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What is ethereum?

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Ethereum is a digital platform which allows people to build a range of decentralised applications.

These applications can include security programs, voting systems and methods of payment. Like bitcoin, ethereum operates outside the mandate of central authorities such as banks and governments.

The idea behind ethereum was created by Vitalik Buterin. He launched the first version of the platform in 2015, with the help of several co-founders. Since then it has grown rapidly in popularity and has helped prompt an increase of new rivals to bitcoin.

How does ethereum work?

Ethereum works as an open software platform functioning on blockchain technology. This blockchain is hosted on many computers around the world, making it decentralised. Each computer has a copy of the blockchain, and there has to be widespread agreement before any changes can be implemented to the network.

The ethereum blockchain is similar to bitcoin’s in that it is a record of the transaction history. However, the ethereum network also allows developers to build and deploy decentralised applications (‘dapps’). These are also stored on the blockchain along with records of transactions.

What are dapps?

Dapps are open-source software that use the blockchain technology. Unlike traditional apps, they don’t need a middleman to function. As they are still a relatively new concept, it is difficult to pinpoint an exact definition of them. However, noticeable common features include the fact that they are open source (governed by autonomy) and decentralised.

Groups of smart contracts are used to create dapps. Smart contracts are scripts of code which can facilitate the exchange of money, shares, content, or anything of value. Smart contracts are formed using the Ethereum Virtual Machine (EVM). Once a smart contract is running on the blockchain, it acts like a self-operating computer program. They run as programmed, without censorship, downtime or influence from a third party.

Is ethereum a cryptocurrency?

Ethereum itself is essentially not a cryptocurrency – the word ethereum refers to the digital platform. The actual tokens (used for payment on the network) are called ether. In other words, ether is the ‘crypto-fuel’ (or cryptocurrency) for the ethereum network. When it comes to trading, the prices you see will refer to ether. Nonetheless, you will commonly see the cryptocurrency referred to as ethereum.

What are the differences between ethereum and bitcoin?

As we have already discussed, ethereum’s blockchain technology is similar to bitcoin’s. However, there is an important distinction in their purpose and capability. Bitcoin only uses one specific application of blockchain technology. Ultimately, it’s an electronic cash system that enables online bitcoin payments. The ethereum blockchain does track ownership of digital currency, but also focuses on running the programming code of a range of decentralised applications. 

Other key differences include:

  • Ethereum allows developers to raise funds for their own applications. They can set up a contract and seek pledges from the wider community.
  • There is a finite number of bitcoins available (estimated to be 21 million). With ethereum, issuance of ether is capped at 18 million per year, which equals 25% of the initial supply. So, while the absolute issuance is fixed, relative inflation decreases every year.
  • Instead of mining for bitcoin, miners of the ethereum blockchain work to earn ether.
  • They cost their transactions in different ways. With ethereum it is referred to as ‘gas’. Costs of transactions depend on bandwidth usage, storage requirements and complexity. With bitcoin, transactions compete equally with each other and are limited by block size.

How can I spread bet or trade CFDs on ethereum?

When you buy ethereum tokens (ether) on an exchange, the price will usually be quoted in fiat currency (such as USD, EUR, GBP). In other words, you sell an amount of currency to buy ether. If the price of ether rises you will be able to sell for a profit, and if the price falls and you decide to sell, you would make a loss. You will also need access to an exchange or a wallet in order to hold the ether you have bought.

With CMC Markets, you can trade ether via a spread bet or CFD account. This allows you to speculate on its price movements without having to own the actual cryptocurrency. You aren't taking ownership of ether. Instead, you’re opening a position which will increase or decrease in value depending on ether’s price movements against a fiat currency.

Spread betting and CFDs are leveraged products. This means you only need to deposit a percentage of the full value of a trade in order to open a position. You won’t have to tie up all your capital in one go by buying ethereum outright, but can instead use an initial deposit to get exposure to larger amounts. While leveraged trading allows you to magnify your returns, losses will also be magnified as they are based on the full value of the position. You could lose more than your deposit.

Interested in trading cryptocurrencies?

Spot an opportunity and place a trade on our award-winning trading platform*

Interested in trading cryptocurrencies?

Spot an opportunity and place a trade on our award-winning trading platform*

Why trade ethereum with CMC Markets?

Open a long or short position**

Spread betting and CFDs allow you to trade on both rising and falling prices.

Efficient use of capital

Leveraged trading means you only deposit a percentage of the full value of a trade in order to open a position. Remember that both profits and losses will be magnified, and you could lose more than your deposit.

No exchange account or wallet

Unlike trading the underlying ether, there is no need to open an exchange account or wallet. This means no waiting for approval from the exchange, no concerns about keeping your wallet secure, and no fees if you want to withdraw funds later.

Trade with an established provider

CMC Markets is a regulated provider. We have nearly 30 years of experience in the industry and also offer support for all our clients whenever the markets are open.

Trade responsibly

Cryptocurrencies are still relatively new for most people and can be extremely volatile. We want you to have access to in-depth educational materials which can support your trading. 

What affects ethereum’s price?

Ethereum’s price is affected by different factors to those which affect traditional currencies. It is less exposed to economic and political influences, but is affected by factors such as:

Availability – Unlike bitcoin there is no limit to the supply. However, units of ether are still added and lost over time, causing its availability to fluctuate.
 
Regulation – Ethereum is currently unregulated by both governments and central banks. If this starts to change over the next few years it could have an impact on ethereum’s value.
 
Media – Negative media coverage, particularly around security and longevity, can have an impact on price.
 
Technological advances – The future of blockchain technology is unknown. But, its integration into areas like payment systems and crowdfunding platforms could raise its profile.

​*Awarded Best Platform Features and Best Mobile Phone/Tablet Platform; based on highest user satisfaction among spread betters, CFD & FX traders, Investment Trends 2017 UK Leverage Trading Report.
**​Please note we may, at our sole discretion, restrict your ability to go short.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.