What is Ethereum?
30 Aug 2021
If you are at all interested in cryptocurrencies, you’ve probably heard about Ethereum, but what is it exactly?
Ethereum is a blockchain based distributed computing system designed to run a whole host of decentralised applications. That might sound like a whole wall of techno-babble right out of an episode of Star Trek, but bear with us as we break it down for you.
What is a blockchain?
A blockchain, simply put, is a record of transactions shared across a whole network of computers. Each time that you buy some Bitcoin, for example, that is recorded on the blockchain, publicly and anonymously. Then when you spend your Bitcoin, the record is checked. This ensures that you own what you say you do, and that you haven’t already spent it.
Because every transaction is added onto the increasingly long blockchain, one after another, in order to commit fraud and claim that you owned something you didn’t, you’d have to change the whole blockchain, on all the different, independent computers it’s stored on. This is basically impossible, without a tremendous amount of computing power. Therefore, making blockchain technology less vulnerable to certain types of crime than centralized payment records, like a traditional banks.
Source: WIRED (Facebook)
Related articles: How to buy cryptocurrency in Australia
What is Ethereum?
Ethereum is a blockchain platform designed to house decentralised applications (known as DApps) and cryptocurrencies. It is generally regarded as having some of the best blockchain technology in terms of innovation, security, and openness for developers to build upon, which is part of the reason it has become the second largest cryptocurrency by market cap.
Its native cryptocurrency is called Ether (ETH), which can be used as a payment method for various goods and services where cryptocurrencies are accepted, and it can also be traded for other cryptocurrency or fiat. Additionally, the Ethereum network can also host other cryptocurrencies which adopt its ERC-20 token compatibility standard, and to date, this has been the most popular use case for Ethereum.
Examples of popular cryptocurrencies that adhere to the ERC-20 standard and use the Ethereum blockchain network in their operations include the data oracle Chainlink (LINK), the stablecoin Tether (USDT), and the blockchain-powered supply chain platform VeChain (VEN).
How to buy Ethereum in Australia?
There are a range of ways you can buy Ethereum in Australia. Here are some of the most popular:
BTC Markets
BTC Markets allows users to buy Ethereum, as well as other major cryptocurrencies. BTC Markets is ideal for individual traders, institutional investors, and self-managed super funds, and for big traders, it provides OTC support with 24/7 trading and a competitive fee structure. The exchange is 100% Australian-owned and operated, with more than $17 billion traded on its platform since 2013.
Luno
Luno allows Australians to buy Ethereum, as well as a range of other major cryptocurrencies. They offer customers fast deposits and withdrawals, automatic trading, and access to household cryptos such as XRP, Bitcoin, and Litecoin. Price alerts can also be set up on the exchange, and the app allows users to trade on the go at a few clicks of a button.
eToro
eToro offers investors the ability to trade various types of cryptocurrencies, including Ethereum, as well the ability to invest in shares across a variety of industry sectors, including mining, technology, and manufacturing. They also offer the ability to copy the trades of other investors, which introduces a social dynamic to investing.
Ethereum vs Bitcoin: What is the difference?
Ether operates similarly to Bitcoin. Both are mined with people processing the blockchain receiving an amount of Ether in proportion to the computational power they provide. It can also be bought and sold on exchanges like any other cryptocurrency. However, a potential benefit of Ethereum is that it can be used to develop other cryptocurrencies, raising funds through an initial coin offering and receiving Ether in exchange. Ethereum is also a platform for DApps that enable smart contracts and compliance for other cryptos that adhere to its ERC-20 standard. While it is fast becoming a store of value now, it is the original decentralised cryptocurrency, released in 2009, and has been, and continues to be, the most widely accepted crypto for transactions.
Bitcoin, on the other hand, is much simpler. Bitcoin has become synonymous with cryptocurrency, but as the market matures, more investors, developers, and cryptocurrency champions are becoming familiar with Ethereum and its many use cases.
What are smart contracts?
Ethereum also pioneered the enhanced, modern-day version of what is known as smart contracts, which are the main feature of DApps. Smart contracts are computer programs that automate various executions without the need for an intermediary validator, or middleman, in the process. A benefit of a smart contract is that it removes the manual element out of certain operations, allowing for greater efficiency and transparency, faster transaction times and reduced business costs. In simple terms, a smart contract activates when certain conditions are met. Think of it as an ‘if/then’ code function.
What is a smart contract example?
An example of how a smart contract can be applied to a situation to increase the speed of a transaction while reducing manual processing, can be seen in insurance: Imagine a large flood occurs during cyclone season in Queensland, and a particular area of the state is badly damaged. An insurance agency’s smart contract could automatically release insurance funds to insurance holders in a specified geographic area that has been damaged.
Traditionally, such a process could take weeks or even months as an insurance agency’s staff manually work through submitted claims, taking up time and resources that could be expedited in an instant with the existence of a smart contract. The smart contract could work following a code logic, such as:
If insurance holders hold ‘Product X’ and are located in ‘Postcode’, then execute the terms of the ‘Product X’ contract and release funds to the insurance holders immediately.
The smart contract would execute the terms of the contract using an external data source that could be connected via an oracle, and use this information as verifiable fact in the smart contract’s execution.
Research before you invest
Like all investments – whether stocks, bonds, property, or managed funds – it’s important to do your own research so that you understand how the crypto asset you have chosen works at a fundamental level, who the team behind it is, what its real-world use case applies to, and the risks involved. Keep in mind too that the past performance of any investment, including crypto assets, is not indicative of its future performance. The world of crypto is new and exciting, and I’d encourage you to learn as much as you can about this new asset class before looking to invest.
Cover image source: Ponderful Pictures
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This article was reviewed by our Content Producer Marissa Hayden and Content Producer Isabella Shoard before it was updated, as part of our fact-checking process.
