Everything you need to know about the ins-and-outs of ethereum – plus the steps you need to follow to start trading its token, ether.
Interested in ethereum trading with IG?
CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.
How to trade ethereum
As one of the first examples of how bitcoin’s blockchain technology could be enhanced to new functions, Ethereum has garnered a lot of attention since its creation in 2015. And for ether, its cryptocurrency, that attention has led to major volatility.
Although people commonly say they are trading Ethereum, they're actually trading it’s token, ether.
If you’d like to start taking advantage of that volatility, follow these three steps:
Ways to deal ether
There are two main ways to take advantage of ether volatility: buying it or trading on its price movements. Here's a quick introduction to the two:
- Buying ether: you can purchase ether by opening an exchange account and buying the currency in the hope that its price increases and you can sell it on. You're buying outright, so you’ll need to pay the full cost upfront.
- Leveraged trading: by using a leveraged trading account, you won’t have to put down the full value of your position upfront – so you can get much larger exposure with only a fraction of the capital. Your profit or loss will be based on the full size of your position, so both profits and losses can be magnified.
CFDs offer leveraged trading on ether alongside several other major cryptocurrencies, and there are unique benefits CFDs offer:
Ether CFDs
A CFD or ‘contract for difference’ is an agreement to exchange the difference in price of ether from when you opened your position to when you close it. Buy CFDs to go long, or sell them to go short.
Find out more about CFD trading
How does Ethereum work?
Ethereum works as a digital platform which adopts the blockchain technology established by bitcoin, and expands its use to accommodate a wide variety of other applications. It is not to be confused with ether – the cryptocurrency underpinning the network – which is often referred to as ethereum.
How does ether work?
Ether, like other cryptocurrencies, uses a shared digital ledger where all ether transactions are recorded. It is publically accessible, fully transparent and very difficult to alter retroactively.
This is known as the blockchain, and it is created through the process of mining.
Miners are responsible for verifying clusters of ether transactions to form ‘blocks’, and securing them cryptographically by solving complex algorithms. New blocks are then linked to the chain of previous blocks, and the miner in question earns themselves a ‘block reward’ – that is, a set number of ether tokens.
The miner consolidates recent cryptocurrency transactions into a 'block'.
The block is cryptographically secured and linked to the existing blockchain.
The miner earns a block reward, which they can inject directly back into the market.
What about Ethereum?
The Ethereum blockchain is very similar to that of bitcoin, but its programming language enables developers to write software through which blockchain transactions manage and automate specific outcomes. This software is known as a smart contract.
If a traditional contract outlines the terms of a relationship, a smart contract ensures those terms are fulfilled by writing them in code. It is software that automatically executes the agreement as soon as predefined conditions are met, eliminating the delay and expense involved in completing a deal manually.
To take a simple example, an Ethereum user could create a smart contract to send a certain amount of ether to a friend on a certain date. They would write this code into the blockchain, and as soon as the contract is complete – that is, the agreed date arrives – the ether would automatically be released to the other party.
A fixed number of anonymous parties agree to a set of terms, and a contract is coded into the blockchain.
The triggering event takes place, and the contract is fulfilled.
The terms of the agreement are carried out among the relevant parties.
This fundamental idea can be applied to far more complex setups, and its potential is arguably limitless, with projects already making headway in the areas of insurance, property, financial services, legal and crowdfunding.
What are dapps?
Dapps (sometimes written ‘DApps’), are decentralised applications that run on the Ethereum network. They function in a similar way to smart contracts, but they don’t add any information to the blockchain. That means that there are a couple of key differences between the two:
- Where smart contracts require a fixed number of parties to be involved, dapps have no limits on how many can participate at any given time
- Dapps aren’t confined to purely financial uses as smart contracts are: a dapp can essentially have any purpose that comes to mind
What moves ether’s price?
Ethereum is less exposed to many of the economic and political factors which affect traditional currencies, but its value is influenced by a host of unique dynamics:
Market manipulation
A lack of regulation means traders may be able to influence the market by buying and selling in significant quantities.
Availability
Unlike bitcoin, there is no limit on the supply of ether. Even so, many ether units will continue to be added and lost over time, causing its availability to fluctuate.
Wider acceptance
The ether ecosystem is constantly changing as adoption of the cryptocurrency grows, both among independent investors and those in industry.
Government regulation
Governments are still adapting to cryptocurrencies, with considerations for supervision mechanisms and other new guidelines.
Media coverage
Negative press, particularly surrounding security lapses and hacks, can impact public perception of ether’s value.
Technological advances
Ether’s integration into payment systems, crowdfunding platforms and more could raise its profile, while confidence in traditional systems may begin to erode.
FAQs
What is ether’s ticker symbol?
The ticker symbol for ether is ETH.
Will ether overtake bitcoin?
Of all the cryptocurrencies, ether currently seems most likely to take bitcoin’s place at the top of the pecking order. Bitcoin has seen much of its market share erode over 2017 to the young upstart, and there is every chance ether could continue to make significant gains in the next few months, eventually bringing about what’s known as ‘the flippening.’
Some, however, are sceptical this will ever happen. Bitcoin’s sole function is as a currency, while ether’s primary function is to facilitate smart contracts and dapps. This means its reputation as a viable alternative currency may begin to falter.
Is there a limit to the amount of ether that will be released?
There’s no limit to the amount of ether units that will be released overall, but there is an annual limit of 18 million. This ensures there is never more than a steady influx of ether into the market, even as computing power improves.
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