Bitcoin might be leading the crypto arms race right now, but Ethereum is charging right behind. Ethereum is relatively new in the cryptocurrency world, having launched in 2015. It operates in a similar way to the Bitcoin network, uses blockchain technology to replace centralized computing systems that store people’s data.
Ethereum is a digital platform which allows people to build a range of decentralized applications.
These applications can include security programs, voting systems and methods of payment. Like Bitcoin, Ethereum operates outside the mandate of central authorities such as banks and governments.
The idea behind Ethereum was created by Vitalik Buterin. He launched the first version of the platform in 2015, with the help of several co-founders. Since then it has grown rapidly in popularity and has helped prompt an increase of new rivals to Bitcoin.
How does Ethereum work?
Ethereum works as an open software platform functioning on blockchain technology. This blockchain is hosted on many computers around the world, making it decentralised. Each computer has a copy of the blockchain, and there has to be widespread agreement before any changes can be implemented to the network.
The Ethereum blockchain is similar to Bitcoin’s in that it is a record of the transaction history. However, the Ethereum network also allows developers to build and deploy decentralized applications (‘dapps’). These are also stored on the blockchain along with records of transactions.
What are dapps?
Dapps are open-source software that use the blockchain technology. Unlike traditional apps, they don’t need a middleman to function. As they are still a relatively new concept, it is difficult to pinpoint an exact definition of them. However, noticeable common features include the fact that they are open source (governed by autonomy) and decentralized.
Groups of smart contracts are used to create dapps. Smart contracts are scripts of code which can facilitate the exchange of money, shares, content, or anything of value. Smart contracts are formed using the Ethereum Virtual Machine (EVM). Once a smart contract is running on the blockchain, it acts like a self-operating computer program. They run as programmed, without censorship, downtime, or influence from a third party.
Is Ethereum a cryptocurrency?
Ethereum itself is essentially not a cryptocurrency – the word Ethereum refers to the digital platform. The actual tokens (used for payment on the network) are called ether. In other words, ether is the ‘crypto-fuel’ (or cryptocurrency) for the Ethereum network. When it comes to trading, the prices you see will refer to ether. Nonetheless, you will commonly see the cryptocurrency referred to as ethereum.
What are the differences between Ethereum and Bitcoin?
As we have already discussed, Ethereum’s blockchain technology is similar to Bitcoin’s. However, there is an important distinction in their purpose and capability. Bitcoin only uses one specific application of blockchain technology. Ultimately, it’s an electronic cash system that enables online Bitcoin payments. The Ethereum blockchain does track ownership of digital currency, but also focuses on running the programming code of a range of decentralised applications.
Other key differences include:
- Ethereum allows developers to raise funds for their own applications. They can set up a contract and seek pledges from the wider community.
- There is a finite number of Bitcoins available (estimated to be 21 million). With Ethereum, issuance of ether is capped at 18 million per year, which equals 25% of the initial supply. So, while the absolute issuance is fixed, relative inflation decreases every year.
- Instead of mining for Bitcoin, miners of the Ethereum blockchain work to earn ether.
- They cost their transactions in different ways. With Ethereum it is referred to as ‘gas’. Costs of transactions depend on bandwidth usage, storage requirements and complexity. With Bitcoin, transactions compete equally with each other and are limited by block size.
How to trade CFDs on Ethereum?
When you buy Ethereum tokens (ether) on an exchange, the price will usually be quoted in fiat currency (such as USD, EUR, GBP). In other words, you sell an amount of currency to buy ether. If the price of ether rises you will be able to sell for a profit, and if the price falls and you decide to sell, you would make a loss. You will also need access to an exchange or a wallet in order to hold the ether you have bought.
With Century Financial, you can trade ether via a CFD account. This allows you to trade on its price movements without having to own the actual cryptocurrency. You aren't taking ownership of ether. Instead, you’re opening a position which will increase or decrease in value depending on ether’s price movements against a fiat currency.
CFDs are leveraged products. This means you only need to deposit a percentage of the full value of a trade in order to open a position. You won’t have to tie up all your capital in one go by buying Ethereum outright, but can instead use an initial deposit to get exposure to larger amounts. While leveraged trading allows you to magnify your returns, losses will also be magnified as they are based on the full value of the position.
Why trade Ethereum with Century Financial?
Open a long or short position*
CFDs allow you to trade on both rising and falling prices.
Efficient use of capital
Leveraged trading means you only deposit a small percentage of the full value of a trade in order to open a position. Remember that both profits and losses will be magnified, and you could lose more than the amount you deposit to open a position.
No exchange account or wallet
Unlike trading the underlying Ethereum, there is no need to open an exchange account or wallet to hold the Ethereum you have bought. This means no waiting for approval from the exchange, no concerns about keeping your wallet secure.
Trade with an established provider
Century Financial is a licensed and regulated provider. We have over 3 decades of experience in the industry.
Cryptocurrencies are still relatively new for most people and can be extremely volatile. We want our clients to have access to in-depth educational materials to support their trading.
What affects Ethereum’s price?
Ethereum’s price is affected by different factors to those which affect traditional currencies. It is less exposed to economic and political influences, but is affected by factors such as:
Availability – Unlike Bitcoin there is no limit to the supply. However, units of ether are still added and lost over time, causing its availability to fluctuate.
Regulation – Ethereum is currently unregulated by both governments and central banks. If this starts to change over the next few years it could have an impact on Ethereum’s value.
Media – Negative media coverage, particularly around security and longevity, can have an impact on price.
Technological advances – The future of blockchain technology is unknown. But, its integration into areas like payment systems and crowdfunding platforms could raise its profile.
*Please note we may, at our sole discretion, restrict your ability to go short.