Is Ethereum safe for investment

What is Ethereum, what is it used for, and how to invest

The price of the digital currency Ether (ETH) has recently exploded. For people outside of the crypto community, there are some open questions about Bitcoin's little brother: What is Ethereum? How is it different from Bitcoin? What is it used for? And where can you buy the cryptocurrency? DER STANDARD has therefore created a question-and-answer guide for Ethereum beginners.

Question: What is ethereum

Answer: Ethereum is a decentralized blockchain with smart contract functionality. The associated cryptocurrency is called Ether (ETH). In terms of market capitalization, ETH is the second largest cryptocurrency after Bitcoin.

Question: Okay, that was a bit too much technology gibberish ... Therefore, asked a little differently: What is the difference between Ethereum and Bitcoin?

Answer: A lot. First of all, there is the question of authorship. Bitcoin has been around since 2008, and the inventor is still anonymous. With Ethereum, on the other hand, the founding story is less mysterious: the programmer Vitalik Buterin had the idea in 2013, there was crowdfunding for Ethereum in 2014, and on July 30, 2015, Ethereum went online with 72 million coins.

Question: Coins? Then the doorbell rings ... so is ether a cryptocurrency like Bitcoin?

Answer: Yes and no. Because Buterin's primary goal with Ethereum was not to create a digital means of payment, but rather a way of coupling values ​​from real value - such as investments or real estate - to the blockchain. That brings us back to the aforementioned smart contracts ("smart contracts"): Contracts can also be recorded on the blockchain with the help of Ethereum.

Question: Now a refresher question arises: How does the blockchain actually work?

Answer: The simplest and by far the shortest explanation for the blockchain is: It's a database. Finished. But it is not a normal database in which anyone can edit any field as they wish, but rather "blocks" are lined up in a "chain". If a new block is added to the chain, the previous blocks can no longer be changed. The blocks, in turn, are generated by computers distributed around the world solving complex tasks - hence the term "decentralized". As a "reward" for solving the task, they are paid in Bitcoin or in Ether. This process is also known as "mining" and evidence of the service provided is called "proof of work".

Question: And what is Ethereum doing now with the blockchain?

Answer: Every program that runs on Ethereum regularly checks the status of the Ethereum blockchain. With Bitcoin, only financial values ​​are stored in the blockchain. With Ethereum, on the other hand, other values ​​also - and how these change after a booking.

Question: Please explain to me again about the "decentralized network".

Answer: Since the database does not belong to anyone, but is based on a network of computers distributed around the world, content cannot be deleted or censored by individual institutions - this would require the entire network to be switched off, which is not possible with so many computers distributed around the world. A single server, on the other hand, could be quickly removed from the network if there were central storage.

Question: Short question: where does the name Ethereum come from?

Answer: Wikipedia says that Buterin chose the name when he read articles about science fiction on Wikipedia: He liked the idea of ​​"ether" - the former belief in an invisible medium through which light spreads in the universe . Ethereum should also be the medium on which various applications run.

Question: Because it's a bit confusing: what exactly is Ethereum now, and what is Ether?

Answer: This is often confused. It is correct: Ethereum is the network, Ether is the currency.

Question: And now back to the application: What can Ethereum be used for?

Answer: For example, for a so-called smart contract for a holiday apartment or in car sharing: Here, a person can be granted short-term access to a car or an apartment. This status is recorded in the blockchain, where it cannot be subsequently manipulated by fraudsters. At the same time, numerous IT companies are experimenting with running their software on Ethereum. And then there is the possibility of creating so-called non-fungible tokens (NFTs).

Question: NFTs? That seems familiar to me ...

Answer: Probably because DER STANDARD has already published a question / answer on this topic under this link. Or we have recorded a "Topic of the Day" podcast episode about NFTs under this link. The principle of NFTs is briefly summarized here: Most tokens are fungible, i.e. deliberately designed in such a way that they are identical, divisible and exchangeable like a currency. Non-fungible tokens, on the other hand, are unique. Each NFT exists only once in the blockchain and represents ownership of something very specific - for example, a work of art that only exists once.

Question: And the NFTs are now the reason why the ETH price has risen so much?

Answer: Yes, at least that's what some financial analysts say. Because in the past few months there has been a real hype around NFTs and digital works of art. The other use cases - such as smart contracts - are also gaining in importance, and more and more applications are being developed. At the end of April, the European Investment Bank (EIB) even launched a digital bond on Ethereum. All of this drives interest in ETH. In addition, the Bitcoin price has recently exploded, which is also increasingly bringing other crypto currencies into the limelight.

Question: I want to speculate with Ethereum. Where can I buy it?

Answer: You can't buy Ethereum.

Question: Okay ... where can I buy ether?

Answer: There are numerous providers who, in addition to Bitcoin, also offer various other crypto currencies for trading - including Ether. Two of these providers are, for example, Coinbase, which is now listed, and Bitpanda, which is based in Vienna.

Question: What if I don't trust these platforms?

Answer: Then there is still the option of investing indirectly through a conventional broker. This is done via so-called Exchange Traded Funds (ETFs), which map the Ethereum rate. The ETF can then be found in your own portfolio, similar to stocks and other securities.

Question: How will the course develop further?

Answer: Nobody knows. And anyone who claims otherwise is lying. (Stefan Mey, 6.5.2021)