What is Ethereum and How Does It Work?

Brandie E Blackler
9 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? 

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 onto 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

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 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. 

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

Trade Ether 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 a 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 Trader's Room, you can access the copy trading option and browse the various portfolios – some of which are focused solely on cryptocurrency CFDs.  

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.  

See below as we give an example of the Ether price directly within the MetaTrader 5 interface; as we display the Daily price chart, you can see clearly the volatility movements. Perhaps using both a Buy and Sell order strategy based on the trend, this pairing can make a lot of sense for both Forex and day traders. 

Source: Admirals MetaTrader 5, ETHUSD, Daily - Data range: from April 2, 2021, to September 9, 2021, accessed on September 13, 2021, at 13:00 BST. - Please note: Past performance is not a reliable indicator of future results. 

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. 

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks

 

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