcoin. And similar to what’s happening with Bitcoin, Ethereum (read: Ether) is also being used as an investment option like property or shares.
Bitcoin is first and foremost a currency; this is one particular application of a blockchain. However, it is far from the only application. To take a past example of a similar situation, e-mail is one particular use of the internet, and for sure helped popularise it, but there are many others.
17 year old Vitalik Buterin learns about Bitcoin and starts up Bitcoin Magazine to cover topics related to blockchain, maths, computer science and economics.
Buterin publishes a white-paper proposing Ethereum.
Remember, the goal of Ethereum was not to be a cryptocurrency. It was to be a platform for others to build their applications on. It was envisioned to be something like the Internet where others could build their applications like email, social networking, online games, photo sharing and music streaming.
And that is exactly what Ethereum does, with (at the time of writing), nearly 2,000 different applications already live. Of course, this is a far cry from the number of applications and website on the Internet but worth mentioning that Ethereum is not even 5 years old.
Worth mentioning that, like all blockchain technology, Ethereum is also a decentralised network. What this means is that there is no single point of failure. For example, if you have your pictures stored on the cloud, the cloud is still a computer somewhere. And if that computer crashes or is hacked, all those photos are lost forever. With blockchain technology, the content, in this case photos are spread across a network of computers so even if one’s hacked, you can retrieve your photos.
Ethereum is used interchangeably to also refer to Ether – the cryptocurrency of the Ethereum network.
Allows you to rent out space on your hard disk in exchange for cryptocurrency.
Create and trade cats (they rule the internet, why shouldn’t they rule blockchain too?) on the network.
Betting without the need of a central authority like a bookie.
The most obvious being using Ether to buy tokens to use the apps that are running on the Ethereum blockchain. And like other cryptocurrencies, you can also use Ether to buy goods and services from merchants who accept Ether alongside other currencies and cryptocurrencies.
Similar to investing in the stock market or investing in property, you can also buy Ethereum (actually, Ether) and hold on to it for the long term, in the expectation that it would increase in value and be worth more than what you paid for it.
Find the cryptocurrency exchange that’s right for you. At the time of writing, there are more than 25 exchanges in Australia and abroad that allows you to buy cryptocurrency using Australian dollars.
Register for an account with an official ID.
Find the Ethereum page and select the amount.
Select the payment method – Most cryptocurrency exchange offer BPay while others also include Poli and bank transfers.
Review the order details and click ‘Buy’.
When you buy Ethereum directly from an exchange, you need to decide how much to buy and at what price. And then you would need to decide which other coins should also be purchased as part of the portfolio. You would then have to repeat this process every time you want to make an investment.
Instead, you can use Chillur to do the ongoing investment and portfolio management for you. By creating an account with Chillur and linking your bank account, you will automatically buy Ethereum as part of your portfolio on an ongoing basis. You won’t have to worry about price, when to buy or how much to buy. The account will do all that for you – using the spare change from your bank account.
There are two ways to invest in Ethereum – directly or as part of an index portfolio. What we mean by investing in Ethereum directly is to buy the cryptocurrency from a cryptocurrency exchange – as described in the above section. You would then hold on it with the expectation that it would increase in value. If you want to increase your portfolio, you would do this each time you want to buy Ethereum.
The more hassle-free option is to invest in Ethereum as part of an index portfolio. An index portfolio takes the complication out of investing by spreading out your investment. Currently, there are over 1500 cryptocurrencies and Ethereum is just one of them. Rather than put all your eggs in one basket (or blockchain), the less risky way to invest in cryptocurrencies is to select an index.
Chillur offers an index portfolio of the top 10 cryptocurrencies by market capitalisation. This means that every $1 that you invest through Chillur is not used to buy Ethereum alone – it’s spread across the top 10 cryptocurrencies based on their value in the market at the time. What Chillur also does is invest small amounts more regularly instead of a one-time amount in one shot. This way, you ensure that you are always investing in cryptocurrency regularly.
All cryptocurrencies are stored in wallets. Cryptocurrency wallets are either specially designed to hold just one kind of cryptocurrency or you can store multiple cryptocurrencies in the same wallet. These wallets can be stored on your computer, on your mobile phone and even on a pen drive that you can carry around with you. Cryptocurrency exchanges that we described above give each user their own wallet so you can also store your bought Ethereum directly with the exchange.
As the crystal ball would say – The answer’s unclear. Remember that Ethereum is primarily a platform for developers to build their apps on. And if MySpace has taught us anything it’s that it doesn’t matter how good or how bad an application is – the only thing that matters is how many people use it. And to that end, it depends on how quickly developers and their investors are able to take Ethereum applications to a wider audience.
Currently, the value of Ether is tied directly to how much someone is willing to pay for it. In 2017, it was worth nearly $1000 because there were enough people willing to pay that much. Six months after that, there weren’t enough people willing to pay that price and so it was worth considerably less. Like the crystal ball said – The answer’s unclear.
The best way to find out what the future holds for Ethereum is to come along on that journey. A lot of people expect big things from Ethereum and are eagerly waiting any news of what will happen next.