Takeaways
- Ethereum is a cryptocurrency with ETH tokens traded on crypto exchanges.
- Ether-based exchange-traded products were approved by the SEC in May 2024.
- Ether coins are the second most valuable crypto by market capitalization.
- Ethereum was founded in 2013 by Vitalik Buterin as a next-generation crypto.
- Ethereum tokens and technology have captured the attention of cryptocurrency enthusiasts, institutional investors, and retail investors.
What Is Ethereum?
Ethereum is an open-source, decentralized blockchain platform, so anyone, from developers to enthusiasts, can create and deploy smart contracts and decentralized applications.[1] The cryptocurrency native to the platform is Ether, or ETH. Investors use ETH as a store of value and to take advantage of price appreciation. It can also be used as a digital currency to pay for everyday goods and services.
Unlike Bitcoin, primarily a store of value and digital currency, Ethereum is designed to be a versatile platform that can support a massive range of applications beyond being the medium for conventional daily transactions with ETH tokens.
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$289.9 Billion is the market capitalization for Ethereum (ETH) tokens, which have a 47% year-over-year investment return.[2]
Ethereum has some serious computer power that allows it to power a wide range of applications and fuel transactions on the network. Its flexibility and high degree of programmability have made it a solid foundation for several innovative creations, including decentralized finance, also known as DeFi, and non-fungible tokens, or NFTs.
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How Ethereum Works
Ethereum operates on blockchain, just like Bitcoin, a distributed ledger system that is the unchangeable record of all transactions and activities on the network. Ethereum differs from other cryptocurrencies in its ability to create smart contracts and its technology platform.
Smart contracts are self-executing contracts with the terms built right into their code. They automatically execute actions once specified timeframes or conditions are met, eliminating the need for intermediaries.
The Ethereum blockchain uses a mechanism for consensus known as “proof-of-stake.” In this mechanism, validators are chosen to propose and validate new blocks of transactions in the ecosystem. To hold this responsibility, validators put something at “stake” into the network - usually a certain amount of Ether tokens - that can be destroyed if they act dishonestly. Validators ensure that new blocks distributed across the network are, in fact, valid.[3] This is far more efficient than the original, energy-intensive proof-of-work mechanism Bitcoin uses.
History of Ethereum
Ethereum was first proposed in 2013 by programmer Vitalik Buterin, who wanted to craft a next-generation cryptocurrency and digital program that could support decentralized applications other than simply currency transactions. In 2014, Ethereum launched with the help of a crowdsourced initial coin offering, known as an ICO, adding more than $18 million to the development fund.[4]
Read More: How Public Companies Get Started. Learn about the Initial Public Offering (IPO)
The Ethereum platform went live in 2015, with the first release being the Frontier version. Since that debut, there have been multiple significant upgrades. Ethereum's most notable migration was moving from proof-of-work to proof-of-stake with the massive Ethereum 2.0 upgrade. This upgrade made it one of the world's leading and most popular blockchain platforms.
The Securities and Exchange Commission approved Ether-based exchange-traded products in May of 2024, which could seriously expand exposure to ETH tokens for retail investors.[5]
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Pros of Ethereum
Ethereum has many advantages that have ballooned its success from its debut in 2024. Here are several that many investors focus on:
- Ethereum is an open-source program. One of its biggest benefits is its programmability, which allows developers to create and deploy smart contracts and decentralized applications for almost anything.
- Large and incredibly active developer communities continuously work to improve the Ethereum platform and expand its capabilities. The most recent upgrade to proof-of-stake has made Ethereum far more energy-efficient and scalable, which makes it even more appealing as a blockchain platform.
Cons of Ethereum
Despite having many benefits, Ethereum has downsides. Here are several disadvantages of the crypto and platform:
- Network Congestion causes slow transactions and higher fees. These costs can make Ethereum-based applications expensive for daily users.
- The transition to proof-of-stake from proof-of-work has introduced concerns about centralization. The move gives participants with more Ether the ability to exert a more significant influence over the network.
- The complexity of creating on the Ethereum blockchain can be a barrier for many new developers, hindering the growth of innovation on the platform.
Bitcoin vs. Ethereum
While Bitcoin and Ether are leading cryptocurrencies, they also serve wildly different purposes and have distinct characteristics.
- Bitcoin is primarily a decentralized digital currency designed to provide a secure and efficient way to store and transfer value. It uses a simple proof-of-work consensus. (Read more about how to buy Bitcoin.)
- Ethereum is a platform designed to support more complex tasks like smart contracts. Bitcoin is commonly called “digital gold,” while Ethereum could be most accurately considered a distributed, even global, computer.
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How to Trade Ethereum
Trading Ether on the Ethereum network involves trading on cryptocurrency exchanges.
1. Set Up an Exchange Account
You will first need to set up an account with Coinbase, Binance, or Kraken, where you can create an account and deposit fiat currency like United States Dollars.
2. Verify Account Details
Once your account has been created, you will likely need to perform some verification to comply with Know Your Customer regulations, which is a set of rules that helps verify a customer's identity and prevent fraud.[6]
3. Deposit Funds
Once your account is up and running, you need to deposit cash from your bank account, credit card, or debit card. With funds in your exchange account, you can trade Ether (ETH) tokens based on your investment strategy.
4. Invest in Ether Tokens
After you are ready to start trading ETH tokens, you need to decide how much of your net worth you want to invest in this cryptocurrency. This will depend on your financial goals, time horizon, and risk appetite. Many financial planners now advocate for holding a portion of your investment portfolio in crypto so that you have investment exposure to this digital asset.
5. Monitor Investment Performance
With such a volatile asset class like cryptocurrencies, it is critical to monitor the market closely. You can review research reports, listen to expert analysis, and review forecast reports. When you are ready for more advanced trading, cryptocurrency exchanges provide access to margin trading, futures contracts, and more.
Smart Summary
Ethereum is a decentralized blockchain platform and cryptocurrency. It is the second largest cryptocurrency by market capitalization, behind Bitcoin. Ethereum technology allows users to create smart contracts, build on a complex blockchain, and trade ETH tokens. If you want to buy ETH tokens, sign up for the best cryptocurrency platform and start trading in minutes.
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(1) Ethereum Foundation. What is Ethereum? Last Accessed January 14, 2025.
(2) Forbes. Top 10 Cryptocurrencies of September 10, 2024. Last Accessed January 14, 2025.
(3) Ethereum.org What is Proof of Stake (POS)? Last Accessed January 14, 2025.
(4) Coincodex. A Time of the most successful ICOs. Last Accessed January 14, 2025.
(5) Federal Register.gov.Self-Regulatory Organizations; NYSE Arca, Inc.; The Nasdaq Stock Market LLC; Cboe BZX Exchange, Inc.; Order Granting Accelerated Approval of Proposed Rule Changes, as Modified by Amendments Thereto, To List and Trade Shares of Ether-Based Exchange-Traded. Last Accessed January 14, 2025.
(6) IRS. List of Approved KYC rules. Last Accessed January 14, 2025.
