Cryptocurrencies, or “digital coins”, enable the instant transfer of money by means of electronic networks. These currencies may be used for the purchase of physical commodities, but they are also increasingly used for transactions across the Internet. There are many cryptocurrencies available on the market, with two of the most renowned hitting the headlines on a daily basis – Ethereum and Bitcoin.
While nobody actually “owns” Ethereum, the technology is supported and managed by means of a distributed network. This coding platform is necessary to drive the cryptocurrency, providing a pathway for the decentralized applications that run on the system. Like running a bank account, Ether owners hold their funds in virtual accounts that they can transfer to other Ether owners. Each transaction contains its own set of rules, or “smart contract” that enables a user to transfer any asset without recourse to an agent or intermediary. A good analogy is to think of a vending machine. Put a token in the slot and select the snack you want to buy without the requirement of using a shopkeeper, on identifying payment the vending machine is then programmed to release the requested snack. Smart contracts not only specify how a transaction is performed, but they also impose those rules using “blockchain” principles.
Blockchaining is the process whereby all users of the network monitor and approve the transactions made by all other network users. Every smart contract is stored on every computer on the blockchain network, each of which must confirm any associated transaction arising from it.
Investors, traders, and speculators who want to cash in on the cryptocurrency craze will have to buy their Ethereum through brokers. The first broker to ever offer Ethereum as a commodity was FXOpen. At the end of 2017, the number of brokers offering Ethereum has mushroomed with minimum deposits as low as 5 USD, with spreads from as little as one basis point.
One interesting feature of Bitcoin is that its number is capped at 21 million individual tokens. This restriction does not apply to Ethereum, which has essentially enhanced its status and placed it in line to be the most popular cryptocurrency on the market.
Cryptocurrencies are created or “mined” by legions of superfast computers located around the globe. A maximum of 18,000,000 Ether are mined each year, with 5 Ether tokens created every 12 seconds.
While Bitcoin breaks down its network to incorporate any new transactions, Ethereum performs its tracking using accounts. Ether tokens are stored in virtual wallets that users purchase, and these are transported to other users by means of the blockchain.
The objective of Bitcoin was to upset the monopoly created by PayPal and other online banking applications. The aim of Ethereum is for it to become a super application that would decentralize, democratize and replace existing financial services. Its motivation is to return control of the data used by these traditional services back into the hands of the actual resource owners and authors, where only the user will be able to make changes, without interference from any other authority.