What is Ethereum and How Does Ethereum Work?

Brandie E Blackler
11 Min read

Ethereum has been sweeping both the crypto world and the finance world as it remains to be the second most popular cryptocurrency in the world. New and experienced traders alike have been participating in the volatile action – Have you? 

Perhaps you need to know more and investigate further into the query, "what is Ethereum and how does it work?".

As we are covering more of the most popular cryptocurrency topics, see if Ethereum is suitable for your trading style. We offer CFD pairings of both ETH vs USD and ETH vs EUR, which we will explain later on in this article. 

What Is Ethereum: An Introduction 

While certainly the entire world has heard about Bitcoin at this point in time, the original and leading cryptocurrency, Ethereum has remained in an extremely close second place as the rival.

From what appeared to be a dark underworld of mysterious people behind their laptops, to a global phenomenon sweeping big banks, both cryptocurrency and Ethereum have come a long way.

As we will go into detail in the next section, there are some major differences between Ethereum and Bitcoin.

Change and development is constant with Ethereum, known as ETH (ticker symbol) and also, Ether, the official name as the coin – 'Ethereum' is the term used for the blockchain platform, itself. 

Development of Ethereum, and cryptocurrencies in general, is crucial as this form of blockchain technology inevitably will only change and hence improve.

The technology can only grow and exist by improvement. Ethereum is known for placing a very high priority on security, while it also serves many purposes in real use cases aside from the coin itself. 

Ongoing investigations and implementation into hybrid architectures which would link both private and public blocks is one major component of its ongoing growth.

This opens doors for various real-life industries to make use of the technology – technology, healthcare, automotive, to name only a few.

But before we get ahead of ourselves, how did the story of Ethereum begin? 

Would you like to learn more about the financial markets, trading and more via our free webinars? Learn from experienced traders - Click the banner below to register now for free:

Free trading webinars

Tune into live webinars hosted by our trading experts

What is Ethereum: A Brief History 

It's no surprise that both Bitcoin and Ethereum came from very similar roots, amongst the same crowd. 

Ethereum was originally created by Russian-Canadian programmer, Vitalik Buterin, who previously worked on Bitcoin in 2013 and also co-founded Bitcoin Magazine.

Buterin's goal was to build decentralized applications, not just within currency, but also infiltrating crucial industries which could benefit from more transparency. It was an inevitable goal to tie real-world assets to the blockchain through such an application. 

Vitalik drafted the whitepaper for Ethereum in 2013, outlining the core goal to create a more robust language for application development amongst many verticals. 

Ethereum was first introduced to the public at a Bitcoin conference in Miami, in January 2014. Six months later, development continued in Zug, Switzerland and Ethereum was then considered a non-profit project - and the Ethereum Foundation was soon after established.

An online crowd sale held in 2014 formed the core part of funding for the platform; participants were buying Ether with – can you guess? - Bitcoin. The system went live on July 30th, 2015, and was populated with 11.5m 'coins' ready for presale. 

Fast forward to 2018, and Ethereum was first coined the world's second-biggest cryptocurrency based on market capitalization. Now, as we approach the last quarter of 2021, it remains in second place and continues to thrive and grow in both popularity and use cases. 

Let us go on to explain, in detail, what is Ethereum? 

Also, take note that we have the option to trade Cryptocurrency CFDs in a demo account – You can learn how the market works without using real capital – when you're comfortable, you can trade with real money in a live account – Sign up for a demo account

Trade with a risk-free demo account

Practise trading with virtual funds

What Is Ethereum? 

To reiterate the basics, Ethereum (ETH) is an open-source platform based on blockchain technology, which enables developers to build and release decentralised applications. It is most well-known for its cryptocurrency, Ether, but it is much more than that. It also powers applications which are available to anyone who wants to use them - it's the world's programmable blockchain if you will. 

It is quoted precisely as this, "Ethereum builds on Bitcoin's innovation, with some big differences."  

The main purpose behind Ethereum (and also Bitcoin) is to have digital money without the need for banks or payment providers. Where Ethereum goes the extra mile, is in the various applications the Ethereum blockchain makes possible.

Ethereum Use Cases 

To briefly review the additional use cases of Ethereum, we will elaborate on the main three areas, below: 

NFTs: A definite buzzword currently, NFTs, or Non-fungible Tokens, are basically a form of digital token which can represent ownership of anything of value and which is unique – most notably, art, for example.

Even real estate is becoming tokenized. These tokenized items are done so on the Ethereum blockchain and can only have one true user at a time. 

DeFi: Short for 'decentralized finance', DeFi as a topic amongst the financial community is certainly growing in popularity. How does this relate to Ethereum and further explain the common question "what is Ethereum?".

Well, any financial product or service which runs via the Ethereum software is considered 'DeFi'. With DeFi, individuals are not dealing with central authorities, nor are the markets ever really 'closed'. 

There is a sizable conversation we could go into on comparing DeFi to traditional finance models, but we'll save that for another day and another article.

What's important to consider in relation to the topic, is the trading price for ETH, or Ether, has fantastic potential, given the vast possibilities in the finance world to come, thanks to the Ethereum blockchain.

DAOs: Last, but certainly not least, the remaining current use case of Ethereum is the option for DAOs, decentralized autonomous communities.

This is basically a member-owned community, a true democracy, if you will, which offers a safe and secure way to collaborate with strangers and exchange funds for projects. It is truly an open-source, transparent solution for global collaboration. 

What Is Ether? 

There is Ethereum, the blockchain ecosystem which allows for all of the aforementioned activity to take place – and then we have a key component to this decentralized ecosystem, known as Ether.

Ether is the financial asset which underpins everything which functions within the Ethereum ecosystem. Perhaps you may read or hear of people "trading Ethereum CFDs" - this is technically correct, but if you want to break it down to the very specifics, you are trading Ether CFDs. 

Perhaps better known for its short form or ticker symbol, ETH, this digital currency also secures the Ethereum blockchain; anything done on the Ethereum blockchain requires an ETH transaction in some regard.

As all cryptocurrency can also be referred to as 'internet money', owning the underlying asset of Ethereum means it is secured by cryptography.

Of course, there is a great benefit to owning the underlying asset of Ethereum. It is truly yours, as a CFD is not. Holding Ether as an asset is a great option to incorporate into your long-term investment strategy.

However, it is notable to mention, if you want to trade Ether – it often makes more sense to trade Ether CFDs, as the trade is instant and you both eliminate Ethereum network fees and do not need to worry about actually owning it as an asset; from a trading perspective, this makes the most sense.

You can still effectively trade Ether via exchanges, you just need to consider the associated costs in relation to the trading strategy timeline. 

If you'd like to start trading Ethereum CFDs, click the banner below to open a live account and get started:

Trade CFDs on digital currencies

Trade 30+ top digital currency pairs with Admirals

Is Ether Safe to Trade? 

Ether is as safe as any currency market– but, as with many instruments offered by Admirals, it can have moments of high volatility, which adds to its intrigue with traders of course.

It is always recommended that traders use volatility protection settings, as they can help to minimise risk while trading.

Traders are also encouraged to learn how to manage risk effectively via risk management, because implementing this within their trading can help immeasurably in terms of minimising the risks involved with trading.

You can speculate on this volatility by trading CFDs on cryptocurrencies with Admirals, such as ETH vs USD, ETH vs EUR, or with digital currency cross pairings. 

You can see the Daily fluctuations of the ETHUSD pairing via the TradingView widget, below:

 Please note: Past performance is not a reliable indicator of future results. 

Trade Ethereum CFDs with Admirals 

By now, you may have the impression that Ethereum's potential in both the finance world, and the world as a whole, is huge. This is very likely a true reality, given the facts outlined and the extensive supporting use cases. 

How can you partake in this exciting world of digital currencies?

As with all cryptocurrencies, Ethereum is very volatile – which carries responsibility for both risk management and a realistic, often short-term trading strategy. If you're used to trading Forex, you will find it to be a smooth transition into trading cryptocurrency CFDs

Remember, if you're not yet comfortable trading CFDs with cryptocurrencies, or in general, you have the option of copy trading. Once you have logged into your Dashboard, you can access the copy trading option and browse the various portfolios – some of which are focused solely on cryptocurrency CFDs.

If you'd like to start copy trading Ethereum CFDs and other crypto CFD pairs, click the banner below:

Copy Trading with Admirals

Trade like the best with just one click

As we provide free access to MetaTrader 4 and MetaTrader 5 to our registered users, you will be able to assess the live chart data for yourself in order to understand if trading Ether CFDs (or any cryptocurrency CFDs) is suitable for your trading style.

Did you know that you can trade numerous other cryptocurrencies with Admirals? Aside from CFDs on Ethereum, Admirals also offers trading opportunities for CFDs on Bitcoin, CFDs on Litecoin, among many others. Additionally, traders can also trade with Admirals via a demo trading account, providing the opportunity to test out trading strategies on cryptocurrencies first, before transitioning to the live markets and attempting with their capital. 

Can you trade Ethereum?

Yes, Ethereum or ETH is tradeable directly on crypto exchanges, while you also have the option to Buy and Sell Ethereum via Ethereum CFDs via an online broker.

Is Ethereum good for trading?

This question is completely subjective and must be based on the individual's trading experience, trading style, risk management and tolerance for volatility. With a proper trading strategy in place, Ethereum is a viable option for trading.

 

INFORMATION ABOUT ANALYTICAL MATERIALS:
The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admiral Markets investment firms operating under the Admiral Markets and Admirals trademarks (hereinafter “Admirals”). Before making any investment decisions please pay close attention to the following:
1. This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
2. Any investment decision is made by each client alone whereas Admirals shall not be responsible for any loss or damage arising from any such decision, whether or not based on the content.
3. With view to protecting the interests of our clients and the objectivity of the Analysis, Admirals has established relevant internal procedures for prevention and management of conflicts of interest.
4. The Analysis is prepared by an independent analyst (hereinafter “Author”) based on Brandie E Blackler, Financial Analyst, personal estimations.
5. Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admirals does not guarantee the accuracy or completeness of any information contained within the Analysis.
6. Any kind of past or modeled performance of financial instruments indicated within the content should not be construed as an express or implied promise, guarantee or implication by Admirals for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
7. Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, please ensure that you fully understand the risks involved.

TOP ARTICLES
What is Chainlink? Learn More About LINK Crypto
If you are interested in cryptocurrencies and trading crypto CFDs, you have likely heard of the Chainlink blockchain and its proprietary currency, LINK. But what is Chainlink? It is similar in many ways to Ethereum as it also offers smart contracts as a way to conduct useful financial transactions....
What is Uniswap? Learn More About the UNI Crypto
Uniswap is an increasingly popular crypto exchange based on the Ethereum blockchain. But what is Uniswap, exactly? Uniswap is a decentralized exchange, also known as a DEX, that facilitates worldwide crypto trades with no intermediary required. Many other decentralized exchanges have emerged follow...
What is Polkadot Crypto? Learn More About DOT Crypto
We have been hearing the word ‘blockchain’ increasingly frequently for the past 10 or so years. Over this time, plenty of new cryptocurrencies have been created, each running on its own blockchain network. There have been plenty of blockchains developed. For example, DOT crypto - But what is Polkad...
View All