As a beginner in cryptocurrency, you're going to come in knowing about Bitcoin. Maybe you heard about it in the news, or read an article on a random website. You may not have heard of the undisputed second place cryptocurrency; Ethereum. I trade with Ethereum as my base currency, and I have far more faith in the project than I ever did in Bitcoin. Ethereum is a “Proof of Work” blockchain system that is designed to run smart contracts. For someone just coming into the cryptocurrency scene, the previous sentence is going to be complete gibberish. So let's break it down, bit by bit.
The Ethereum Project
The Ethereum Project is the main focus of the Ethereum Foundation, a Swiss non-profit that wishes to help decentralize and protect the freedoms of the Internet. Their initial funding came from a pre-sale of Ether tokens in 2014, and they have since grown exponentially to become one of the base cryptocurrencies used for trading pairs.
Proof of Work
Cryptocurrencies and tokens are created in one of two ways, currently. They are either proof of work, or proof of stake. Ethereum is proof of work. This means that ether is awarded based on completion of tasks for the network. These tasks can either be arbitrary algorithms, crunching math equations for the sole purpose of providing “work”, or they can be running smart contracts for someone that has spent the ether required.
Smart Contracts
Smart contracts can be a hard concept to grasp, but only because the cryptocurrency world despises simple explanations. A smart contract is a reserved amount of computational process funded by ether. The Ethereum network is, at all times, processing algorithms to create “work” for the mining nodes. By spending ether, anyone can create a smart contract that can execute a specific command at a specific time. These smart contracts cannot be interfered with from the outside, thereby providing a secure method to accomplish those computational processes.
The example I see used most often is that of a “digital will” designed to execute a transfer of funds at a later date. The transfer cannot be interfered with, thus providing complete security.
So why Ethereum?
Ethereum is a stable cryptocurrency with a solid rate of return and a true purpose behind its existence. I would never claim that cryptocurrency is a safe market, but Ethereum is the safest it's going to get anytime soon. I use Ethereum as my base currency, trading in and out of it to purchase alt coins – and so far that's worked out fairly well for me.
But why not?
Ethereum has a very high price, sitting at around $1100 as I write this article. That's not necessarily a problem, but it does make it unlikely that you'll see the absurdly high profits that most people talk about in cryptocurrency. If you are day trading, look elsewhere, but as a mid-term investment, Ethereum can be very solid.
This is the first part of my series of basic primers for cryptocurrency. If you found it useful, interesting or just like my style - consider following me!