Ethereum has become a popular cryptocurrency alternative to Bitcoin over the last year. However, unlike Bitcoin and rival currency Litecoin, Ethereum has been adopted by many companies and startups as a way to transact (and more).
In the cryptocurrency wars, I like to view Ethereum like the diamond of the currencies - it has both a intrinsic value and an industrial value. Compare this to Bitcoin, which operates like gold - not much industrial value, but people buy it and sell it based on it's intrinsic value to the holder.
Given the popularity of Ethereum, many people are curious about what it actually is, how it's different than Bitcoin, and how to invest in it. It's also important to note the risks of investing, and the potential to mine it and create your own wealth of Ether (the actual monetary unit of Ethereum).
Before we dive in, it's important to note that to look at, use, and transact in Ethereum, you need a digital wallet. We recommend Coinbase because it's free, has a great app, and they give you a bonus for depositing $100. Check it out.
What Is Ethereum
Ethereum is basically software that is decentralized and allows developers and programmers to run the code of any application. Wait, what? I thought Ethereum was money... well it has a monetary aspect.
You see, Bitcoin uses a technology called blockchain specifically for conducting monetary transaction - it's a straight currency. Ethereum uses blockchain technology to allow the creation of applications that can be executed in the cloud, can be protected from manipulation, and much more (some stuff getting too technical for me here). However, a bi-product of this is that Ethereum uses a token called Ether, which is like Bitcoin, to transact. This is the monetary value portion of Ethereum.
Because of it's unique abilities, Ethereum has attracted all types of attention - from finance, to real estate, to investors, software developers, hardware manufacturers, and more.
How Ethereum Is Different From Bitcoin
As we mentioned above, Bitcoin was designed to be a currency. It uses the same underlying technology principles, but uses them to facilitate monetary transactions.
Ethereum, on the other hand, was designed to facilitate software processing using a token system called Ether. That Ether has become more valuable as a result of people becoming interested in the technology. That Ether is what people want to invest in.
However, there are a lot of apps being developed on Ethereum, and even some major financial companies are getting involved in the space. It could be interesting to see what develops from this over the next few years.
Finally, Ethereum is much cheaper than Bitcoin. Bitcoin currently trades for over $2,600 per unit, while Ether trades at just $318.
How To Invest In Ethereum (Ether)
If you're interested in investing in Ethereum, and specifically Ether, you need a digital wallet. Ethereum doesn't trade on any major stock platform. You can go to your online discount broker and buy Ethereum. You have to convert it into your wallet.
We recommend using Coinbase as a digital wallet because it's incredibly easy to use, allows you to invest in Bitcoin and Litecoin as well, and they will give you a bonus for signing up. If you sign up with this link you'll get a $10 in Bitcoin bonus if you deposit $100.
It's important to remember that Ether (ETH) is a currency, and should be treated as such by investors. You don't buy shares of Ether like you would stocks or ETFs. Instead, you are exchanging your dollars for Ether tokens. There are no dividends, no payouts. Your only hope is that in the future, other people on the Internet will pay you more for your tokens than you bought them for.
Final Thoughts
Investing in Ethereum is risky, but it could potentially be lucrative. Unlike Bitcoin or Litecoin, companies are really using Ethereum as a building block - something more akin to diamonds than gold. As an investor, this is a potential win.
However, Ether is still an Internet currency, so you should always proceed with caution.
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With all the hype about bitcoin in recent weeks I appreciate this run down about ether and Litecoin as well. It’s a risky proposition but if one wants to roll the dice and just hold for a while I guess it could pan out. I question the hundreds of alt coins that exist. It seems like every day there are new crypto-currencies coming out and deciding where to invest is tricky.
It is definitely risky – but Bitcoin, Litecoin, and Ether are the three biggest. I think Ethereum has the most long term potential because of all the other activity going on with it.
Actually Ripple is #3 with Litecoin at #4.
I would like to buy 3 Ether coins. Is that small of a transaction possible?
Yes, you can even buy partial tokens.
Great article, thanks! So if Ether is worth $318 today and a year from now it’s $3,180, I can just sell if for that amount? Also, do I have to pay a commission to buy and sell Ether? And do you know if I can do it through Scottrade?
Yes, you can exchange it – remember, it’s currency, not an investment. So, if you exchange $100 for $318 of Ether, hopefully you can exchange it back for $1000 in the future! But it’s risky.
You can’t buy it on an broker – you need a service like Coinbase that acts as a digital wallet to store and exchange your Ether. Currently, Coinbase charges a 1.49% exchange fee to buy or withdraw.
You can sign-up with GDAX, which is the Coinbase trading platform. Coins and cash can be moved to GDAX from Coinbase with no transaction fees. To avoid fees, deposit cash into Coinbase, then move the cash wallet to GDAX. Trades are free from there.
Thanks for sharing!
A funny (and annoying) side effect of the popularity of Ethereum right now is that it’s disrupting the PC graphics card market.
I perform the technical procurement and budget planning for an engineering facility, and we buy high-end gaming PC parts for research simulators. I started to wonder why suddenly graphics cards had price swings and why vendors were cracking down on order quantity.
Turns out everyone is buying graphics cards like crazy for Ethereum mining.