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What is Ethereum? The beginner’s guide to ETH

Learn all about the Ethereum network, including where to buy its ETH token and how to use it.

There is no way you’ve missed seeing Ethereum mentioned if you’ve been involved in any way with cryptocurrencies. And with good reason.

Ethereum began out of a need to see bitcoin’s underlying technology – the blockchain – used for something greater than simply sending currency from one user to another. Vitalik, the creator of Ethereum, built the system to be a “world computer” incorporating a virtual machine (EVM), a Turing-complete language (Solidity, Viper), a token (ETH), and fuel (gas).

In this guide, we’ll look at all these aspects, how they relate to each other, and why Ethereum is taking the world by storm.

What is Ethereum?

IconSymbolInitial release dateAlgorithm typeMax. supply
ETH30 July, 2015EthashNo hard limit

When most people talk about Ethereum, they are really talking about Ether (ETH), the underlying token currency of the Ethereum platform.

Why people confuse Ethereum with Ether

This confusion stems from the fact that bitcoin and its underlying technology, the blockchain, were never really defined separately when bitcoin launched. The idea was that the blockchain would be little more than the system that allows the transfer of BTC between users, and Satoshi, the creator of bitcoin, intentionally limited the blockchains capabilities for security purposes. But the coin and the blockchain are two very different things, capable of acting and being used independently.

Ether, traded under the code ETH, can be purchased at exchanges and used to pay for products and services at most merchants that accept cryptocurrencies. After all, it’s the second biggest cryptocurrency by market cap at the time of writing.

Ether is also used to pay for transaction fees and for computational services when using the Ethereum network.

Ether is mined similarly to bitcoin, i.e. you set your computer to attempt to solve the question present on a particular block in the blockchain. Once you find the answer, you get paid in ETH.

However, the goal of Ethereum is to be something greater than a coin. Not happy with how the blockchain technology was being underutilized by bitcoin, the creators of Ethereum set out to truly take the blockchain to the next level. They envisage a method to decentralize the Internet itself.

Why a decentralized system?

To understand what a decentralized system is, you need to understand how our current networking systems work, which are centralized systems. Let’s say you have an online account where you store photos. Let’s call it “CloudPhoto.” You can upload photos to CloudPhoto, and you can access those photos from anywhere. Now let’s say something goes wrong, and CloudPhoto’s servers burn down. Unfortunately, you can’t access your photos, and all are lost.

This is a centralized system. Usually, we mitigate this scenario by creating backups of our data, making copies of the same data and storing them elsewhere or by keeping different groups of data on different servers. This decentralizes the system.

Decentralization is also beneficial in cases where you need to maintain the integrity of data. For example, keeping all the student grades at a school on one computer is a problem, because if someone hacks into that computer and changes those grades, then there would be no way to catch the change. If ten different computers held onto the student scores, it would be easy to recognize that one of the computers holding the data is wrong, and consequently fix that data set.

So a decentralized system is one where there is no single point of failure. This has many obvious advantages, and you need to keep that in mind when considering Ethereum.

Ethereum virtual machine and DApps

Decentralized Applications, or DApps, is the driving force behind Ethereum’s development, and they run on the Ethereum virtual machine, also known as the World Computer. This virtual machine is Ethereum’s defining development and it allows applications to run on the blockchain.

As discussed in the “Why a decentralized system?” section, centralized systems suffer from single points of failures. If something were to happen to eBay, and they didn’t have any backups, you would lose all evidence of your hard-earned success. Decentralized Apps run on the blockchain and make use of it to maintain data scattered across all users of Ethereum. The data sets are, of course, encrypted so as to not be accessible by everyone, but everyone would be able to verify and validate the data if the need arises.

There are already many DApps, from online gambling to prediction markets and social media platforms, and most likely there are many more to come.

The DAO Hack

Smart contracts are the basis of the Ethereum ecosystem and platform: someone creates a contract with rules and triggers, and the smart contract executes when the trigger event occurs, as long as all the rules can be enforced.

The Decentralized Autonomous Organization, or DAO, was to be the crown jewel of the Ethereum smart contract and virtual machine ecosystem: a smart contract that was going to build a decentralized venture capital fund with the aim of providing funding for all future DApp development. People would invest into the DAO, and they would be allowed to vote on which DApps got funding, and which did not.

The DAO launched on 30 April, 2016 and within 28 days, it had accumulated more than US$150 million worth of ETH. The attack happened on 17 June 2016 and it worked by exploiting a loophole in the way investors left the DAO. If you wanted to leave the DAO (as an investor), you were allowed to take all the ETH you had invested after you returned the DAO tokens you had been given when investing (a sort of stakeholder system).

The problem was that the contract had two steps:

  1. Take DAO tokens from user, and give back ETH from DAO to user.
  2. Register the transaction in the blockchain and update the DAO token count.

The hack was simple in hindsight: inject a step between step 1 and step 2 above where, before the transaction gets registered, the DAO would give the same user more ETH for the same tokens.

This hack cost the DAO US$50 million worth of ETH and caused the value of ETH to plummet from US$20.17 to US$11.52 in 48 hours.

This is also when Ethereum Classic was born.

Ethereum Classic

Ethereum Classic, ETC, is a fork of Ethereum, ETH, which came about as a result of the way the developers and community behind Ethereum decide to handle the DAO attack.

What is a “fork”?

When developing a project, open source or closed, software developers often keep their code in one central location to avoid confusion and mismatched files. Other developers can modify and change these files, creating branches, then the changes are merged into what’s called the main branch, the original trunk.

They can also create what are known as forks. A fork is similar to a branch, but it’s often done with no plans to merge the code back with the original. This usually happens as a result of a philosophical disagreement over the direction of the product.

While this is not an open-source-specific concept, open source projects allow developers to fork and take a product in a completely different direction than intended, without violating copyright law.

After the DAO attack, the Ethereum community agreed that the best course of action was to hold the money taken by the hacker, and return everything to the people who invested in the DAO, practically rewinding the hacker’s attack. Many Ethereum users did not agree with this as, in their opinion, it went against the core philosophy of cryptocurrencies: the blockchain is immutable and should not be affected by the whims of its users.

Reverting the attack and forking the code to reset the blockchain went against the core philosophy that the code is law, and so many people stayed with the original blockchain, Ethereum Classic.

Today’s Ethereum price

Updated: 14 May 2021 09:47:47 UTC

Where can I use ETH?

ETH has been on the rise since its inception and has been enjoying widespread acceptance by investors, exchanges and merchants. At the time of writing this, in September 2017, websites using cart software like WooCommerce and OpenCart can be set up to accept ETH payments and we will likely be seeing even more merchants popping up online that accept ETH.

But currently, in September 2017, the biggest use for ETH is as a stake in Ethereum.

How to transfer money with Ethereum

Transferring ETH works just as it would work with any other cryptocurrency:

  1. Have some ETH in your wallet. The official Ethereum wallet can be download either from GitHub, or from the official website.
  2. Scan or enter the recipient’s address. Whether they provide you with the hashed wallet address or a QR code, just follow the simple instructions on your wallet of choice and you’ll be done in no time.
  3. Enter the amount and send. The transaction should be verified in a few seconds and you’re done.

Getting Ethereum

  • Get paid in ETH. Adopting ETH as tender for your products or services is the simplest and most effective way of making money with a cryptocurrency like Ethereum. If you’re a writer, designer, artist or developer, you can ask to be paid in ETH. If you’re selling clothes, vape products, posters, or DVDs, you can ask to be paid in ETH. Every sale affected with ETH helps Ethereum grow and as it grows so does the value of that same ETH sitting in your wallet

How to buy Ethereum

Name Product Deposit methods Fiat Currencies Cryptocurrencies
Binance Cryptocurrency Exchange
Bank transfer (ACH)


Trade an extensive range of reputable coins on this world-renowned exchange, popular for its high liquidity and multi-language support.

US residents: As of September 2019, US-based users can only trade USD on the American dollar onramp of Binance, Binance.US.
UK residents: In addition to normal crypto trading services, Binance offers margin lending. As this is a regulated activity which they are not authorised to offer in the UK, we advise you not to use this service. If you're interested in margin trading, see authorised providers.
eToro Cryptocurrency Trading & CFDs
Bank transfer, Credit card, Debit card, Neteller, PayPal, Online banking, Skrill


Disclaimer: Volatile investment product. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Copy the trades of leading cryptocurrency investors on this unique social investment platform. $200 minimum deposit.
Coinmama Cryptocurrency Marketplace
Bank transfer, Credit card, Cryptocurrency, Debit card


Founded in 2013, CoinMama lets you buy and sell popular cryptos with a range of payment options and quick delivery.
Paybis Cryptocurrency Exchange
Bank transfer, Credit card, Cryptocurrency, Neteller, Skrill


Buy Bitcoin and other popular cryptocurrencies with credit card or debit card on this digital cryptocurrency exchange.

US residents: Restricted in the following states - NY, CT, NM, WA, HI, AL, VT, FL, AK, NV.
CoinSwitch Cryptocurrency Exchange
Credit card


CoinSwitch allows you to compare and convert over 250 cryptocurrencies across all exchanges.
Bitfinex Professional Trading Exchange
Credit card, Cryptocurrency, Bank Wire


Cryptocurrencies are a highly volatile investment product. Your capital is at risk.
Spot trade all of the major cryptos on this full-featured exchange and margin trading platform.
CEX.IO Cryptocurrency Exchange
Bank transfer, Credit card, Cryptocurrency, SWIFT, SEPA, Faster Payments (FPS)


Disclaimer: Highly volatile investment product. Your capital is at risk.
Use your USD, EUR or RUB to buy and sell cryptocurrency at competitive exchange rates and with high maximums for verified accounts.
OKEx Cryptocurrency Exchange
Bank transfer, Cryptocurrency, iDEAL, PayPal, POLi, SEPA, Faster Payments (FPS)


Promo: Earn US$10 in BTC when you refer a friend and they purchase $100 of cryptocurrency. T&Cs apply.
Listing over 100 cryptocurrencies, OKEx offers its users a variety of payment methods and coins to choose from.
Huobi Cryptocurrency Exchange
AdvCash, Cryptocurrency, SWIFT, Wire transfer


Huobi is a digital currency exchange that allows its users to trade more than 190 cryptocurrency pairs.
Bithumb Cryptocurrency Exchange


A global platform where users can make KRW and cryptocurrency deposits to purchase up to 15 popular cryptocurrencies.

Compare up to 4 providers

What to watch out for

Ethereum is trying to be bigger and better than simple currencies like bitcoin, but this might also be its downfall.

  • Not just a coin. Ethereum wants to be something more than a cryptocurrency and this might cause problems. A platform is harder to maintain, harder to develop and harder to see adoption. A cryptocurrency is simple: buy and sell things using that currency. Bitcoin, for example, is nothing more than a currency and people, especially businesses and merchants, like simple things that just work.
  • Big things in the future. With a roadmap as ambitious as Ethereum’s, the road is bound to be a little rocky. After all, platforms have failed for introducing far smaller, and far simpler new features that had unforeseen, fatal side-effects. This is obviously not a certainty, but it’s good to be mindful of big changes coming in the future of Ethereum.

What’s next for Ethereum?

Ethereum’s roadmap is sprawling and ambitious. Apart from a strong drive to have ETH accepted by more merchants there are some promising things in Ethereum’s future.

  • More DApps. Ethereum is a platform for building decentralized apps. From smart contracts to crowdfunding projects to autonomous organizations, just as a computer is only as effective as the software written for it, Ethereum is only as successful as the DApps running on it. This is definitely an exciting time for everyone from simple users of Ethereum to investors, developers and the cryptocurrency community as a whole.
  • Proof-of-Stake. Similar to the Proof-of-Importance system used on NEM, Ethereum is working on shifting from a Proof-of-Work (POW) mining method to a Proof-of-Stake (POS) generation of ETH instead.

POW is a system in which your computer works hard at some puzzle or other that helps maintain the integrity of the Ethereum platform, and your wallet is rewarded with some amount of ETH for your efforts.

POS works by having a user lock up a percentage of their ETH assets in order to verify a segment of transactions on the Ethereum network, from which the user would receive ETH (possibly as part of the transaction fees paid in every transaction). This is considered a fairer system than POW as it relies on the user having a stake in the platform instead of being able to purchase a strong computer that runs more computations than someone else’s.

Frequently asked questions

Image sources: Shutterstock, CoinMarketCap

Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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