About Ethereum

Ethereum is a developer platform for the creation of decentralized applications running on blockchain, through the use of smart contracts.

It was launched on June 30, 2015 by Vitalik Buterin and has been gaining popularity ever since. At the time of writing, Ethereum’s market cap is at $4,713,144,698 – only second to Bitcoin.

Just like Bitcoin, Ethereum is a platform based on blockchain technology. Blockchain as we know it has many applications that go beyond digital currencies. Today, Bitcoin is one of the several hundred of applications that use blockchain.

In simplest terms – Ethereum is an innovation based on the technologies and concepts that originally pioneered Bitcoin.

What is a smart contract?

‘Smart contract’ aka cryptocontract is a term used to describe a program that help you exchange money, property, shares, or anything of value in a transparent, conflict-free way.

These are the programs that follow a series of steps every time they receive a message called a transaction.

Think of a smart contract as a traditional contract between two parties. It can not only define the rules and penalties of the agreement, but also automatically enforce those obligations.

Smart contracts achieve this by by taking in information as input, assigning value to that input through the rules set out in the contract, and executing the actions required by those contractual clauses.

What is Ethereum currency?

Ether is the currency or value token of the Ethereum blockchain. That means Ether is required by anyone wanting to build upon Ethereum platform.

It is listed as ETH and traded on cryptocurrency exchanges like any other cryptocurrency.

How do I buy Ethereum?

There are three ways you can get hold of Ethereum.

1. Buy Ethereum with fiat currency
Most popular exchanges to buy ETH with USD, EURO, Yuan and other currencies are Coinbase and Cex.io.

2. Buy Ethereum with Bitcoin
You can also use Bitcoin to buy ETH from the trusted cryptocurrency exchanges like Poloniex and Bittrex. This way you can buy ETH from anywhere in the world.

3. Mine Ethereum
Mining Ethereum is similar to Bitcoin mining. There is a diminishing block reward for every block mined. It uses proof of work. To make any ETH by mining you will need multiple dedicated GPUs to get some real rewards.
Alternatively, you can buy ETH mining contracts. That means you let someone else take a part of your ETH  to mine it on your behalf. This will include equipment, management, maintenance and setup costs.

Ethereum Price History

In May, 2016 Ethereum price took a major turn when thousands of people pumped $150 million into the biggest crowdfunded project in history, called the Decentralized Autonomous Organization (DAO).

The whole project was entirely funded with Ether. This in turn made ETH trade at an all time high ($14.80) back then.

Ether, a currency that was trading at around $1 in January 2016 saw a 15-fold increase in six months. DAO has proved so popular among holders of Ether, that the DAO now accounts for almost 14% of the value of all Ether in circulation.

At the time of writing (March 2017), ETH is trading at $52.31. To give some perspective, just a couple of weeks ago the price was hovering around $20. This fluctuation is very recent. Here is the price comparison of Bitcoin and Ethereum in 2017.

Ethereum vs Bitcoin

Both Ethereum and Bitcoin have the same same underlying principle of distributed ledgers and cryptography, but they differ in various technical ways. For instance, Ethereum uses Turing complete as its programming language whereas Bitcoin is in a stack based language.

There are more differences:
1. The pre-set block time in Bitcoin is 10 minutes whereas in Ethereum, the block time is of 12 seconds.

2. Ethereum and bitcoin use different hashing algorithms.While Bitcoin uses SHA-256 algorithm that produces a number in hexadecimal format, Ethereum uses Ethash algorithm.

3. Ethereum uses a Ghost Protocol that fends off the use of centralized pool mining. Bitcoin still employs the pool mining concept.

4. The monetary supply. More than two-thirds of all available bitcoin have already been mined, with the majority going to early miners. Ethereum raised its launch capital with a pre-sale and only about half of its coins will have been mined by its fifth year of existence.

5. Bitcoin and Ethereum cost their transactions in different ways. In Ethereum, it is called Gas, and the costing of transactions depends on their storage needs, complexity and bandwidth usage. In Bitcoin, the transactions are limited by the block size and they compete equally with each other.

The purpose of Bitcoin and Ethereum is also very different. Bitcoin is created as an alternative currency or a cryptocurrency while ethereum is public blockchain platform for the execution of decentralized smart contracts. However, as mentioned earlier, Ethereum also has its own cryptocurrency called Ether which is comparable to Bitcoin.

While Bitcoin and Ether are both digital currencies, the primary purpose of Ether is not to establish itself as a payment – but to facilitate and monetize the working of Ethereum to enable developers to build and run distributed applications.

Some may look at both Bitcoin and Ethereum just as cryptocurrencies, but the reality is that they are vastly different projects and have different intentions. Bitcoin has emerged as a relatively stable digital currency, while Ethereum exploits the full potential of blockchain.

Ethereum Wallet?

Ethereum for the longest time lacked a simple and convenient wallet, partly because of its small userbase. After the successful implementation of hardfork, we know that Ethereum is not like any other altcoin and it is here to stay.

Overtime the project has gained new developers to work on Ethereum based applications. As of now there are plenty of wallets to choose from.

1. MIST
Just like any other crypto based project has its own standard implementation and default wallet, Mist is supported by the Ethereum Foundation. It is an Ethereum browser capable of acting like a standard means of storing ETH and interacting with smart contracts.

You will need some basic coding skills in order to install Mist. It is available on Ethereum’s official site and at GitHub.

2. XETH
XETH is a new Ethereum wallet that makes sending and receiving Ether easier with the help of stealth addresses and BitProfile.
If bought Ether earlier

3. Geth
Geth is a command line interface for using, sending, receiving, and creating contracts with Ethereum. Geth is a good option for programmers, but not a good option for users in search of an easy-to-use wallet.

4. Etherwall
Install Etherwall with Geth to transact directly with the Ethereum network through Geth, but with an easy to use interface provided by Etherwall.

5. MyEtherWallet
MyEtherWallet is an open source Javascript client-side Ether wallet. It makes it easy to create secure wallets without the command line or the need to run an Ethereum client on your computer.

By running MyEtherWallet on an offline computer, you can create secure paper wallets for your ether holdings. It also has a Chrome Extension that adds a better user interface for sending and receiving transactions.

6. ETHAddress
Ethaddress is another JavaScript-based Ethereum wallet building data on client side. It  is a generator of paper wallets supporting several kinds thereof, including brain wallets and collective wallets.

Ethereum FAQ

Should I invest in Ethereum?

Before investing in Ethereum it is important to understand that it is a platform first. If you think of Ether as a coin, with smart contracts simply as add ons, it’d be hard for you to get your head around Ethereum community and how it works.

Should you invest your hard earned money in Ethereum is a subjective question. This could potentially be a revolutionary technology that could impact many industries or die in the years to come. Investing in any cryptocurrency is less like an investment and more of a gamble.

Try not to invest in crypto more than you can afford to lose. They are extremely volatile and small issues can cause huge price swings.

That being said, if you’re looking to ‘invest’ in digital currencies except Bitcoin, Ethereum is clearly a far better choice than other cryptocurrencies in the market. It has an amazing development team behind it. There are many cool DAPPS (decentralized apps) coming up: Vevue project, Etheria, Augur Project, Slock.it are to name a few.

Here is a more comprehensive list of what people are building on Ethereum.

Ethereum is also making its name in the established industry with Microsoft offering Ethereum as a blockchain-as-a-service, IBM’s in the game too, MIT teams are doing active research and even proposing their own alternatives (Lisk – Decentralized Application Platform).

Also, there is no guarantee Ethereum will be as successful as Bitcoin. In the Bitcoin network, the supply rate is more consistent. Due to hard-coded rules in the software there will only ever be 21 million bitcoins, and the rate at which new tokens are introduced is 25 BTC roughly every 10 minutes today.

Investors should note that this consistency is not guaranteed in the Ether market.

How Ether’s market work?

Ether’s market did not develop the same way as Bitcoin’s market.

In the early days of Bitcoin, users were able to process transactions on the network using their personal computers, and then home mining equipment. Bitcoin gradually grew in value as the number of participants in the network expanded. Ethereum, on the other hand, was developed under totally different circumstances.

In order to excite a global development community, Ethereum launched a pre-sale of Ether token back in 2014, raising more than $14m in a crowdfunding effort.

The donations that were collected were the driving factor behind the initial supply and the rate of issuance that existed after. As a result, contributors of the presale received 60m Ether and 12m went to the development fund, with the majority of this amount going to early developers and contributors.

The Switzerland-based non-profit Ethereum Foundation received the remainder of this amount.

After is successful event, Ethereum’s protocol permitted the creation of 5 ETH for every block mined. In addition, a maximum of 18m ETH were allowed to come into existence every year.

How often do Ether price change?

The platform is still in its early stage. Hence, Ether prices in the past have experienced sharp fluctuations and continue to do so. In the last 24 hours it has seen a 7% change.

While this volatility might put off some people, these variations provide opportunities for traders.

People can buy ETH using both fiat currency and Bitcoin. Traders speculate on its future price movements in order to turn profit. Others use Ether to hedge Bitcoin, as well as alternative digital currencies.

Who needs Ether?

Developers who are looking to build apps that will use the Ethereum blockchain and the users who want to access and interact with smart contracts on the ethereum blockchain.

How are Ethers created?

The total supply of Ether and its rate of issuance was decided by the donations gathered on the 2014 presale. Following were the results:

• 60 million ether created to contributors of the pre-sale
• 12 Million (20% of the above) were created to the development fund, most of it going to early contributors and developers and the remaining to the Ethereum Foundation
• 5 ethers are created every block (roughly 15-17 seconds) to the miner of the block
• 2-3 ethers are sometimes sent to another miner if they were also able to find a solution but his block wasn’t included (called uncle/aunt reward)

Is the Ether supply finite?

No. As per the terms agreed by all the parties on the 2014 pre-sale issuance of ether is capped at 18 million ether per year (25% of the initial supply). While the absolute issuance is fixed, the relative inflation is decreased every year.

Sometime this year (2017), Ethereum will be switched from Proof of Work to a new consensus algorithm under development, called Casper that is expected to be more efficient and require less mining subsidy.

Why is Ethereum rising so quickly?

Thanks to the increase in adoption and more applications being built on the platform. Also, the sudden ETH price increase is due to the Bitcoin Unlimited fork that has divided the Bitcoin community into two. People are losing hope in Bitcoin and are buying the second best cryptocurrency in the market – Ethereum.

Where does the value of Ethereum come from?

Ethereum allows users to build a wide range of application directly on the blockchain, ranging from currencies to various kinds of financial contracts to domain name registries, identity registries and certificate authority systems and even voting and governance applications.

You are allowed to specify whatever rules for a smart contract that you want, and the blockchain will execute them for you.

Is Ethereum secured?

It has been eight years since the launch of Bitcoin and there has been no compromise in the security of the blockchain so far. It is one of the most secure technologies out there today.

Even enterprise businesses have expressed a value in its strong network effects and diverse mining network.

But even though Ethereum also uses blockchain as its underlying technology, it has faced criticism for potential security problems for several reasons. Most of the problems are based on the fact that the platform is still in its early stages and has only been available for a few years.

Just like Bitcoin’s mining community, Ethereum’s mining community is also criticized for being dominated by a small number of players. While five companies control about 81% of Bitcoin’s hashrate distribution, five companies accounted for more than 85% of Ether’s hashrate distribution.

As per critics, Ethereum may face greater security problems than Bitcoin as the network has suffered fewer attacks than Bitcoin, and as a result it has undergone less testing.

Is there a community behind Ethereum?

Yes, there is a very strong community behind Ethereum. Get in touch with them on Github or Reddit.

What is Frontier/Homestead/Metropolis/Serenity?

They are different releases:

• Frontier – Initial release, meant for developers.
• Homestead -Stable release, release of official public wallet.
• Metropolis – Release of the Mist Browser, and (possibly) the light client.
• Serenity – Switch to Proof of Stake using CASPER. Scalability Improvements.

What is the difference between gas and Ether?

Gas is an accounting mechanism for keeping track of how much computation and storage a given transaction consumes; it isn’t really visible on the outside, you can’t hold it or trade it.

Every block has a gas limit of 3141592 gas the miner is allowed to fit any number of transactions in the block as long as the total gas consumption of all transactions together does not exceed 3141592.

Ether is the currency that gets transferred from one address to another.

Is Ether pre-mined?

As mentioned earlier, Ether had a crowdsale. It launched with 72M, where 60M were pre-sold to buyers and 12M were allocated to the foundation.

Therefore 83% of the initial supply was spread out to pre-sale buyers and the remaining allocated for the Foundation to ensure continuous development and support of the platform.

Does the mining affect Ether price?

In Bitcoin, mining affects the price by increasing the supply and through the decision of miners to hold or sell Bitcoin. Ethereum’s current version, Homestead, leverages a proof-of-work based consensus algorithm, rewarding computers that contribute to its security in the same way.

Under this system, miners create a new block of 5 ETH every 15-17 seconds. The miners that contribute in discovering a solution, but don’t get their block included, can receive two or three new ethers which is called uncle/aunt reward.

When Ethereum starts using Casper (a proof-of-stake protocol) this rate will likely change. Nodes will not be able to validate transactions and therefore produce blocks unless they provide a security deposit.

Casper will definitely be more efficient, but this change could also bring change to Ether’s price.

Does Ethereum have a blocksize limit?

No, the blocksize is adjusted dynamically.

Is Ethereum taxable?

In the US, yes. Each time you turn ETH into BTC or another crypto or fiat or a good/service, it is a taxable event. It falls under capital gains.
In March of 2014, the IRS issued guidelines on how Bitcoin and cryptocurrencies were to be treated. Here is the full explanation.

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