How does Ethereum work

Ethereum - This is how the secret star of the crypto world works

Experts call Ethereum a new generation of cryptocurrency– that could revolutionize our financial system. What's behind it?

The decentralized platform Ethereum is usually mentioned in the same breath as the crypto currency Bitcoin. If Bitcoin profits, the price of Ethereum. In April 2021, however, the number two broke with this rule and began to soar on its own.

After Bitcoin had set its new all-time high in mid-March with a price of 60,000 dollars, the price tended to move sideways despite many fluctuations. The price could not record a further increase, as in the first months of 2021. At the same time, Ethereum started a strong rally in the same period and set new all-time records.

The platform, published in 2015, has been the undisputed number two on the crypto market for years and, like Bitcoin, has firmly established itself. Industry experts see digital raw materials in the two crypto products: Bitcoin is gold, Ethereum is oil

Actually drifts Ethereum the crypto industry acts like oil on an engine: there is a whole thing behind EthereumCrypto ecosystemthat could change the financial world. The transaction fees in this ecosystem are with the ETH currency, too Ether called, paid.

t-online explains what Ethereum is exactly, where it differs from Bitcoin and how an ether is created in the first place.

What can you do with Ethereum?

Ethereum is versatile - it creates a decentralized ecosystem Blockchain basis. This is openly visible at Ethereum. In contrast to Bitcoin, Ethereum offers several possible uses. These are:

  • The currency ether
  • The technical basis for new cryptocurrencies
  • Novel contracts, so-called smart contracts
  • Decentralized Apps (DApps)
  • The issue of new crypto coins, so-called Initial Coin Offerings (ICOs)

Many experts call Ethereum one "Cryptocurrency 2.0"- because numerous other cryptocurrencies and applications use the ecosystem. Ethereum thus serves as a Construction kit for other products and as a beacon of hope for a decentralized future.

For so-calledDeFi, the abbreviation for "decentralized financial markets", Ethereum plays a major role. The Crypto ecosystem could with the so-called Smart contracts convert today's financial world to a blockchain basis. Stock values ​​such as Adidas, SAP or Tesla could then, for example, conveniently use the blockchain-Technology be traded - a middleman like the stock exchange would then no longer be needed.

But even if smart contracts are attracting more and more attention in the financial world, the star of the Ethereum system is still that Currency ether.

Where can I buy ether?

Since ETH is the second most powerful cryptocurrency, you can buy Ethereum very easily. The best starting points are those major crypto exchanges, about:

  • Binance
  • Coinbase
  • Octopuses
  • Stuttgart Stock Exchange
  • Bitstamp

Here you benefit from high trading volume and on some exchanges, such as Coinbase, also have one insurance against hacker attacks.

Offer an alternative to the central exchanges mentioned above decentralized exchanges. Here you keep your ethers and the key to your wallet, while the central providers keep your ethers for you. So you can only sell your ethers yourself on one of the decentralized exchanges Save hard disk

We have in ours which stock exchange is best suited for which investor Step-by-step instructions for the purchase of cryptocurrencies. Here you will find all information as well as important tips and tricks for buying Ethereum, Bitcoin and Co.

For Beginner can be stated: With one big exchange you can easily Ether buy and sell without exposing yourself to high risks of hacking or fraud.

How is ether created?

As with Bitcoin, Ethereum also creates new Ether Coins through the so-called Mining, in German "dig". Here the so-called miners are paid to complex arithmetic problems to solve and so a block on the blockchain to encrypt.

Miners are users in the Ethereum network who make their computer capacities available for the network. The miner who solved the task first receives one as a reward newly generated ether. We explain how a blockchain and mining work in detail using the example of Bitcoin here.

Like Bitcoin, Ethereum also uses the so-called "Proof of work". Here only the miner receives the reward for his computing power, who is called first has solved the math problem for encrypting the block.

The proof of work is under criticism, not efficient enough to be. Because the computing power of the other computers that are working on the task at the same time was in the end for nothing. Ethereum With its blockchain, it is more efficient than Bitcoin - it only consumes half of the electricity - but the electricity consumption is nonetheless still enormous.

Ethereum wants to become more environmentally friendly

This high energy consumption also excludes simple users from the mining process, since the usual computer capacities are insufficient. As with Bitcoin, with Ethereum Mining pools monopoly who have established real mining farms abroad with low electricity prices.

The Ethereum inventor Vitalik Buterin has therefore announced that the platform will be based on the blockchain in the long term "Proof of Stake" (PoS) want to convert. That could reduce energy costs by 99 percent, as PoS is significant lower energy and is therefore also more environmentally friendly.

Thousands of computers are not working on one task here, but one computer becomes randomly chosento encrypt a block. To be selected, users must have Ether as Deposit deposit. The more a user has stored, the more likely he will be selected.

What is the difference to Bitcoin?

Ethereum and Bitcoin differ in many ways. The most important at a glance:

  • Bitcoin is older. The currency saw the light of day in 2009, Ethereum only came on the market in 2015.
  • Bitcoin is a platform to exchange currencies - Ethereum can do more: It is a platform for creating decentralized applications such as currencies, apps or contracts.
  • Behind the Bitcoin inventor is a pseudonym: Satoshi Nakamoto. The inventor of Ethereum, Vitalik Buterin, stands with his name for his product and also gives public interviews.
  • Bitcoins are limited to 21 million - at Ethereum there is no limit and therefore no scarcity of resources.

Is there an Ethereum share?

No, there is for Ethereum no share. A share is a stake in a company. The goal behind cryptocurrencies and platforms like Ethereum is that decentralized structure: The power over the product should rest with every user and not with a company. Therefore, according to this basic idea, a company will never stand behind Ethereum and thus you as an investor can never Ethereum-sharesto buy

In the long term, you might find yourself in Companies who can invest in the Crypto industry. With Bitcoin, this is already possible. So you can share the company Bitcoin Group SE buy, which is behind the German crypto trading platform

If you don't want to invest in ether directly, but rather indirectly want to benefit from the course, the Stuttgart Stock Exchange offers an opportunity. Here there are special securities called ETPs (Exchange Traded Products) a form of bearer bond.

Benefit from the Ether course with futures

The assets of the ETP are fully backed by the issuer of the bond with ether, so that the product is the Course history replicates one to one. Instead of creating a wallet online, investors can use Ethereum ETPs trade like stocks.

Since the beginning of February 2021, the Trading Ethereum Futures possible. In these futures contracts, a buyer agrees to buy Ether at a fixed price and date. This is how buyers and sellers secure themselves against price fluctuations from. Futures are used, for example, to trade commodities such as oil or wheat or stocks, bonds and foreign exchange. So it's a proven one Financial productthat nonetheless take risks for Exchange beginner holds.

Will Ethereum continue to rise?

That depends on the development of the whole Crypto finance world at. The price of Ethereum has been relatively similar to that of Bitcoin in the past and has thus also benefited from the recent booms. As with Bitcoin, industry experts still see ether in the cryptocurrency high growth opportunities.

Crypto researcher Qiao Wang, co-founder of crypto data provider Messari, goes from a price target in between $ 5,000 and $ 20,000 per ether out. In addition, many institutional investors who are already invested in Bitcoin are now eyeing the number two of the cryptocurrency closely.

Are institutional investors also opening up to Ether?

Some large providers already support Ethereum. For example, Paypal has not only developed for Bitcoin, but also for Ethereum open. Mastercard also wants to introduce payments via cryptocurrencies in 2021. It is not yet known whether Ethereum will be included - according to media reports, it should be a candidate alongside Bitcoin.

The institutional support caused a rapid rise in the price of Bitcoin in 2020 and greater recognition in the financial world. If Ethereum receives similar support from institutional investors, it can come from one further growth can be assumed.