Ethereum for beginners: Step by step guide

Ethereum, and its token Ether, is the second-biggest cryptocurrency by market capitalisation, after Bitcoin. The best way to explain the goal and purpose of Ethereum would be to call it a technology platform rather than a product. So while, Bitcoin is a product of its platform that can be exchanged or stored, like currency, Ethereum was created as a platform to enable other applications to be created without having to build the underlying platform technology each time.

In this step-by-step guide, we’ll explain the purpose of Ethereum, it’s token Ether and talking everything a beginner needs to know about how to invest in Ethereum.

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Ethereum for beginners: Step by step guide

Step by step guide to Ethereum

What is Ethereum (also: What is Ether?)
How did Ethereum start
How does Ethereum work?
What can I do with Ethereum (also: What can I do with Ether?)
How do I buy Ethereum in Australia?
How do I invest in Ethereum?
Where do I keep my Ethereum?
What does the future hold for Ethereum?

What is Ethereum (also: What is Ether?)

When people talk about Ethereum, they’re usually referring to Ether – the digital asset/token/cryptocurrency of the Ethereum blockchain. Unlike with Bitcoin, Ethereum and Ether are used interchangeably. Bitcoin was easy to understand because it was a currency – like the Dollar or Euro. Most people who talk about Bitcoin aren’t necessarily concerned about the underlying technology called Blockchain – even though they might have heard of the concept.

It’s slightly different with Ethereum where both the technology and the cryptocurrency are relevant and have different purposes. Ethereum – the name given to the blockchain platform – is the platform upon which other applications can be built.

If Ethereum was the internet, you could build other products – like email and applications like Facebook on top of it. As one of the Ethereum co-founders put it, “Email is one particular use of the internet… but there are many others”

Ether, is the cryptocurrency of the Ethereum blockchain, which means that you can use it to transact with Ethereum applications, in addition to it functioning as a currency like Bitcoin. And similar to what’s happening with Bitcoin, Ethereum (read: Ether) is also being used as an investment option like property or shares.

Bitcoin is first and foremost a currency; this is one particular application of a blockchain. However, it is far from the only application. To take a past example of a similar situation, e-mail is one particular use of the internet, and for sure helped popularise it, but there are many others.

Dr. Gavin Wood, Ethereum Co-Founder

How did Ethereum start?

2011

17 year old Vitalik Buterin learns about Bitcoin and starts up Bitcoin Magazine to cover topics related to blockchain, maths, computer science and economics.

2013

Buterin publishes a white-paper proposing Ethereum.
2008

After receiving a $10,000 fellowship grant, Buterin works on Ethereum full-time
2015

Ethereum goes live

How does Ethereum work?

Remember, the goal of Ethereum was not to be a cryptocurrency. It was to be a platform for others to build their applications on. It was envisioned to be something like the Internet where others could build their applications like email, social networking, online games, photo sharing and music streaming.

And that is exactly what Ethereum does, with (at the time of writing), nearly 2,000 different applications already live. Of course, this is a far cry from the number of applications and website on the Internet but worth mentioning that Ethereum is not even 5 years old.

Worth mentioning that, like all blockchain technology, Ethereum is also a decentralised network. What this means is that there is no single point of failure. For example, if you have your pictures stored on the cloud, the cloud is still a computer somewhere. And if that computer crashes or is hacked, all those photos are lost forever. With blockchain technology, the content, in this case photos are spread across a network of computers so even if one’s hacked, you can retrieve your photos.

Ethereum is used interchangeably to also refer to Ether – the cryptocurrency of the Ethereum network.

What can I do with Ethereum (also: What can I do with Ether?)

Photos sharing is just one example of what the Ethereum network can be used for. So far apps include financial apps like insurance, gambling, file storage and gaming. Here are some of the more popular apps on Ethereum:

Storj

Allows you to rent out space on your hard disk in exchange for cryptocurrency.

- OmiseGO
  
  Execute financial transactions without having to rely on banks and fees

- Cryptokitties
  
  Create and trade cats (they rule the internet, why shouldn’t they rule blockchain too?) on the network.

- Ninja
  
  Betting without the need of a central authority like a bookie.

Blocksure

Blockchain-powered insurance

As mentioned, Ether is the underlying cryptocurrency of the Ethereum blockchain. And similar to other cryptocurrencies, like Bitcoin, you can use Ether to:

- Buy things:
  
  The most obvious being using Ether to buy tokens to use the apps that are running on the Ethereum blockchain. And like other cryptocurrencies, you can also use Ether to buy goods and services from merchants who accept Ether alongside other currencies and cryptocurrencies.

Hold on to them as an investment

Similar to investing in the stock market or investing in property, you can also buy Ethereum (actually, Ether) and hold on to it for the long term, in the expectation that it would increase in value and be worth more than what you paid for it.

How do I buy Ethereum in Australia?

There are two ways to buy Ethereum today:

Buy Ethereum from a cryptocurrency exchange in Australia

A cryptocurrency exchange allows you to buy cryptocurrency, in this case Ethereum, using Australian dollars. Think of a cryptocurrency exchange as exactly like a foreign exchange office in a bank where you would exchange Australian dollars for an international currency when you are travelling abroad. Buying Ethereum from an exchange requires the following steps:

Find the cryptocurrency exchange that’s right for you. At the time of writing, there are more than 25 exchanges in Australia and abroad that allows you to buy cryptocurrency using Australian dollars.
Register for an account with an official ID.
Find the Ethereum page and select the amount.
Select the payment method – Most cryptocurrency exchange offer BPay while others also include Poli and bank transfers.
Review the order details and click ‘Buy’.

Buy Ethereum as part of a cryptocurrency portfolio investment

When you buy Ethereum directly from an exchange, you need to decide how much to buy and at what price. And then you would need to decide which other coins should also be purchased as part of the portfolio. You would then have to repeat this process every time you want to make an investment.

Instead, you can use Chillur to do the ongoing investment and portfolio management for you. By creating an account with Chillur and linking your bank account, you will automatically buy Ethereum as part of your portfolio on an ongoing basis. You won’t have to worry about price, when to buy or how much to buy. The account will do all that for you – using the spare change from your bank account.

How do I invest in Ethereum?

There are two ways to invest in Ethereum – directly or as part of an index portfolio. What we mean by investing in Ethereum directly is to buy the cryptocurrency from a cryptocurrency exchange – as described in the above section. You would then hold on it with the expectation that it would increase in value. If you want to increase your portfolio, you would do this each time you want to buy Ethereum.

Index portfolio with Ethereum

The more hassle-free option is to invest in Ethereum as part of an index portfolio. An index portfolio takes the complication out of investing by spreading out your investment. Currently, there are over 1500 cryptocurrencies and Ethereum is just one of them. Rather than put all your eggs in one basket (or blockchain), the less risky way to invest in cryptocurrencies is to select an index.

Chillur offers an index portfolio of the top 10 cryptocurrencies by market capitalisation. This means that every $1 that you invest through Chillur is not used to buy Ethereum alone – it’s spread across the top 10 cryptocurrencies based on their value in the market at the time. What Chillur also does is invest small amounts more regularly instead of a one-time amount in one shot. This way, you ensure that you are always investing in cryptocurrency regularly.

Where do I keep my Ethereum?

All cryptocurrencies are stored in wallets. Cryptocurrency wallets are either specially designed to hold just one kind of cryptocurrency or you can store multiple cryptocurrencies in the same wallet. These wallets can be stored on your computer, on your mobile phone and even on a pen drive that you can carry around with you. Cryptocurrency exchanges that we described above give each user their own wallet so you can also store your bought Ethereum directly with the exchange.

What does the future hold for Ethereum?

As the crystal ball would say – The answer’s unclear. Remember that Ethereum is primarily a platform for developers to build their apps on. And if MySpace has taught us anything it’s that it doesn’t matter how good or how bad an application is – the only thing that matters is how many people use it. And to that end, it depends on how quickly developers and their investors are able to take Ethereum applications to a wider audience.

Currently, the value of Ether is tied directly to how much someone is willing to pay for it. In 2017, it was worth nearly $1000 because there were enough people willing to pay that much. Six months after that, there weren’t enough people willing to pay that price and so it was worth considerably less. Like the crystal ball said – The answer’s unclear.

The best way to find out what the future holds for Ethereum is to come along on that journey. A lot of people expect big things from Ethereum and are eagerly waiting any news of what will happen next.