Trading Cryptocurrency: What is Ethereum


Key Takeaways

  1. What is Ethereum and where did it come from?
  2. How does it work and how does it differ from Bitcoin?
  3. How can you trade ETC/USD?

May 21, 2021, | AtoZ Markets – Bitcoin is most definitely the popular sister from the cryptocurrency family. Though she might not know what it is, your grandma has most probably heard of Bitcoin. Ethereum, on the other hand until a mere 5 years ago was the unknown sibling in the ever-expanding crypto family. However, more coins are added almost daily (there are now over 4000 crypto coins in circulation). In the meantime, Ethereum is steadily gaining ground over the rest of the coins.

So, what is the fuss about? As Bitcoin is lambasted for its carbon footprint in an environmentally conscious world, can Ethereum ever take over the king of crypto? How can you benefit from trading it?

The article below delves into the second most popular cryptocurrency worldwide. Learn why you should start sitting up and taking notice of Ethereum.

What is Ethereum?

Ethereum is described as a software platform which is an open source used by developers to create cryptocurrencies and other digital software or applications. Apart from the platform, Ethereum is also the name used to describe the cryptocurrency Ether that was created on this software. Let’s look deeper into the inner workings of this software as well as the cryptocurrency.

Where did Ethereum Come From?

In 2013, Bitcoin Magazine published an article detailing ways in which Bitcoin should be improved. One of the suggestions put forward was how decentralized applications could run on the bitcoin platform. The article was written by none other than Ethereum’s co-founder Vitalik Buterin.

He decided to create Ethereum when he realized people in the Bitcoin community ‘weren’t approaching the problem in the right way’. He says, “I thought they were going after individual applications; they were trying to kind of explicitly support each [use case] in a sort of Swiss Army knife protocol.”

Two years later, on 30th July 2015, the developers launched Ethereum, creating its genesis block. Money for this was raised with the help of a crowdsourcing campaign that sold over $18 million worth of a new token called ether.

How does Ethereum work?

Ethereum, like most cryptocurrencies, uses blockchain technology to operate. As explained earlier though, Ethereum operates differently from Bitcoin.

While both Bitcoin and Ethereum are cryptocurrencies, there is a world of difference between these two coins. Bitcoin is simply a medium of exchange and a store of value. Ethereum, on the other hand, operates within a decentralized computing network that is built on blockchain technology. It also ‘runs on smart contracts’.

What does this actually mean? Smart contracts are highly programmable digital money. Imagine being able to send money from one person to another without involving third parties. This is already the case for Bitcoin. However, due to Ethereum’s very own computing network, it is even possible to transfer home ownership to the buyer and funds to the seller without involving any lawyers, agents, etc. Using Ethereum, with just a piece of code, this can be done in one swift, seamless transaction.

Just imagine if this is applied to every aspect of our life! How simple would it be to get a taxi ride, book an apartment or buy a flight from one decentralized system? We could do away with individual centralized systems such as Uber, Airbnb, and Skyscanner, making our life much easier.

The platform is in fact available to third-party developers to create their own blockchain applications. Essential crypto coins such as Basic Attention Token (BAT) have been created on Ethereum’s blockchain.

How is Ethereum Different from Bitcoin and What Moves its Price?

To understand the Ethereum cryptocurrency better, it makes sense to compare it to its famous equivalent, Bitcoin. Obviously, the biggest difference between these two cryptocurrencies is the platform they are built on. Bitcoin’s platform was created with the sole aim of buying and selling Bitcoin on it. As we have seen, Ethereum’s platform has other functions and goals.

What other features distinguish these two currencies? A currency or asset’s value is determined by the supply of the asset. Bitcoin has a limited supply of 21 million. On the other hand, Ethereum has an unlimited supply. This means that there might be a risk for inflation or a lack of interest.

However, like Bitcoin Ethereum’s price tends to move according to trader speculation. As with the basic notion that drives the market, demand drives the price of Ethereum. When traders voice a demand for this coin in the market, it drives the price up higher. Recently, the price of Ethereum has skyrocketed leading to a trading frenzy from investors.

How to trade ETC/USD?

Market Trends

Ethereum can enjoy a number of trends given its price moves according to traders’ speculators. You can use these trends as your basis for a trading strategy. You can go short when the market is dipping and long when it is peaking.

Day Trading ETC/USD

Opening and closing positions within one day is a popular way of trading cryptocurrencies. Given Ethereum can be quite volatile this might be a good strategy that will help you benefit from such quick movements.

Hodling

Suggested to beginners of crypto trading, this strategy refers to investors who choose to buy and hold cryptos for a longer time period.

Where to Trade ETC/USD?

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