In this guide to Ethereum (ETH), we’ll teach you the basics about this altcoin, describe how it’s mined, provide live price data, and discuss what drives its price. We also compare Ethereum to Bitcoin and provide quotes from experts about this cryptocurrency.
How is Ethereum Mined?
Like Bitcoin, Ethereum is mined in blocks by miners who solve cryptographic problems to claim a block reward. New ethers are minted in each Ethereum block and eventually get distributed by the miners to the network. The miners also collect transaction fees with each block.
The block reward and transaction fees are the incentive that a miner must invest in network mining equipment. Many Ethereum miners operate mining rigs with multiple graphics cards connected to a “mining rig.”
What Is Ethash?
Ethereum uses a hashing algorithm called Ethash. Miners that solve block hashes participate in a process called Proof of Work (PoW).
This is an essential part of securing the network as a miner that wanted to attack and overpower the network would need to produce more PoW than the honest miners.
Could a Miner Overpower a Network?
The cost involved for a miner to overpower the network would be so high and the capital investment in mining equipment would be so intensive that the attacker would be better off using this computing power to profitably mine on the network as an honest miner.
This applied game theory that makes use of financial incentives is what keeps the network secure from external threats.
The Ethereum block reward is currently set at 5 ether per block, and a new block is found on the network every 20 seconds on average.
What Is Ethereum’s Price?
This screenshot is only an illustration. Current market prices can be found on the broker website.
What Drives the Price of Ethereum?
There are two key drivers of the demand for Ethereum. First, ETH has benefitted from bullish market sentiment about cryptocurrencies in general.
Traders see Ethereum and other cryptocurrencies as an alternative asset class to traders denominated in fiat currencies. Although there is a limited price history for ETH, data shows that it is negatively correlated with the dollar and positively correlated with gold.
Ethereum benefits from trader concern about the dollar, euro, yen, etc. as reliable stores of value. By the same token, Ethereum has a high positive correlation with the price of Bitcoin since it began trading.
Efficient Technology Development
Secondly, the Ethereum price has benefitted from its robust technology platform. Whereas the market sees Bitcoin as simply a system for payments, it views Ethereum as having much greater potential.
For example, Ethereum’s adoption by corporations for smart contracts has fueled speculation by traders that the cryptocurrency is better poised than Bitcoin for mainstream adoption in the near future. Since its launch, ETH has produced returns that have exceeded those of Bitcoin.
What Is the Price Outlook for Ethereum?
Its limited trading history makes technical analysis of price charts for ETH impossible. An ETH chart shows a virtually parabolic rise since it began trading. Such a chart doesn’t lend itself to traditional technical analysis where high and low trading levels provide clues about future movements.
Similarly, there are few fundamental data points that analysts can use to value ETH.
Supply And Demand Fundamentals Of Ethereum
The best way to forecast the future price of Ethereum is to examine supply/demand fundamentals for the cryptocurrency. According to Investing Haven, there is a supply of 92 million ETH coins.
This figure is expected to grow over the next one to two years and then flatline as the number of new coins mined equals the number of coins taken out of circulation.
Once supply stops growing, the demand side of the equation will drive future price moves for ETH. The key is the Ethereum platform and the many applications it supports.
Specifically, the platform’s ability to handle and execute smart contracts will create increasing demand for ETH in the financial services space.
Mainstream Smart Contracts: Barclays Bank
Barclays is using smart contracts, for example, to trade derivatives contracts. A group called the Enterprise Ethereum Alliance (“EEA”) facilitates the development of applications on the Ethereum platform by large corporations in finance and other industries.
According to Investing Haven, Ethereum’s usage in blockchain applications could grow conservatively between 20 to 30 times over the next five to seven years. The increasing value of the platform to corporations could spur investment demand.
The Ethereum Investment Trust: ETFs On The Way?
The creation of the Ethereum Investment Trust and the likelihood of an Ethereum ETF and Ethereum IRA will also serve to bolster investment demand.
The upshot is that an Ethereum investment could easily increase over the next two to three years as more traders learn how to buy Ethereum.
Ethereum vs Bitcoin
How does Ethereum compare to Bitcoin? What are the key differences? See below for our head-to-head comparison:
|Ethereum (ETH)||Bitcoin (BTC)|
|Purpose||Designed to allow users to program specialized “smart contracts” that allow for more flexibility than coins like Bitcoin||Decentralized digital currency|
|Founder||Vitalik Buterin||Satoshi Nakamoto (alias)|
|Market Cap||Over $70 billion||Over $250 billion|
|How long did it take to hit $100?||22 months||51 months|
|Notable Supporters||Enterprise Ethereum Alliance|
Balaji Srinivasan (co-founder of 21.co)
William Mougayer (Blockchain expert)
|Jeff Currie (Goldman Sachs) |
Peter Theil (Venture capitalist)
Christine Lagarde (IMF)
Marc Andreessen (Early internet Pioneer)
|Supply Cap||Around 100 million soft cap||21,000,000|
|Initial Distribution||ICO (initial coin offering)||Mining|
|Consensus Method||Proof of work currently, with a plan to switch to the Casper proof-of-stake protocol||Proof of work|
|Network Hash Rate*||Over 700 Ether per hour||Over 40 BTC per hour|
|Difficulty increase||The blockchain uses the "ice age" protocol to make mining prohibitively difficult which will come into effect at around block 4.8 million||Every 2,016 Blocks|
What Do Experts Say About Ethereum?
Experts are divided about the price of Ethereum.
William Mougayar, Blockchain investor
Blockchain investor William Mougayar believes Ethereum has enormous potential because “Ultimately, it’s about building a whole eco-system and what Ethereum has going for is a very strong eco-system of developers. It has about 35,000 developers worldwide.”
Mougayar sees the shrinking gap between the value of Bitcoin and Ethereum as a validation of ETH and a reason that ETH should trade higher.
Mike Cagney, CEO of SoFi
Mike Cagney, CEO of lending startup SoFi sees “fascinating infrastructure applications” with Ethereum and believes that ETH has much greater upside potential than Bitcoin.
Other experts are less sanguine about the returns on trading Ethereum.
Jamie Dimon, CEO of JPMorgan Chase
Jamie Dimon, chairman and CEO of JPMorgan Chase, argues that governments will shut down cryptocurrencies if they get too big.
Charles Haytar, CEO of CryptoCompare
Charles Haytar, CEO of the market analysis platform CryptoCompare, believes that a lack of rationality about value has created a bubble for cryptocurrencies in general.
However, notwithstanding its CEO’s pessimism, CryptoCompare released data that bodes well for the future price of ETH. Purchases of ETH with Bitcoin declined from 83% to 32% in the last year, while purchases of ETH with fiat currencies rose sharply.
More Facts About Ethereum
- Vitalik Buterin, co-founder of Ethereum, was a co-founder and contributing author of the early Bitcoin Magazine.
- Ethereum was founded in 2014 and was the first blockchain to offer robust Smart Contract capabilities.
- Hundreds of cryptocurrency projects are crowdfunding via Initial Coin Offerings (ICOs) on the Ethereum platform.
- A new craze for virtual kittens known as “Crypto Kitties” is slowing down trade on the Ethereum platform.
- Ethereum hosts Decentraland, a virtual reality environment where users can purchase blockchain secured virtual real estate.
- In 2016, Ethereum forked into two separate blockchains – Ethereum Classic (“ETC”) and Ethereum (“ETH”).
Where Can I Trade Ethereum?
See our full guide to trading Ethereum, or start your research with reviews of these regulated crypto brokers available in .
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Please Note: Availability subject to regulations. Cryptocurrency CFDs are not available to UK retail traders.
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