Ethereum: What Is It and how to Trade it?

by: Mohammad Hafiz
ethereum

Content

What is Ethereum?
A few words about a blockchain
Smart contracts as a basis of Ethereum
Opportunities and areas of use of Ethereum
How and where to trade ether?
What strategies to use for trading?
Trading with the cryptocurrency pairs
Conclusion

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Today, the digital currency of Ether is considered to be one of the most interesting cryptocurrencies on the market. In fact, this is the second digitized currency after Bitcoin, the value of which continues to increase at a crazy pace – this trend undoubtedly causes keen interest among investors, miners, and even financial traders. In the article, we’ll figure out what Ethereum / Ether is, and how to get the maximum profit from it in the modern realities of the market.

What is Ethereum?

The 19-year-old prodigy Vitalik Buterin developed the software, which today has become one of the most popular in the cryptocurrency crowd. It is called Ethereum.

Vitalik_Buterin
Vitalik Buterin

Ethereum (ether) is simultaneously a cryptocurrency and a functional decentralized environment that has truly revolutionized the entire IT-sphere. If we adhere to dogmatic terminology, Ethereum is a platform for creating and operating decentralized applications based on blockchain using smart contracts.

The internal currency of the platform is ether. The abbreviation is ETH. Ethers are used not only as a payment unit. They also guarantee the execution of smart contracts, playing the role of such a “fuel” for the network.

A few words about a blockchain

If you do not go deep, then the very principle of a blockchain is quite simple. It can be represented as a book of account, which each participant of the event has and which is constantly updated. In fact, in this book, you can enter any event, either financial transactions with Bitcoin, Ethereum cryptocurrencies, or the results of voting in presidential elections or identification data.

The blockchain feature is that the pages (blocks) of this book are simultaneously stored by all users of the network, are constantly updated and refer to the old pages. And if someone tries to deceive the system by tearing out or pasting a page into the book, then the system immediately turns to tens of thousands of other versions of this book and discovers a discrepancy in the structure of the blocks.

ethereum blockchain

That is, the blockchain is a way of storing data or a digital register of transactions, deals, contracts. One may store in the blockchain data on loans issued, property rights, traffic violations, marriages. That is, almost everything. Its main difference and the undeniable advantage is that this registry is not stored in one place. It is distributed among several hundreds and even thousands of computers all over the world. Any user of this network can have free access to the current version of the registry, which makes it transparent to all participants.

In the blockchain technology, the security at the database level is originally built. For the first time, it was realized in 2009 as a component of the Bitcoin digital currency, where the blockchain is the main general register for all operations. Thanks to the blockchain technology, Bitcoin has become the first digital currency that solves the problem of double expenses (unlike physical coins or tokens, electronic files can be duplicated and spent twice) without using any authority or central server.

Smart contracts as a basis of Ethereum

Earlier I’ve mentioned the concept of a smart contract as one of the foundations of Ethereum. It is a computer algorithm that ensures that contracts are held inside the blockchain. Smart contracts are built in such a way that the performance of a certain action occurs only when certain conditions are met.

It is the smart contracts that underlie all ICOs, guaranteeing the automatic crediting of tokens to investors after the transfer of the ether to the indicated purses.

*ICO is a relatively new form of investment, the emergence of which is associated with the development of a cryptocurrency. The term itself is an abbreviation for Initial Coin Offering. In simple words, ICO is the cryptocurrency crowdfunding, that is, collecting money for something on the side. Often the projects, which in some way are related to the technology of blockchain and cryptocurrency, are involved in ICO.

smart contract

The work of a smart contract can be explained on a simple example with renting an apartment. The obligatory condition of using a housing accommodation is a payment. If the tenant pays, then he can surely use the accommodation. If not, then a theoretically smart contract can be programmed to lock the doors. And a person simply cannot get into the apartment until the moment he pays the rent. The example is conditional, but it explains the purpose and principle of smart contracts. The smart contract guarantees decentralization because the tenant and the lessor cooperate directly. Without bank checks, bills and so on.

Smart contracts represent an ideal system of contract relations between people. Moreover, this technology is unlimited in its development in everyday life.

Opportunities and areas of use of Ethereum

Ethereum or Ether is one of the most flexible and popular cryptocurrencies. It can perform all the same functions as Bitcoin, Litecoin, Dash, Ripple, cause it is:

  • A payment instrument;
  • A form of storage of assets;
  • An investment asset.

In terms of support and prevalence, ETH is in the top of the existing digital currencies on the market. At the same time, the ether functions also include internal calculations and registration of transactions in the platform.

However, the main value of Ethereum is not in its cryptocurrency properties. This platform allows you to create decentralized projects based on the blockchain, starting with charitable foundations, and ending with applications for sports betting or poker rooms. The platform is open, so everyone can access it.

Here are the examples of interesting applications / projects implemented on the Ethereum blockchain:

  • BackFeed – a socio-economic platform, making various kinds of ratings;
  • FreeMyVunk – a program for monetizing ratings in video games;
  • First Blood – a platform for gamers and fans to bet on eSports.

How and where to trade ether?

Today on popular exchanges, the Ethereum (ETH) token is traded for around $970, and its capitalization exceeded $93 billion according to the Coinmarketcap service. At the same time, the rapid growth of the exchange rate began in 2017 after the creation of Enterprise Ethereum Alliance and the increase in the number of initially placed coins. As a result, the interest of investors and miners grew up significantly, advancing its value. However, the volume and the demand for transactions form the value of this currency more towards, rather than the speculative demand.

In fact, for earning on the growth of ether, one may use several options: trading on exchanges, mining and trading the ether on Forex.

We, as traders, are interested in the possibilities of trading the ether on the Forex market. Unlike speculation on stock exchanges, the ether trading through on Forex does not require large investments. When speculating on a cryptocurrency exchange, the bulk of the investment goes to buying tokens (and they are quite expensive), so you need to have really large funds. Or you need to wait until the rate increases by 50% – 100%, but this does not happen every day.

When working on Forex there is no need to physically acquire the cryptocurrency. Ethereum on Forex is traded at the exchange rate. The broker only pays clients the difference between the price of buying and selling. Besides, you know how does it work.

What strategies to use for trading?

Trading cryptocurrency people use the same strategies as trading any other asset. On a global growth trend, deep corrections are visible, which are formed by strong volatility – they can be perfectly determined by applying Fibonacci retracement. The ETH rate often demonstrates strong, directed movements, while the price does not stay for a long time in a sideways trend. Based on this, it is advisable to use trend strategies.



Traders who prefer long-term trading should wait for the decline in the ETH/USD and ETH/BTC rates to the lowest possible level, and open the buy position expecting that the global growth trend will continue. And lovers of intraday trading can take advantage of even the most basic strategies, but in this case, you need to keep track of the current significant news that can provoke an unexpected price impulse in a disadvantageous direction.

However, the peculiarity of the cryptocurrency as an asset is that the tokens are not provided with anything, unlike other assets. Therefore, it is rather difficult to identify and track economic factors that could cause a depreciation or an increase. Nevertheless, the cryptocurrency market quite strongly reacts to such events as failures in the work of exchanges, hacking attacks, frauds or information about the use of the Ethereum system for transactions in the context of illegal activities (financing of terrorism, drug sales, etc.), legislative restrictions in different countries.

Trading with the cryptocurrency pairs

Another direction to be considered is trading with pairs, in which both assets are cryptocurrencies. In this case, it is necessary to predict the probability of strengthening (or weakening) one cryptocurrency relative to another. The most common tool for such operations is the ETH/BTC pair. At the end of the previous year, there was an interesting trend: the volume of Bitcoin’s operations was declining, while the volume of trading Ether was growing.

Conclusion

Ethereum is a digital currency, which is really worth paying attention to, especially for Forex traders. Of course, naysayers expect its rapid collapse. Today, deep price rollbacks also take place on the market – ETH can at times lose up to 35% of its value for no apparent reason. However, such volatility is typical for the digital currency, which is actively developing, plus, it recovers quickly and breaks through new price levels.

Undoubtedly, such growth will not continue indefinitely, but because of uncontrolled speculation with coins, this trend will continue for a very long time. In addition, while this currency is only being formed, regular ups and downs are inevitable. According to forecasts of specialists by mid-2018, the ether price can exceed $1,000, so those who are still doubting whether to invest in this digital currency or to use it as a trading tool in Forex should hurry.

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