Dummies Guide to Ethereum: What is Ethereum, How it works and How to Buy & Store ETH Tokens
We all have heard about the blockchain technology which is most commonly associated with Bitcoins but it has several other applications apart from digital currencies. In fact, Bitcoin is currently just one of the many applications that employ blockchain technology.
Although until sometime, the building of blockchain technology required complex coding, mathematics, cryptography and other important resources, this is not the case anymore. Ethereum allows developers to build decentralized applications like electronic voting, digital trading and regulatory of property assets, and so on.
All these new systems and applications can be developed easily using the Ethereum platform and can be deployed even quicker. Ethereum is an open software platform which utilizes the blockchain technology and provides the developers with a tool to build their own decentralized applications quickly and efficiently.
Let’s take a look at what Ethereum is all about and how one can benefit from using this platform.
- What is Ethereum
- How Ethereum Works
- Team Behind Ethereum
- What are ETH Tokens
- How to Setup Ethereum Wallet
- How to Buy Ether
- How to Store Ethereum
What is Ethereum?
An Ethereum is a distributed public blockchain network and focuses on running the programming code of any decentralized application built on it. Ethereum aims to decentralize the existing client-server model and replaces the internet third parties which are responsible for storing data, transferring funds, and keeping track of the transactions.
It is a decentralized platform which implements smart contracts, which are applications that execute as programmed without any downtime, fraud, or third-party interference. Here are a few key features of Ethereum:
Develop your Own Cryptocurrency
One of the best things about Ethereum blockchain is that it gives users the freedom to create their own tradeable tokens which can be employed as a currency or an asset. Since the tokens on this blockchain employ standard coin API, you don’t have to worry about your contract being compatible with any wallet or exchange which uses this standard.
Initiate Your Own Project
Another key feature of Ethereum is that you can use this platform to create your own contracts which will hold the contributor’s investment until a mentioned goal or date is accomplished. So, you can kickstart your project without having to worry about investors anymore. If your project is successful, then the funds will be given to the project owners else they will be returned back to the contributors.
Make an Autonomous System
Once you have started your project on Ethereum blockchain, you can create a team using the Ethereum contracts which is a more transparent and reliable process. Since a robot will be handling all the delegates selection, you don’t have to worry about any kind of external influence.
Create a new Decentralized Application
As we have mentioned before, you can use Ethereum to build your own decentralized network and applications for a secure and tamper-proof system. You can help other developers or you can build your own application from scratch, Ethereum platform gives you the means to do that.
How Ethereum works?
Ethereum blockchain records every transaction with the help of nodes that are present all over the network. So, the nodes store the most recent smart contract state along with the other ether transactions.
For every application present on this blockchain, the network needs to record the current state of the smart contracts which includes user’s balance, smart contract code and the location of its storage.
Team Behind Ethereum
Ethereum’s Foundation Team consists of three major leaders: Vitalik Buterin, Ming Chan, and Jeffrey Wilcke. Vitalik Buterin is the creator of Ethereum platform who initially started working for the Bitcoin Magazine and garnered a deep interest in the blockchain technology. He then looked at the existing blockchain platform and released a whitepaper in 2013 to design Ethereum platform where any kind of decentralized app could be built. Currently, he leads a team of researchers who focus on improving the Ethereum protocol.
Jeffrey Wilcke is one of the founders of Ethereum who use Go programming to implement the Ethereum platform and leads a team of Go developers who work in this area.
Ming Chan is an alumnus of MIT who has a profound knowledge in the field of IT and management. She has a deep interest in blockchain technology and is currently the Executive Director of Ethereum platform.
What is Ether (ETH) Token?
Ether is the token used on Ethereum system to pay for computational resources and is a key part of running your decentralized application or program. It is similar to the function of a Bitcoin and doesn’t need any third party vendor to approve or process the blockchain transaction.
However, Ether doesn’t act as digital currency and works more as a fuel for the decentralized apps available on the Ethereum network.
Basically, Ether acts as a gas which is paid for every transaction and will ensure that your transaction or action gets completed to enhance your experience. You cannot perform any task on the Ethereum blockchain without paying some gas amount for it. Another important thing to note about Ether is that while Bitcoin has a limited funding of 21 million bitcoins, Ether has no limitation.
How to Setup an Ethereum wallet
In order to use the Ethereum platform, you need to own Ether which is the primary digital currency used on this platform. For this, you will first need a wallet where you can safely and securely store your Ether coins. One of the easiest and most convenient Ethereum wallets that you can utilize to store your Ether is MyEtherWallet which is an Ethereum wallet. This means that you can use this wallet to store any coin on the Ethereum blockchain including Ether.
Here is a quick guide to how you can set up your Ethereum wallet:
- Navigate to the website of MyEtherWallet and then enter a password followed by pressing of a button ‘Create a New Wallet’.
- Press ‘Download Keystore File’ in order to save your keystore file. Make sure that you keep it safe and secure as this will be used to open your wallet.
- Once you have saved your keystore file, click on ‘I understand. Continue’ button to continue.
- You will be presented with a powerful private key in an unencrypted format. Save this and delete its reference else anyone who has access to this private key will be able to unlock your wallet.
- Then click on ‘Save the address’ button and upload your downloaded keystore file to open your wallet.
- You will be presented with your wallet address, copy this address and save it in a secure place.
Congratulations! Your Ethereum wallet is now successfully set up and can be used to store Ether. However, to store Ether, you will need to first purchase it from an exchange like Coinbase, Local Bitcoins, Bitfinex, etc.
How to Buy Ether
Once you have chosen a suitable exchange for yourself, you will need to sign up and create an account there in order to continue. We will be choosing Coinbase as our exchange for this guide, just follow the below steps to create your account on it:
- Go to the Coinbase homepage and click on the ‘Sign Up’ button that can be found on the top right corner of the web page.
- Now, fill out your name, password, email, and location and click ‘Create Account’ button.
- You will also need to verify your account by providing your photo ID, phone number, and your payment details like the credit/debit card or the bank account that you are likely to use for the transactions.
- Once your account and your payment details are verified, you need to choose the ‘Buy/Sell’ menu from the top menu and then select Ethereum.
- Now, enter the amount of local currency that you wish to use or the number of coins that you wish to buy. Once it is confirmed, press the ‘Buy’ button to continue.
- You will be asked to confirm your Ethereum purchase by clicking ‘Confirm Buy’ button.
Note: In case Coinbase doesn’t work out for you, you can try out CoinMama.com, another top-notch exchange for purchasing both Ethereum and Bitcoins.
How to Store Ethereum
Once you own some Ethereum, it is important that you immediately transfer it to your personal wallet in order to keep it safe and secure. Don’t worry, transferring your Ethereum coins from an exchange to your personal wallet is an easy and convenient task and takes just a couple of minutes.
Here is a quick guide to help you out with the moving of your Ethereum coins from Coinbase to your personal wallet.
- Log in to your Coinbase account using your email and password.
- Then, navigate to the Accounts page from the top menu and search for your Ethereum wallet on the left-hand column.
- Click ‘Send’ to transfer your Ethereum funds.
- Now, enter your personal wallet address in the ‘Recipient’ box and the amount of Ethereum funds that you wish to transfer. You can choose ‘Max’ if you want to transfer all your Ether coins.
- Click on ‘Continue’ and then confirm the transaction via password or phone.
- Go to your MyEtherWallet account and you will Ethereum tokens under your Account balance.
Once you have followed this process, it becomes easier for you to send your ETH tokens to other wallets. You just need to follow the below steps:
- Login to your MyEtherWallet using your private key or keystore file.
- Go to Accounts and then enter the wallet address of the receiving wallet, amount of Ethereum you wish to send and click on ‘Generate Transaction’.
- You will see a dialog box displaying your transaction, confirm the transaction by clicking on ‘Yes, I am sure! Make transaction.’
- You will now see a green box with your transaction details on which you can click on View TX to confirm your transaction has been processed.
In case you’re looking for a safer option to store Ethereum hardware wallets such as Ledger Nano S and Ledger Blue provide unmatched safety and security features. These wallets fit into your device like a USB stick and require a PIN for access which can be chosen during the setup.