Nowadays everyone has heard about Ethereum due to its surge in price and popularity with ICOs. Since then we had more and more users asking us about it and so we wrote this blog post addressing some of the most popular questions surrounding the topic.
What is Ethereum?
Ether is a cryptocurrency which runs on the Ethereum blockchain. It is the second-biggest digital currency after Bitcoin in terms of market cap, despite the recent price fluctuations. Compared to Bitcoin’s hard coin supply cap of 21 million BTC, Ethereum has over 92 million coins in circulation, with more being mined each day.
Throughout June, Ethereum was trading at a record-high level of over $400 after seeing a surge from $ 7.98, where it was earlier this year (a growth of 3200%).
Founded by Vitalik Buterin in 2013, the cryptocurrency is also often dubbed as Ethereum. Buterin published the Ethereum White paper, which contains a detailed description of the rationale and technical design for the Ethereum protocol and smart contracts architecture.
Smart contracts are programs that execute exactly as they are set up to by their creators. For instance, if Alice agrees to send Bob 10 ethers on New Year’s Day then automatically on the first of January the amount will be transferred.
The smart contract is protected from mutability due to the computational and cryptographic power of the Ethereum network. For Alice to cancel the agreement she has to hack into the millions of computers supporting the Ethereum network and running the Ethereum blockchain.
While Bitcoin employed the first set of basic smart contracts where the network transferred value from one person to another, Ethereum advanced its uses for more applications, some of which are being used precisely to power the nowadays ubiquitous Initial Coin Offerings.
The DAO attack and Ethereum Classic
Ethereum has experienced a few speed bumps on its way to success and fame. Most notorious of these was the attack on the Decentralised Autonomous Organisation or DAO for short.
DAO is a Decentralised Autonomous Organization with goals to codify the rules and decision making of an organization. It erases the need for documents, courts, and governing persons – a structure with decentralized control. In other words, it is the heart of the smart contract architecture.
In June 2016 the DAO was hit by a cyber attack and $55 was lost as a result. Within a day, the hackers managed to drain over 3.6M Ether into a “child DAO” of their own, causing Ether prices to plunge from over $20 to under $13, wiping out almost a half-billion dollars in market value.
The founders and the Ethereum Foundation solved the problem by creating a ‘hard fork’ . The result was preventing the attacker from retrieving the funds they had stashed into a child DAO.
After the “fork”, the original Ethereum blockchain containing the DAO attack kept growing and became what is now dubbed Ethereum Classic. That’s why when buying Ether you notice two tokens; Ethererum (ETH) and Ethereum Classic (ETC).
How to buy Ethereum or Ethereum Classic?
As Ethereum’s popularity grows, more and more are looking into purchasing the cryptocurrency. Bitwala has selected for you the best purchasing options at the moment.
1. Credit cards, debit cards, or wire transfers via exchanges
Ethereum is hot at the moment however, it’s still fairly new. Not all exchanges support direct Ether purchasing. Many require buying Bitcoin first then trading that for Ether. Moreover, you need to find out which exchange operates with your country (and/or citizenship) as each exchange has their own limits on countries and also on amounts and dictates how to buy Ethereum.
Some exchanges, that supply Ethereum such as Coinbase, Coinhouse and Cex.io, allow Ethereum purchases using credit cards, debit cards or bank transfers. View a list of Ethereum market places here.
2. Using other cryptocoins
You can also buy Ethereum by exchanging other cryptocurrencies such as Bitcoin or other alternative cryptocurrencies such as Litecoin, Ripple, and more to Ethereum. Shapeshift, a company that we also partner with supports quick trades between assets with no account required.
How to store Ethereum?
After buying Ethereum, finding a secure and proper storage solution is more important than ever. With the variety of options that Ethereum users have out there, it all comes down to your personal preference, be it security, anonymity, user-friendliness, or others.
Whether you opt for a hardware or software solution, we’ll go through the pros and cons of each to help you decide the best wallet solution.
1. Desktop and mobile wallets
For online software options, we recommend you to download the official wallets of Ethereum such as the Ethereum Wallet or Mist which are invented and supported by the Ethereum Foundation. If you’re not too keen on downloading software, you can opt for wallets such as MyEtherWallet, which allows transaction generation to be done in the browser and not over servers.Another great option would be Jaxx that is available for both Android and iOS with extensions available for Chrome and Firefox. These type of wallets could give you peace of mind knowing it is safer than storing Ethereum on exchanges. Online wallets, although not the safest option, eliminate the hassle of transferring funds in and out of cold storage when trading Ethereum.
2. Paper wallets
Paper wallets are literally a generated account number and key that is printed on paper for safe keeping. The idea behind paper wallets is to leave no trace behind on your computer or anywhere. This eliminates the chances of your funds being compromised by malware or cyber attacks.However, many see paper wallets like stacking gold bars under floorboards as it’s unhackable yet not spend-friendly as to spend any portion of Ether you’d need to bring it back up into a wallet.
3. Hardware wallets
Most cold storage wallets like the Trezor or Ledger are easy to set up. If you ever lose the device, you can restore your wallet to a different device or another wallet entirely with the seed (your backup phrase). It’s an investment that might save you thousands down the road.One of the main advantages of cold storage wallets is that your private keys are stored completely offline and isolated from your computer. This means that the chances of your private keys, the one you use to gain access to your coins, being hacked or exposed to theft from trojans or malware are close to zero.