What is Ethereum (ETH)? Is it a Good Investment?

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Ethereum (ETH) is an open-source, decentralized blockchain system. Ether is its cryptocurrency, but Ethereum is far from just a vehicle for Ether. As a platform, it’s the basis for many other cryptocurrencies.

And its most notable feature is its support for smart contracts. In fact, Ethereum is the pioneer in smart contract execution. The other cryptocurrencies hosted on Ethereum’s blockchain are referred to as “tokens”, and they use the ERC-20 compatibility standard established for Ether.

If you’re an aspiring cryptocurrency trader, or you want to learn about blockchain as a technology in general, there’s pretty much no getting around Ethereum. Along with the revolutionary Bitcoin, it is one of the essential pillars of practical application of blockchain technology on the Internet.

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What is Ethereum?

Now that you know what Ethereum is all about, we can get into the weeds on how this blockchain platform works, and what its various applications are.

Is Ethereum and Ether the same?

Ethereum is a decentralized system — in other words, it doesn’t have any one owner. And all of the services and programs that use the Ethereum network require some computing power, which doesn’t come free.

Ether is the cryptocurrency of the Ethereum system that solves the problem of payment for this app and Internet system. Much like cash, this cryptocurrency doesn’t require any third-party processing or approval. The official Ethereum website calls it the “fuel” of the decentralized ethereum network.

Blockchain platform

Ethereum’s blockchain platform is a public, decentralized ledger used to record and verify various transactions. Its users are free to publish, create, use, and monetize applications via Ethereum — all with the Ether cryptocurrency serving as a convenient payment system. These decentralized network applications are often referred to as “dApps”.

One of the primary practical uses of Ethereum has been the publishing and creation of smart contracts — free from fraud, downtime, or any third-party interference.

Payment System

By the description of its own developers, Ethereum is the world’s first “programmable blockchain”, allowing it to serve as a virtual marketplace for applications, games, and crucially — financial services. All of this is based on the Ether cryptocurrency which is used as the payment system of the Ethereum network. Its decentralized nature ensures complete security from theft or fraud.

Ethereum vs Ethereum classic – Which Crypto is Better?

Explaining Ethereum blockchain

Algorithm

In the entire Ethereum blockchain, Ether functions as more than a currency — it’s a “fee” for every computation performed on the Ethereum network. Also, it plays a crucial role in Ethereum’s mining process. It exists as the financial incentive for encouraging miners to indefinitely secure the network.

The mining algorithm used by Ethereum is known as Ethash — it’s a proof-of-work algorithm based on an earlier version of the Dagger-Hashimoto algorithm. And it’s fixed output is a value beneath a specific threshold that triggers a node being added to the overall Ethereum blockchain.

Blockchain Architecture

The Ethash algorithm rests on a blockchain architecture driven by the DAG — a randomly generated data set called the Directed Acyclic Graph. And the DAG fueling Ethereum receives an update after every 30,000 blocks that are added to the blockchain. The DAG size continuously grows with the Ethereum user base.

The above-mentioned Ethash algorithm retrieves blocks of random data from this DAG, hashes transactions from the blocks at random, and outputs the hashing process results. So, if an individual wants to mine Ether, they must have enough storage space for the whole DAG to make the necessary computations. This requirement is an intentional network difficulty.

Solidity

Solidity is the proprietary programming language used to write the smart contracts that work on the Ethereum network. And while it was influenced by Python, Eiffel, Javascript, and C++ — it is very much its own thing.

Just like you’d expect from a piece of technology that’s in the blockchain niche, Solidity has garnered a massive following among programmers, and it’s constantly being developed. Its development team constantly works at a rapid speed to have a new release practically every month.

Decentralized Applications (dApps)

dApps is a collection of Ethereum-powered services and tools that run on the network — this quickly growing range of applications is disrupting existing business models and even inventing new ones.

While developing a new dApp requires extensive Solidity knowledge, trying out one of them is far simpler. All you need to do is to create a crypto wallet (if you don’t already have one) and get some Ether (ETH). With this wallet, you’ll be able to login and connect to the network. Once there, you use ETH to pay for the applications or their specific functions.

Ethereum Blockchain Tokens

Ethereum blockchain tokens are all the digital assets that are built using the Ethereum blockchain network. Otherwise, their developers would have to construct their own, entirely new blockchain. But this way, they can simply use the existing infrastructure of Ethereum. In turn, this also gives strength and credibility to the Ethereum ecosystem because it drives demand for Ethereum’s native currency — Ether.

These tokens can represent anything from other currencies (such as Cardano) to actual physical objects (such as Digix that represents gold). This is a constantly evolving ecosystem, and the future will likely hold even more financial instruments having Ethereum-based representations, like bonds and stocks.

How does Ether work

Now that we’ve gone through the basics of Ethereum as a network, let’s take a closer look at its central resource: Ether. How is it created, and how does it actually work? We provide more detailed answers below.

Mining

Just like with Bitcoin, Ethereum is a public blockchain network. And the only way to add a brand new block to its growing blockchain is to “mine” it. Even if you’re unfamiliar with blockchain jargon, you’ve probably heard of this term. It’s analogous to real-world mining for precious metals. But whereas that process entails spending energy and labor to extract precious metals from below the surface, mining from Ethereum is entirely digital.

Still, it involves a decentralized network of computers solving “puzzles” from the Ethereum algorithm and spending processing power to do so. And any miner whose computer solves this puzzle successfully receives ether, the cryptocurrency of this network. Then, the Ether is used to verify transactions, secure the entire network, and add new blocks.

Right now, the reward for one mined block is 2 ether, plus any gas and transactional fees that the block contains.

Gas fees

So, what are these aforementioned “gas fees”?

This refers to the price value needed to execute a smart contract or successfully conduct any transaction using the Ethereum blockchain network. These gas fees are small fractions of a single Ether, sometimes referred to as “nanoeth” or “gwei”. In practice, this “gas” exists to control the allocation of EVM resources — the computing power of the Ethereum virtual machine. That ensures ethereum-based applications (including, but not limited to smart contracts) can successfully self-execute.

When it comes to the precise price of gas fees on the network, you’ll find they’re dictated by simple laws of supply and demand between Ethereum miners.

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Ethereum (Ether) Criticism

While Ethereum has become an extremely popular blockchain network, and it's smartly devised — there are still some criticisms that skeptics have mounted against it, with varying degrees of validity.

Centralization

While a lot of Ethereum’s success has been predicated on its non-fungible tokens and decentralized finance, it’s worth pointing out that both tend to generate high-value user transactions. People with smaller budgets typically can’t handle the high transaction fees. And while the Ethereum 2.0 upgrade has aimed to solve just that, the new consensus mechanism might also further consolidate governance over the network into the hands of a small number of individuals and organizations that manage to accumulate the most Ether.

Gas Prices

The above mentioned centralization is also triggered by high gas prices that are required to successfully complete any transaction using the ethereum algorithm as its base. Out of every million transactions, roughly 200,000 fail due to insufficient Ether for gas prices, which is a dangerously significant percentage.

Scalability

While gas prices and centralization may be solvable, the Ethereum algorithm also has some inherent properties that make network scalability more challenging. The mining algorithm restricts new block generation to 15 transactions per second at most. When compared to the Visa network that’s capable of processing about 45,000 transactions in the same timespan, the use of Ethereum for more everyday financial transactions comes into question.

Of course, one of the biggest factors contributing to this restriction is the requirement for each Ethereum node to process every single transaction that’s made using the network. If this issue isn’t resolved, there’s a huge potential for significant transaction congestion — making the network increasingly less usable in the future.

Volatility

According to some estimates, Ether (as a currency) is far more volatile than people give it credit. Many crypto aficionados would tell you that it rarely fits into a traditional analysis framework for its niche. In practice, investment strategies that bet on Ether are more of a long-term, speculative play on the economy’s expected shift to digital money and FinTech revolutions. Considering the long-term nature of these predictions, it’s worth remembering that even a small amount of ether is capable of dramatically altering the risk profile of any portfolio.

Ether (ETH) as investment asset

Having established the basics of Ethereum, we’ll go over the current status of Ether from an investor’s point of view.

Where Ether trading is going

Considering its diversity of application, it’s fully expected for Ether’s market cap to overshadow Bitcoin’s in a few years’ time — especially with its current development rate. Currently, the main addition to Ether’s market cap is the increased activity surrounding NFTs — non-fungible tokens.

These are Ether-based certificates of ownership used to authenticate digital assets — like videos, music, and other artwork traded via the Ethereum blockchain. As of now, some of the more popular Ether marketplaces such as OpenSea have gone over a billion dollars in monthly trade volume.

Ether derivatives

Today, the market for crypto derivatives has been utterly dominated by Ether and Bitcoin. Deribit, Bybit, OKEx, Chicago Mercantile Exchange, and Huobi are the main trading platforms for these derivatives.

Who invested in Ether

One of the biggest signs of Ether’s (and crypto’s general) rising importance is the entry of institutional investors into the market. And while Bitcoin has long had a stable foothold in the mainstream, institutional investors have begun diversifying their exposure in crypto by dabbling in other currencies as well. Seeing as Ether’s the second-biggest cryptocurrency, it’s the natural next stop for any investors interested in diversifying this part of their portfolio.

A lot of popular support has been garnered since public figures like Elon Musk have expressed their positive views on crypto, and even invested. Grayscale, Tesla, and MicroStrategy have all started paving the way for other significant Ethereum investors.

Top 30 facts about Ethereum

Should you Buy Ether (ETH)?

The biggest advantages of Ether also pose its biggest risks. For one, the technology behind Ethereum is in its infancy — even its creators have compared the current state of blockchain technology to 90s cell phones in contrast to today’s smartphones.

The immense potential of Ethereum’s dApps is pretty obvious after even a cursory glance — but the untested waters of this decentralized system may experience a lot of waves until it settles into something predictable. Dapps may succeed in cutting out middlemen in industries where they have played essentially unchanged roles for centuries — but no-one knows what the future holds for certain.

To simplify — Ether may turn out to be the best investment you’ve ever made, but don’t make it with any money you’re not prepared to lose.

How to buy ETH: 4 steps algorithm

If you’ve decided to buy Ether, the next logical question is — how would you do so in practice? We’ve got a quick guide right here!

Market analysis

The first step to buying Ether is performing some much-needed market analysis. While any kind of investment carries a certain amount of risk, cryptocurrencies are a particularly unstable proposition. That’s why you need to carefully consider recent price fluctuations, and decide whether now’s the right time to enter the Ether market.

Market Analysis

Market Analysis

In the past, Ether has recorded returns that are just as impressive as its crashes — try to determine if you’re buying at a low and selling at a high as definitely as possible.

Choosing exchange

If you’ve determined that you’ve hit the right time to buy Ether, you need to choose an exchange. And depending on your previous investment experience, buying Ether may be somewhat more complex than dealing with mutual funds or stocks.

Major exchanges like the NYSE don’t support crypto just yet, so you need to find an online brokerage that does. Luckily, a lot of the brokers like eToro and Interactive Brokers have caught onto the trend, and have extensive support for trading in these currencies.

Funding account

If you don’t have an account with your broker of choice already, you’ll have to create one — and then fund it. In most cases, this means depositing money from a bank account, via a wire transfer, debit cards, or PayPal. While picking your deposit method, go through the broker’s fees — they tend to vary depending on which method you’ve picked.

Buying Ethereum (ETH)

Now that you’ve done everything else, all that’s left is to actually buy the Ether. And because this currency is decentralized, you can trade in it around the clock. You just need to find its ETH symbol and input how much of it you want to buy — and voila, you’re done!

Best Exchanges to Buy Ether (ETH) in 2024

If you’re wondering how to pick the best Ether exchange in 2023, don’t worry — we've reviewed all the major options right here.

ByBit Binance Coinbase

Fees

0.025% to 0.075%

Taker – From 0.1% to 0.04%
Maker – From 0.1% to 0.02%

Taker – From 0.5% to 0.04%
Maker – From 0.5% to 0%

Platform

Advanced

Advanced

Advanced

Market range

29

393

110

Minimum deposit

$1

$1

2 units of local currency

Binance

This Hong-Kong based exchange is one of the biggest crypto brokers on the planet. It has the top spot in multiple key performance indicators, such as web traffic, liquidity, number of active and new users, daily platform turnover, etc.

ByBit

This crypto exchange was created in 2018. In the past three years, it has developed into an advanced derivatives trading platform, providing futures contracts with a leverage up to 1:200. There are also quarterly USD futures, combined with ETH, BTC, EOS, LTC, and XRP.

Coinbase

Coinbase is definitely one of the most popular crypto exchange options, particularly among newbie traders. It has trading options for all the major cryptocurrencies, including Ether, Bitcoin, Ripple, Litecoin, etc. It has the most advanced platform with both a web-based and a smartphone app that works on Android and iOS. This exchange is home to users from more than 100 countries — a stupendous 43 million of them. And the combined value of assets traded on this platform is almost $90 billion.

The reason this platform is so popular with newbies is its unique training programs that help novice traders quickly learn the ropes of crypto trading.

Top 10 Biggest Cryptocurrencies to invest in

If you’re wondering what cryptocurrencies to invest in, and you’re not that interested in BTC-based currencies, we’ve got a great top 10 overview of the most prominent cryptocurrencies right here:

Cryptocurrency Industry Current price 1y return 1m Return Total score

Binance Coin (BNB)

Cryptocurrency exchange

228.50$

-24.87%

0.26%

9.5

Invest

Cardano (ADA)

Blockchain platform

0.38$

18.56%

22.36%

9.2

Invest

Ripple (XRP)

Payments

0.61$

42.91%

0.66%

9

Invest

Dogecoin (Doge)

Payments

0.08$

-19.63%

19.52%

8

Invest

Polkadot (DOT)

Blockchain platform

5.47$

-2.69%

14.59%

8

Invest

LItecoin (LTC)

Payments

71.57$

-8.52%

2.26%

7.6

Invest

Stellar (XLM)

Payments

0.00$

NaN%

NaN%

7.5

Invest

Uniswap (UNI)

Decentralized exchange

0.00$

NaN%

NaN%

7.4

Invest

Tron (TRX)

Blockchain platform/Media

0.00$

NaN%

NaN%

7

Invest

IOTA (MIOTA)

Internet of Things

0.00$

NaN%

NaN%

6.9

Invest
Find out more about the best cryptocurrencies to invest in

Note:

This article is not financial advice and is for educational purposes only. Buying cryptocurrencies is a high-risk type of investment.

Summary

The world of blockchain-based cryptocurrencies is filled with all kinds of prospective financial instruments — and Ethereum is one of the biggest ones. This decentralized network of blockchain-based apps and tools uses Ether as its currency, and is already the world’s most prominent virtual environment for smart contract execution and non-fungible tokens. While its future is uncertain, all the current estimates show Ethereum is a worthy investment.

FAQs

What is Ether worth?

Right now, Ether is worth about $3,500 — but its price will likely fluctuate in the future

Can ethereum be converted to cash?

Yep, the most common method of cashing out from Ether is to use your crypto exchange to just buy dollars for your desired Ether amount.

Is it easy to sell Ethereum?

The cheapest and simplest way to sell your Ether is to resort to your ETH/USD pairing at a broker.

Is it worth it to invest in Ethereum?

Right now, it seems like an extremely enticing investment — though there’s no guarantee what the future will hold.

Team that worked on the article

Alamin Morshed
Contributor

Alamin Morshed is a contributor at Traders Union. He specializes in writing articles for businesses who want to improve their Google search rankings to compete with their competition.

Over the past four years, Alamin has been working independently and through online employment platforms such as Upwork and Fiverr, and also contributing to some reputable blogs. His goal is to balance informative content and provide an entertaining read to his readers.

His motto is: I can dream or I can do—I choose action.

Olga Shendetskaya
Author and editor at Traders Union

Olga Shendetskaya has been a part of the Traders Union team as an author, editor and proofreader since 2017. Since 2020, Shendetskaya has been the assistant chief editor of the website of Traders Union, an international association of traders. She has over 10 years of experience of working with economic and financial texts. In the period of 2017-2020, Olga has worked as a journalist and editor of laftNews news agency, economic and financial news sections. At the moment, Olga is a part of the team of top industry experts involved in creation of educational articles in finance and investment, overseeing their writing and publication on the Traders Union website.

Olga has extensive experience in writing and editing articles about the specifics of working in the Forex market, cryptocurrency market, stock exchanges and also in the segment of financial investment in general. This level of expertise allows Olga to create unique and comprehensive articles, describing complex investment mechanisms in a simple and accessible way for traders of any level.

Olga’s motto: Do well and you’ll be well!

Mirjan Hipolito
Cryptocurrency and stock expert

Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.