In this article, we will cover the Ethereum platform, how to trade Ethereum, and what technology is on the Ethereum platform.
Ethereum is a crypto platform like Bitcoin. It uses the proof of work protocol to add blocks to the blockchain. It is also a payment protocol.
Yet, it is capable of much more. Ethereum also uses smart contracts for application development. This technology will allow developers to rent computing power from miners on the blockchain.
Trading Ethereum requires traders to research and analyse different crypto exchanges to determine the best investment strategy.
What Is Ethereum?
Vitalik Buterin created the Ethereum crypto platform. It is a currency and platform where developers can use decentralised computing power to create applications. It is the second biggest cryptocurrency behind Bitcoin.
The Ethereum platform employs smart contracts using blockchain technology. Developers and businesses pay ether (Ethereum’s main currency) to Ethereum miners. Crypto miners rent out their resources to developers for a gas fee.
There are many nodes across the Ethereum blockchain. It is the most decentralised crypto in existence. It means developers have much computing power to create decentralised apps or dApps.
Ethereum’s initial coin offering (ICO) raised $18 million in 2014. It has been live since 2015.
The Difference Between Bitcoin and Ethereum
Bitcoin is only a payment protocol. Users and traders can sell or buy bitcoin to purchase goods or services or trade and invest coins to get short- or long-term returns.
Ethereum can do the same, but its potential lies in its use of smart contracts for app development. Though how to trade Ethereum is similar to Bitcoin.
Bitcoin uses the proof of work mining method. Miners use their dedicated hardware to solve complex problems and add more blockchain blocks. It requires lots of resources, namely electricity, due to the hardware.
They receive coins as a reward, depending on the problem’s complexity. Many companies and individuals created mining farms to get the most out of the proof of work method.
Ethereum, on the other hand, will soon implement the proof of stake method for mining. It does not require any dedicated hardware because it is virtual. There are validators in place of miners. Validators must put up some Ethereum currency (ether) as a stake. Accordingly, they bet on whether a block will be validated and added to the blockchain.
When a validator bets on a valid block, they get rewarded based on the amount of ether they invested in that block.
For now, Ethereum will mainly use proof of work, but every 100th transaction will be proof of stake. Validators choose which blocks to bet on, so it lowers the cost involved with adding more blocks to the chain.
Additionally, validators put up their ether, so there are low odds of a validator choosing a malicious block. This removes the chances of a 51% attack, where a single group owns most of the world’s hashing power.
What Are Smart Contracts?
Nick Szabo coined the term smart contracts in 1994. Smart contracts are programs that developers write on a blockchain. They are not essential to learning how to trade Ethereum, but developers and businesses can use these programs to define contractual obligations between parties.
It runs on the blockchain, so validators check the conditions of a smart contract, which are accepted or rejected across the nodes.
Furthermore, once executed, these contracts cannot be edited or rolled back. It means developers and businesses only need to write the program, which validates and executes itself.
For example, if a tenant signs a rental agreement using a smart contract, they need to meet the conditions set out by the smart contract. These could be credit ratings or monthly income. If they meet these conditions set by the agency or landlord, they could sign the rental agreement.
The entire process is on the blockchain, so there would be no long waiting times for approval from a centralised system like a bank.
Developers use a programming language called solidity. It is based on the IFTTT logic, which follows the IF-THIS-THEN-THAT order of instructions.
To illustrate, if the tenant has enough monthly income, then the smart contract can check the tenant’s credit rating. If that checks out, the agreement is valid. Developers can add many instructions or conditions to this logic. The smart contract will validate and execute these until the end of the contract.
What Is Ether?
It is important to know either if you want to know how to trade Ethereum. Ether is the name of Ethereum’s main currency. It functions as a mode of payment, a store of value, a reward for miners, and staking for validators in the future.
Ether is a decentralised (not fiat) currency. Therefore, a single institution or economy cannot control it.
Unlike traditional stock markets, crypto markets have no closing times for trading. They remain open 24/7 because hundreds of exchanges allow ether trading and investment.
Cryptocurrencies are volatile on exchanges. They encounter daily price fluctuations, so they provide an opportunity for day traders to receive short-term returns on their coins.
Smart contracts also use ether to meet contractual conditions. Developers or businesses that create smart contracts must pay gas fees to execute their conditions or instructions. They set a gas limit before submitting the contract to miners. If the gas limit is insufficient to pay for the contract, it cancels all previous instructions, and the developer must pay the miners’ gas fees.
Additionally, developers set a gas limit, but their code (instructions and conditions) might require more computing power than anticipated, so miners might reject their contract or pass over it. That is why developers need to take care when setting their gas limits.
How To Trade Ethereum
Like most cryptocurrencies, traders and investors can use two general trading strategies. These are long-term positions called holding and short-term positions called active trading. Each has its advantages and disadvantages but has the potential to provide investors and traders with significant returns on investment.
1. Holding
Traders just learning how to trade Ethereum can use a holding strategy. Traders and investors purchase coins (usually Bitcoin or Ether) and wait for them to increase in value over a longer period. They work on the assumption that coin values will trend upwards, providing them with long-term returns.
Investors do not need to conduct too much research about the exchange they use or the trends in the market. This is because they are not concerned with daily price rises or drops. Holding saves time and effort.
Another advantage is that investors and traders do not need to pay heavy fees for conducting trades. This means they pay for having their coins on the exchange and transaction fees when exiting the market.
A major disadvantage of holding is that investors and traders cannot gain returns on short-term price fluctuations.
Accordingly, investors must research the appropriate coins to invest in because their entire stake is based on the coin’s long-term performance. They do not need to research minute details, but they should at least choose a reputable and upward-trending cryptocurrency (Ether or Bitcoin).
Investors and traders need to know when to exit the market to maximise profits. Depending on the coin, they need to determine when to sell, how to sell, and how much to sell.
2. Active Trading
Investors and traders who know how to trade Ethereum and other cryptocurrencies can use active trading. They need to know how to analyse and monitor individual crypto exchanges and cryptocurrencies. They attempt to profit off volatile price fluctuations by short-selling or buying the dips and selling the rips.
Therefore, investors and traders must know how to trade Ethereum during price movements and market trends. They must also pay attention to market cycles to ensure optimal investment returns.
Short-term returns are a clear advantage for traders. They can short-sell their coins, which entails loaning coins from a broker and immediately selling them. They then buy back the coins at a lower price and return them to the broker. The trader pockets the difference. Due to the volatile nature of cryptocurrencies, they could see large profits in days or weeks.
They could also buy coins when the market is in a downward trend and sell them when it is trending upwards again. The value of the coin increases during the upward trend, so the trader profits from the price increase.
Final Thoughts
Ethereum is a crypto platform that functions as a payment protocol and decentralised technology with the ability to power software applications virtually.
It has the most nodes of any crypto platform, meaning developers and businesses can rent powerful resources straight from the blockchain with smart contract implementation.
Finally, traders must learn how to trade Ethereum by employing a holding or active trading strategy.
