Ethereum 101: A Beginner's Guide
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Getting started with Ethereum (and cryptocurrency in general) can be a bit overwhelming, especially when faced with jargon like "dApps" and "smart contracts". Think of Ethereum as an online app store. Just like Bitcoin, Ethereum involves digital money, but it offers so much more than just that. In this "app store", developers can create and launch their own applications without any centralized control. The "currency" used to buy, sell, or operate within these applications is called ether. One of the coolest features of this digital app store is "smart contracts", which are like automated agreements or deals. These tools have the potential to change many industries, from banking to?art.
If Ethereum sounds complicated, don't worry. In this guide, we'll break things down to help you understand what Ethereum is, its standout features, and why it's such a big?deal.
What is Ethereum?
Ethereum is a digital platform that lets people build and use decentralized applications on the internet. Think of it like your smartphone's app store, where you can download all sorts of apps to help you do different things. Just as the app store has a system behind it (like iOS or Android), Ethereum operates as an "app store" for the web, powered by its unique digital currency,?ether.
When people talk about investing in Ethereum, they're usually referring to buying its primary digital currency, ether or ETH, much like buying bitcoin means acquiring the cryptocurrency?BTC.
To break it down further:
Ethereum:?This is the whole digital system that lets people make and use special online applications and automated agreements, known as dApps and smart contracts. You can think of it as the backbone or the foundation that everything runs?on.
Ether (ETH):?This is Ethereum's own kind of digital money. If you're investing, trading, or paying fees on the Ethereum platform, you're using ether. Besides being a form of investment, ether is the "power source" that makes everything on Ethereum work, from running apps to sealing?agreements.
So, when someone says they're putting money into Ethereum, they're generally buying ether, hoping its value will increase over?time.
Bitcoin vs. Ethereum: What's the Difference?
At first glance, both Bitcoin and Ethereum are cryptocurrencies. But while they share some similarities, they also have fundamental differences:
Supply:?Bitcoin's supply is capped at 21 million, making it deflationary. Ethereum doesn't have a max supply, which allows it more flexibility but introduces different economic?considerations.
How Do Ethereum's Smart Contracts Work?
The power of blockchain lies in its transparency and security. Because so many people have copies and they always verify new pages together, it's incredibly difficult for someone to cheat or make false entries. The advantage of blockchain is its decentralized nature. When information is stored across multiple nodes, it becomes tamper-resistant. Any malicious activity or inconsistency can be quickly detected and corrected. While Bitcoin introduced the world to blockchain and cryptocurrencies,?Ethereum introduced a revolutionary concept: smart contracts. As the examples below highlight, Ethereum enhances blockchain capabilities with its smart contracts:
Consider a traditional contract, like an agreement to buy a car. Usually, you'd involve third parties like banks or lawyers to ensure everyone keeps their promises. Imagine a digital contract that automatically does what it's supposed to when certain conditions are met without needing a middleman. That's a smart contract! Ethereum is a platform that allows these smart contracts to operate. Its own cryptocurrency, ether, powers these contracts and ensures they run?smoothly.
Why Invest in Ethereum?
The investment case for Ethereum is strong and diverse:
Investing in Ether vs. Ether Futures?
Purchasing Ether directly requires a crypto wallet, which is like a digital version of a regular wallet or bank account, specifically designed to store, send, and receive cryptocurrencies like bitcoin and ether. Instead of physical money, it keeps a pair of digital keys: one public, which you share with others to receive funds, and one private, which you keep secret and use to authorize transactions. Just as you'd keep a regular wallet safe from thieves, protecting your crypto wallet, especially the private key, is essential to ensure your digital money's?safety.
But what if you're interested in Ethereum's value and don't want the hassle of managing a digital wallet? That's where ether futures come?in.
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What are Ether futures?
They're like making a deal to buy or sell ether at a future date, agreeing on the price today. This way, you can have exposure to ether’s price changes without actually holding the?cryptocurrency.
Some Benefits of Using Ether Futures:
Simplicity: No need to set up or safeguard a digital wallet. Futures provide a more straightforward and familiar avenue to gain exposure to?ether.
Regulation: These strategies are regulated financial products overseen by financial authorities. This regulation offers investors an added layer of protection and security compared to buying and holding crypto directly, which may not always have clear regulatory?oversight.
Security: Investors don't need to worry about the risks associated with storing and securing their ether in a digital wallet, such as potential hacks or loss of private?keys.
So, while some buy ether directly with a digital wallet, others prefer the safety and simplicity of ether?futures.
Ethereum's Growing?Role
Ethereum is quickly becoming important in the digital world, with more than 4,000 apps running on its system (1). Different sectors, from finance to art, are finding ways to use Ethereum for new ideas and improvements. It reminds some of the early internet days when everything felt new and full of possibilities. More and more people are exploring Ethereum and its currency, ether, because of the opportunities they present. Simply put, Ethereum isn't just digital money; it's a platform for innovation and could be a major part of the?future.
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IMPORTANT?DISCLOSURES
(1 )Source: dapp radar as of 9/25/2023.
Definitions
Bitcoin (BTC)?is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer Bitcoin network without the need for?intermediaries.
Ethereum (ETH)?is a decentralized, open–source blockchain with smart contract functionality. Ether is the native cryptocurrency of the platform. Amongst cryptocurrencies, Ether is second only to Bitcoin in market?capitalization.
Risk?Considerations
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other?employees.
Investments in digital assets and Web3 companies are highly speculative and involve a high degree of risk. These risks include, but are not limited to: the technology is new and many of its uses may be untested; intense competition; slow adoption rates and the potential for product obsolescence; volatility and limited liquidity, including but not limited to, inability to liquidate a position; loss or destruction of key(s) to access accounts or the blockchain; reliance on digital wallets; reliance on unregulated markets and exchanges; reliance on the internet; cybersecurity risks; and the lack of regulation and the potential for new laws and regulation that may be difficult to predict. Moreover, the extent to which Web3 companies or digital assets utilize blockchain technology may vary, and it is possible that even widespread adoption of blockchain technology may not result in a material increase in the value of such companies or digital?assets.
Digital asset prices are highly volatile, and the value of digital assets, and Web3 companies, can rise or fall dramatically and quickly. If their value goes down, there’s no guarantee that it will rise again. As a result, there is a significant risk of loss of your entire principal?investment.
Digital assets are not generally backed or supported by any government or central bank and are not covered by FDIC or SIPC insurance. Accounts at digital asset custodians and exchanges are not protected by SPIC and are not FDIC insured. Furthermore, markets and exchanges for digital assets are not regulated with the same controls or customer protections available in traditional equity, option, futures, or foreign exchange?investing.
Digital assets?include, but are not limited to, cryptocurrencies, tokens, NFTs, assets stored or created using blockchain technology, and other Web3?products.
Web3 companies?include but are not limited to, companies that involve the development, innovation, and/or utilization of blockchain, digital assets, or crypto?technologies.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future?performance.
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