Move over, bitcoin: A new cryptocurrency named Ethereum is coming for your spot.
You’ve likely heard a lot about the cryptocurrency Ethereum lately. Launched in 2015, Ethereum has risen dramatically in value over the past year. On January 1, 2017, one Ethereum coin was worth just over $10. By August 29, 2017, a single coin was worth $370. Those are some serious gains -- a massive 3,600 percent increase, to be exact.
But before you start dreaming of retiring early with a Scrooge McDuck money bin full of Ethereum, there’s a lot you need to know first. Here’s where you can get Ethereum, why you would want to -- and maybe more importantly, why you might not.
How do you get Ethereum coins?
There are two main ways you can get Ethereum coins: You can either buy them from an exchange such as Coinbase, or "mine" them using your computer. But if you think you’ll get rich off your laptop while you stream Netflix, though, you’re sadly mistaken. Only expensive, dedicated computer rigs with powerful hardware can mine Ethereum at scale. Otherwise, mining for cryptocurrency at home might cost you more in electricity than you’ll make.
Because Ethereum is a digital currency, you store your coins like you would an important data file. Cryptocurrency can be held in an online account, on a USB drive you keep in a safe, or in a digital wallet app on your computer or phone. You can even print out Ethereum notes on paper, complete with redemption codes for your friends.
But remember: Because coins are stored like data, it’s important to make a backup copy to protect them, just like you would for a cherished save of your favorite Mario game. You don’t want your valuable coins to disappear forever just because of a hard drive failure!
How do Ethereum transactions work?
One reason why Ethereum is getting popular is the advanced tech behind it. Unlike bitcoin, Ethereum supports "smart contracts." That just means you can add an extra layer of computer-coded protection in every transaction.
Imagine that you’d like to buy my house for 1,000 Ethereum. (Good luck with that, by the way.) I can set up a smart contract that will electronically transfer my deed to you, but only when you pay that exact amount to a certain address within a certain period of time. This protects the both of us without the need of a middleman: Your 1,000 coins aren’t transferred to me until my deed gets transferred to you.
Once completed, the transaction will be recorded on the Ethereum blockchain, which is just a fancy term for a global ledger of all Ethereum transactions. This way, government officials and other regulators can inspect our transaction for funny business. Recording transactions in the blockchain also prevents you from spending the same coin twice.
There are a couple of big drawbacks to Ethereum transactions. The more requirements you put behind a transaction, the harder it is to set up. And because transactions can be made anonymously, you might be out of luck if a completed transaction goes sour.
What are the other benefits of Ethereum?
Ethereum offers many of the same benefits of bitcoin and other similar cryptocurrencies. It’s both open source and anonymous, offering you privacy in your transactions. And because cryptocurrency isn’t controlled by any government, Ethereum is protected from little inconveniences like violent political revolution.
Additionally, Ethereum is unique in that it’s supported by a bunch of major companies working on Ethereum apps, including Microsoft, Intel, Cisco Systems, JPMorgan Chase, and Mastercard.
What are the drawbacks of Ethereum?
For all its benefits, though, there are some serious drawbacks to the Ethereum cryptocurrency. Its value is highly volatile, famously dropping from $319 per coin to $0.10 in a matter of seconds during a flash crash in 2017. The price rebounded quickly, but many traders still lost money. That kind of crash is rare, but still, it’s not unusual for the value of Ethereum to change by more than 10 percent in a single day. You could lose a fortune in weeks, days, or even minutes.
Ethereum is a very risky place to put your money. Because of its corporate backing and advantages over bitcoin, Ethereum could become a household name … or another coin or technology could just rise up and wipe it out.
And if you’re thinking about switching from dollars to Ethereum for your day-to-day purchases, think again. Aside from a few specialty websites that cater to cryptocurrency hobbyists, it’s hard to find companies that will take Ethereum as payment. The true value of Ethereum lies in its future uses, so be cautious while investing. Never risk money you can’t stand to lose!