What is Ethereum? A beginner’s guide
Note: this post has been updated. You can now buy and sell Ethereum with Luno.
Recently we’ve seen a renewed interest in Ethereum from our customers. Like Bitcoin, Ethereum (or ETH, the underlying currency) has soared to an all-new record high over the past few weeks as more and more people warm up to the possibilities Ethereum provides.
At Luno, we support Bitcoin, the dominant cryptocurrency, and Ethereum, the second largest.
Ethereum and Ether
People often use the terms Ethereum and Ether interchangeably. However, they are different.
Ethereum is the smart contract network, whereas Ether is the token or currency needed to fuel it. With many new technologies and names, most people (including Luno) call both “Ethereum” and use the currency code ETH.
Ethereum aims to make everyday life more efficient and cost effective by automating everyday processes and removing middlemen from the systems we use. This could be to the legal system, the financial system, computer systems or more.
With Bitcoin, both the network and the currency are called “Bitcoin.”
Ethereum at a glance
Ethereum is an open-source platform, based on blockchain technology, allowing software developers to build smart contracts and decentralised applications.
Whereas Bitcoin is a currency (a store of wealth and a means of payment), Ethereum is a software platform.
Where Bitcoin stores a list of balances and transactions on its blockchain, the Ethereum blockchain is designed to store different types of data. This data can be accessed and used by computer programs running on the Ethereum blockchain. These programs are called decentralized apps, or dapps.
Ethereum can be bought, sold, traded and stored on platforms like Luno in the same way as Bitcoin.The creators of Ethereum never intended it to be a currency like Bitcoin. Supply consistency is not guaranteed.
Ethereum was first mentioned in 2013 in a whitepaper by Vitalik Buterin, a developer who was working on Bitcoin at the time. Buterin believed that Bitcoin should be made more customisable. He believed Bitcoin should go a step further than simply being a store of wealth and that it needed smart contract features to determine automatically when payments should occur, for example. This project was not taken up for Bitcoin, therefore Buterin created Ethereum in 2014 for this purpose.
What is a smart contract?
A smart contract is computer code that promotes the exchange of value; such as money, content, equity shares or even property rights.
These contracts automatically execute when their terms are met. They handle enforcement, management, performance and payment, like a self-operating computer program.
Ethereum and the future
Ethereum is full of possibilities. It may have the power to disrupt hundreds of industries, with new ideas emerging all the time.
Recently, the United Nations announced it would use Ethereum to distribute funds to refugees from the World Food Program. Use of the blockchain cuts out the middlemen. It’s cheap and efficient. Using Ethereum, companies don’t need to be controlled by one person or group.
Known as a decentralised application, or ‘dapp’, next-generation developers are creating ground-breaking apps with the ability to replace everything from companies and services to governments.
Although this all sounds amazing, be cautious as you consider Ethereum and its possibilities. There’s a lot of hype around.
? You can learn more about this in our piece on why most ‘blockchain’ applications are bound to fail. Luno is still team-Bitcoin (for now) as it has unbeatable advantages.
However, we kept a close eye on Ethereum and decided to add it to Luno as the technology has developed far enough and shows genuine promise.
How to buy Ethereum with Luno
To buy cryptocurrencies like Ethereum with Luno you need to have done two things:
Once that is done you simply need to do the following to execute a simple buy transaction:
- Sign in to Luno and select BUY from the top navigation on the home screen
- Choose the currency you want to buy: Ethereum
- Choose which currency you want to spend: Bitcoin or your local currency
- Enter the amount
- Review the transaction (which shows the exchange rate and the amount of Ethereum you’ll receive)
- Select NEXT, review the details and confirm
- ? You just bought your first Ethereum!
After your buy order has completed, you can go to TRANSACTIONS from the MENU for more information.
Since day one, we’ve been keeping a close eye on the progress, use cases and adoption of Ethereum, all around the world. We’ll keep monitoring the payment and cryptocurrency landscape, keep listening to our customers and keep working hard with the community building the financial system of the future.