What Ethereum Is and What It Does

The cryptocurrency markets are on fire once again.

The total value of all major cryptocurrencies just hit $126 billion.

Ten of these digital assets now have a $1 billion-plus market cap (total value of coins in circulation). Bitcoin accounts for $55 billion of the total. Ethereum accounts for $28 billion.

We’re at, or near, all-time highs in just about everything.

Not surprisingly, most of the questions I’ve been getting from friends and readers lately aren’t about bitcoin. Most people seem to grasp the basics of the original cryptocurrency at this point.

So today I’m going to talk about the second-largest cryptocurrency asset: Ethereum.

Ethereum 101

The crypto ticker for Ethereum is ETH. Its tradable asset is called both “ether” and “Ethereum,” but don’t let that confuse you. They’re used interchangeably.

Technically, “Ethereum” refers to the whole network (platform). Ether is the currency that runs it – the “gas” for the computational engines.

Ethereum has its own coding language called Solidity. In it, Ethereum developers write “smart contracts.”

Ethereum was founded by 23-year-old Vitalik Buterin. Since going live in July 2015, Ethereum has taken off like a rocket. It has risen from less than $10 late last year to $298 today.

The most popular use of Ethereum today is through initial coin offerings (ICOs). An ICO is when a new cryptocurrency offers its coins for sale to the public. It’s also called a token or coin sale.

When you buy new coins in an ICO, it often happens on the Ethereum network. You buy the new currency using ether.

So to participate in ICOs, you usually have to buy ether on cryptocurrency exchanges. This creates sporadic demand for ether from ICO participants. However, the funds raised in an ICO will eventually be sold to pay for software development and other overhead expenses.

Smart Contracts

The Ethereum platform allows developers to build distributed applications on top of it. Running these applications costs tiny amounts of ether. This incentivizes developers to write efficient code and helps eliminate spam and malicious traffic.

To use my earlier example, smart contracts are used to process coin and token purchases during ICOs. You send ether from your wallet to a specific address, and the contract records your purchase on the blockchain and sends you the new tokens.

These smart contracts have all sorts of advanced features, including escrow, anti-spam measures, transparency and more innovations all the time.

ICOs have seen an explosion of activity so far in 2017. New coins and tokens are launching every day. Crypto startups have already raised $1.27 billion using ICOs in the first half of 2017, according to CNBC.

ICOs are just one example of how Ethereum can be used. The network hosts thousands of applications.

The possibilities are endless, but to give you an idea, let’s look at one interesting project: Golem.

Golem (GNT) is a distributed supercomputer. It runs on users’ computers and contributes processing power to a global network. The processing power is then sold in a marketplace.

Golem’s own cryptocurrency runs its network. You buy and sell computing power with it. Golem’s coders are paid in GNT, so they have a vested interest in the project’s success.

Golem is still in a developmental stage, but it’s a fascinating example of what the Ethereum network can do.

There are so many interesting blockchain-based projects like Ethereum and Golem. Each has its own currency and purpose.

I truly believe that cryptocurrencies like Ethereum have long-term staying power. It’s exactly the sort of early-stage investment opportunity – with huge long-term potential – that we cover in our research service First Stage Investor.

I just recommended four cryptocurrencies, out of hundreds, to members of First Stage Investor. To find out what they are, and to continue your education on cryptocurrency, click here.

Good investing,

Adam Sharp
Founder, Early Investing