What is Ethereum and How is It Used?

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If you spend any time following financial news, it’s a safe bet that you’ve heard quite a bit about Bitcoin, the world’s leading cryptocurrency. But do you know as much about the second-place participant in the market? It’s called Ether (ETH) and is the token of the Ethereum blockchain. The two are often confused, and the terminology can be hard to grasp for a beginner, but it’s important to know about the second-most capitalized and second-most used crypto. Here’s a short list of core information about ETH.

Ethereum Basics

Technically speaking, Ethereum is a blockchain that is unique in the way it’s set up. The two key components are its decentralization and the fact that is uses a special kind of authentication protocol called smart contracts. The good news is that you need not be an IT expert to understand how this cryptocurrency operates, why people use it, and where it came from. The currency that grew out of the blockchain is called Ether, and it compares favorably with the other top five cryptos in use today. In fact, ETH is officially the number-two most popular virtual coins in use, second only to the market leader, Bitcoin (BTC).

How People Trade It

The price of this coin is not nearly as high as BTC, which is one reason some traders prefer it. But because the platform offers users (and holders of the coin) the chance to verify contracts remotely, without in-person or identity revealing processes, it’s become wildly popular with companies and institutions that want to transfer funds anonymously and rapidly. One of the unique aspects of Ether is that transfer take place in a matter of a few seconds. That means anyone who values speed over market capitalization has a good reason to prefer ETH over BTC, the latter’s transaction time being around 12 minutes, on average.

For Active Traders

For anyone interested in Ethereum trading, there are numerous ways to go. For example, you can simply purchase the coin and wait for prices to rise in the long-term. This is similar to the way people own stocks. But others choose to purchase ETH via a contract for difference (CFD), in which they don’t need to own any of the underlying asset (in this case, the coin itself) and can simply speculate on Ether’s price rising or falling. A CFD is a relatively safe way to hold any cryptocurrency because it shields the trader from inherent price volatility, hacking, and other security issues.

How to Use It

You will hear investors speak about diversification within the crypto niche. Often, that means holding both BTC and ETH in an account. For instance, it’s possible to use the Bitcoin for online purchases and to hold it as a store of value. With Ether, you can do some things that you can’t do with BTC, like tokenize assets or program various smart contracts. It’s not widely known, but the creators of ETH meant for it to be a sort of complement to Bitcoin. In a way, it did that with the smart contact function, but it’s also become a competitor to BTC as a virtual form of money.