Ethereum is an open software platform which allows users to build a range of decentralised applications.
'Ether' is the digital currency used on the Ethereum network. Like Bitcoin, Ethereum works via a public blockchain network; while Bitcoin is used to track ownership of currency, the Ethereum blockchain focuses on running the programming code of any decentralized application.
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 become the second largest cryptocurrency and has helped prompt an increase of new rivals to bitcoin.
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.
Ethereum’s blockchain technology is similar to bitcoin’s, however 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:
When you buy Ethereum tokens (ether) on an exchange, the price will usually be quoted in a traditional 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.
With CMC Markets, you can trade ether via a 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.
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.
Open a long or short position**
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 over 28 years of experience in the industry and also offer support for all our clients whenever the markets are open.
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.
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.
Cryptocurrencies, which are generally unregulated in themselves, are high-risk, speculative investments, which will impact any cryptocurrency CFD trades that you enter with us. The value of cryptocurrencies, and therefore the value of CFD Trades linked to them, is extremely volatile. They are vulnerable to sharp and sudden changes in price due to unexpected events or changes in market sentiment. CFD Trades are leveraged products. Therefore the combination of increased volatility and leverage has the potential to significantly increase your losses if the market moves against you, relative to CFD Trades based on other products. Accordingly, you should only invest in cryptocurrency CFD Trades if you consider that you have the knowledge and experience of, and fully understand the risks associated with, both CFDs and cryptocurrencies.
**Awarded Highest Overall Client Satisfaction, Best Customer Service, Best Platform Features, Best Value for Money, Investment Trends Singapore CFD & FX Report 2017.
**Please note we may, at our sole discretion, restrict your ability to go short.