Cryptocurrencies explained: what you need to know about ethereum
If you are interested in cryptocurrencies, whether for investment purposes, as an alternative payment method, or to use at online cryptocurrency casinos such as Bitcasino, you will no doubt have heard of ethereum (ETH). Ethereum is a relatively new, and already popular, cryptocurrency. However, there are some notable differences between ethereum and other digital coins such as bitcoin and litecoin. The currency grew out of a different system, and serves a slightly different purpose than most virtual currencies.
Read on to find out how ethereum differs from other cryptocurrencies, where to buy it, how to use it, and why it’s becoming such an attractive option for a variety of investors, including online gamblers.
A brief history of ethereum
The original development team that worked on creating ethereum included Vitalik Buterin, Mihai Alisie, Anthony Di Iorio and Charles Hoskinson. In 2013, Buterin published the ethereum white paper, laying out what ethereum was and how it would work. This was followed by the official launch of ethereum, which was announced at the North American Bitcoin Conference in 2014. After that, ethereum was rolled out in stages. The ETH ‘Frontier’ was released in July 2015, with a total of 72 million ETH pre-mined. ‘Homestead’, which is considered the first stable ethereum release, was launched in March 2016.
Ethereum then started its journey on the open market, its value initially fluctuating, as is always the case with a new release in the cryptocurrency markets. Further developments included ‘Byzantium’ in October 2017 which facilitated faster transactions, improved network security and the in-built ability to create smart contacts to enable customised business transactions. Ethereum has become a popular and commonly traded coin, but is still volatile, as are all digital currencies, and subject to frequent price changes. At the time of writing, its price is around $175.00 (USD).
Ethereum continues to develop, with worldwide teams working on the next phase, ethereum 2.0, also known as Serenity. Investors are keeping a close eye on future developments, and ethereum continues to be one of the top five commonly traded virtual currencies, with, it is widely believed, a lot of potential for growth. Part of the investor fascination with the future of ethereum is due to the fact that it is actually much more than a virtual coin, as we’ll explain below.
How is ethereum different from other cryptocurrencies?
Ethereum is often compared to other digital currencies such as bitcoin, and has become a commonly traded asset on cryptocurrency exchanges worldwide. Keen crypto investors know, however, that there is more to ethereum, and it’s important to keep in mind how it differs from other virtual currencies.
Ethereum was not developed simply as a virtual coin to be used as an alternative to fiat currency, but rather as a platform to enable peer-to-peer contracts and applications, allowing for monetisation of work within the platform in various ways. As such, the platform provides a launch pad for new virtual tokens and Dapps (decentralized apps), created by a range of developers, working within the platform to launch their own new and innovative projects.
Referring to ethereum as a digital currency is, then, misleading, or at least only a small part of the overall picture. You will notice that ethereum, ether and ETH are commonly used interchangeably by online brokers and crypto exchanges, but in fact ethereum refers to the platform itself, while ether is the name commonly applied to the coins associated with it, with ETH as the abbreviation used by exchanges and online brokers.
Ethereum, then, was not designed as a general payment alternative, as is the case with bitcoin and other cryptocurrencies. Another thing that sets ethereum apart from some other coins (and notably from bitcoin) is that with ethereum, there is an unlimited supply. There is currently no hard cap placed on the number of ethereum tokens that can be mined, implying that new virtual ETH coins will continue to be created indefinitely. This makes it even harder to predict the future value of ethereum. As demand rises, more coins will be created, but that does not negate the basic premise that as demand for a currency increases, the value of that currency will rise.
Is Ethereum legal?
The legal issues surrounding cryptocurrencies are easily and frequently misunderstood. Ethereum, like all cryptocurrencies, is decentralised and currently unregulated, which means it does not come under the authority of any national government, central bank or regulatory body. This, in effect, means that it is not legal tender in any country, but this is not the same thing as being illegal. It is legal to own, use, buy, sell, mine, and trade cryptocurrencies in many countries, even though those countries do not recognise the coins as legal tender. In fact, it is partly because they are not considered legal tender that there are so few restrictions on them. In many jurisdictions, then, cryptocurrencies tend to operate in a grey area where they are effectively ‘outside the law’ without being illegal.
Cryptocurrencies are, however, illegal in some countries, and only legal with strict restrictions on their use in others. At the time of writing, countries where using cryptocurrencies, including ethereum, is illegal include Afghanistan, Pakistan, Saudi Arabia, and Vietnam. There are other countries, such as India, Indonesia and China where there are legal restrictions around the use of Ethereum, often leading to a ban on banks and other financial institutions dealing with cryptocurrency exchanges, or companies being completely unable to accept payments in cryptocurrencies. China, for example, has banned cryptocurrency exchanges completely. Laws are, of course, subject to change, so check carefully and find out the current laws in your country, or any country where you intend to trade or spend cryptocurrency. Laws against trading or making payments in virtual currencies will of course apply to foreigners using those currencies within that jurisdiction.
Countries that are generally considered crypto-friendly, and where it is fine to own, trade and spend ethereum and other digital currencies, include the United States, Canada, and the United Kingdom. It is fine to use cryptocurrencies in these countries, although you may find there are procedures in place to enable the enforcement of anti-money laundering laws and policies. Other countries such as Japan, Singapore, and many European countries, are also quite crypto-friendly. Again these things can change, so always check current laws. It seems unlikely at this time that countries such as the US and the UK will make digital currencies illegal. It is, in fact, more likely that they will try to impose more regulation on the industry, which is being widely called for in some circles. This could result in digital currencies having more a more defined legal status, but also more regulations attached to them.
How do I buy ethereum?
There are two common ways to buy (and sell) ETH online. It is available on many cryptocurrency exchanges, which are generally peer-to-peer marketplaces where you will be buying from other individuals who are speculating on cryptocurrencies. You can also trade ethereum at online brokerages that offer cryptocurrencies as tradable assets. You will often have to use bitcoin to buy ETH, so you may need to use your fiat currency (such as US dollars or euros) to buy bitcoin first, and then trade bitcoin for ETH at an exchange.
Cryptocurrency exchanges are popular and generally secure, though caution should always be used when making any kind of online investment. Setting up an account is usually quick and painless, and many exchanges will not even ask for verification, though some will have a simple verification process in place. It’s possible to get started buying digital currencies through an exchange with a relatively small amount of money, and most crypto exchanges operate 24/7, which is important, given that all digital currencies can be very volatile.
Always do your research and make sure that any online exchange or brokerage is reputable. This is harder to do when trading virtual currencies, given the unregulated nature of the industry. There are, however plenty of reviews and customer feedback online for the more popular exchanges. If you already have an online broker you trust and use for other trading and investing activities, and they offer digital currencies as a tradable asset, that is probably a good place for you to buy your cryptocurrencies from, to start with.
Is investing in ethereum a good idea?
Ethereum is unpredictable and volatile, with frequent price changes, and is not considered a particularly ‘safe bet’ when it comes to investing. However, many investors believe it is still undervalued, and the venture capital firm, Placeholder, announced in 2019 that according to its valuation model, it considered ethereum ‘hugely undervalued’ compared to similar platforms.
This is why many investors are willing to take on the risks associated with virtual currency, and put money into ethereum. Many of them are certainly hoping that the currency is indeed undervalued at present, and that the market value will increase substantially over time, as it did with Bitcoin. Cryptocurrencies are an investment that the highly risk-averse will almost always avoid, but for those investors willing to take risks and speculate, ethereum is an attractive option.
Investors who are aggressively investing in ETH certainly believe that it will pay off. While still a long way behind bitcoin in terms of popularity and common use, it is generally considered to be one of the more credible cryptocurrencies, with a long-term future. It has been developed on a stable platform that basically works as a launch pad for thousands of new tokens and Dapps, and it is commonly speculated that this makes it a potentially profitable investment.
How will ethereum develop in the future?
The creator of ethereum, Vitalik Buterin, has big plans for the future of the platform. He is active on social media and shares his views and plans openly. The immediate goal is to make the network even better and faster, and there is a ‘roadmap’ in place, called Ethereum 2.0. in order to do this. There are currently eight teams worldwide, working on Ethereum 2.0 to develop the platform further, eliminate known weaknesses, improve safety and security, and increase scalability.
The teams are also known to be looking at the issues around mining ethereum, with the goal of ensuring the currency can hold its value long term, in spite of the fact that it has been built on a system of unlimited availability. Ethereum tokens can be mined, or created, just as bitcoin and other virtual coins can. However, the company is putting systems in place to make significant changes to how ETH can be mined, and how rewards are calculated. In simple terms, this means that mining ethereum will become more difficult, with more complex calculations needed in order to create new coins, and reduced rewards for miners.
Using ethereum wallets
As with any digital currency, you will need somewhere to store your ETH coins. More accurately, As your coins are completely virtual, you will be storing the private keys associated with the tokens you currently own. It is possible to lose, misplace, or accidentally delete your private keys, and this is definitely something you want to guard against. Keys are not something that can be easily retrieved or recovered, like a lost password or other lost data. If you inadvertently delete your keys or somehow lose access to them, you have lost your currency permanently.
For this reason it is highly advisable to use a secure online wallet to store your Ethereum. There are both desktop wallets that run on your computer, and mobile wallets, which can be downloaded to your phone or other mobile device. Many modern investors opt for a mobile wallet, as it is just much more convenient for most people, but it is a little less secure.
For even better security than a desktop wallet, you can choose to store your ETH tokens in “cold storage” which means your keys are actually stored on a device that is not even connected to the internet. This is a very secure option as it is extremely difficult to illegally access or ‘hack’ a cold storage wallet. This makes it a viable option for more serious investors, who may want to store large amounts of coins, and may also want to store coins for a significant period of time, as a long-term speculative investment.
You may also come across something called a “hardware wallet”. These are less popular, but also considered very secure, at least from the point of view of being hacked. They are small devices, similar to memory sticks or cards. Your private keys are stored on the device and, as with cold storage wallets, the device is not connected to the internet so the possibility of the system being compromised by hackers is very low. The big potential drawback of this is that it is possible to lose a physical hardware wallet like this, so you need somewhere very safe to store the device. Ultimately, you are responsible for keeping your private keys safe, so it is vital to choose a secure option. If you somehow lose access to your keys, or your wallet is lost or hacked, you have little chance of recovering your coins.
Pros and cons of using ethereum
Ethereum is a fairly stable digital currency that has been carefully developed with the future in mind. There is a viable plan for how the blockchain that it is based on will develop in the future, and it has plenty of support within the business community. The ethereum platform is considered stable and scalable, and is also an open platform, allowing for constant developments, innovation and improvement. ETH is one of the five most popular digital coins, and while it is never possible to perfectly predict the future of a digital coin, many crypto investors are optimistic about the future of ethereum as a digital currency.
As with any digital currency, there are some drawbacks with ETH. It is not yet as popular and commonly used as bitcoin, and like any cryptocurrency, it is unregulated and outside the jurisdiction of any country or national bank, which is, of course, exactly what makes it so attractive to many unconventional investors. The platform and currency are much younger than bitcoin and some other virtual currencies, and still have a lot of growing to do, though this too is part of the attraction for many investors. There is speculation that the significant profits reaped by early bitcoin investors may someday be realised by those who invested in ETH at the beginning.
What can I use ethereum for?
As we have mentioned, ethereum was not actually developed to be an alternative method of payment. However, the tokens associated with it (ethers) have developed into an asset that can be bought, sold, traded, and spent in various ways. As many crypto investors know, even common alternative coins such as bitcoin are not widely accepted by online retail outlets, and ETH are even more uncommon. It is, however, possible to trade ETH for goods and services. The coins can be transferred to anyone who has an ethereum wallet set up online, and the system is very efficient when it comes to peer-to-peer transactions, generally proving to be faster and cheaper than bitcoin.
ETH also facilitates ‘smart contracts’ that build certain pre-agreed parameters into a transaction and prevent the movement of funds until these criteria have been met. It is possible to search within peer-to-peer marketplaces and online crypto communities to find someone who is willing to trade goods and services for ETH. Alternatively, of course, your ETH can always be used to buy other cryptocurrencies and fiat currencies via online exchanges and brokerages.
Online gambling enthusiasts will already be aware that bitcoin gambling is now offered right here at Bitcasino, with specialist games such as Bitcoin poker and Bitcoin slots available to those who prefer to fund their player accounts with their virtual coins. However, ethereum could well be the way forward, with smart contracts offering an extra layer of security and the in-built ability to exchange ETH easily and cheaply.
It’s fair to assume that ethereum games are set to become more and more common. Here at Bitcasino, we already have the facility to fund your online account with ethereum, allowing you to use your ethereum to gain access to a huge variety of online games at one of the most popular crypto casinos around.
Why use ethereum for online gambling?
There are many benefits, both direct and indirect, to using cryptocurrencies when gambling online. Deposits and withdrawal processes are generally faster and often cheaper, there is increased security in using crypto wallets, and it may be possible to use smart contracts when arranging ethereum transactions.
Gaming with cryptocurrency can also reduce the amount of data that needs to be collected and stored, providing more privacy and better data security overall. When signing up for a Bitcasino account, you can fund their accounts with any of our accepted digital currencies without the need to disclose your personal details. This means that even if the system were to be compromised, there is no personal data to be accessed, and in practice, the blockchain technology used by cryptocurrencies makes accessing crypto funds extremely difficult for hackers.
Depending on where you live, there may also be tax advantages to gaming with cryptocurrencies. Many countries do not levy income tax on winnings from online gaming taken in digital currency, though you should always check the tax laws for your country of residence when it comes to winnings from online casinos and other forms of gambling.
Lastly, cryptocurrency gambling can reduce operating costs for online casinos, a benefit that they can then pass on to the customer by reducing fees and charges. There are already low (and often no) transaction fees on depositing and withdrawing cryptocurrencies at online casinos. More players using digital currencies may well lead to cheaper online gaming for everyone.
Ready to start gaming online using cryptocurrencies? Sign up at Bitcasino today to play a wide variety of casino games using ethereum or bitcoin, or try our ‘play for fun’ feature first.
Words: Sean McNulty