As of late, there has been increasing interest in Ethereum – the platform for building decentralized apps that enable users – namely merchants/service providers and their customers/clients – to deal with one another via smart contracts.
Wait – that’s a mouthful. Let’s break that down before we even think about how to invest in Ethereum.
To Start, Let’s Think of a Traditional App
The code of traditional apps runs in isolated servers that are usually operated by third parties, which means that increased traffic induces downtime, third parties can tamper with the stored code, and hackers can steal user data (and use that data to commit identity theft) once they breach the defenses of those servers.
Next, Let’s Think of Dapps
On the other hand, decentralized or distributed apps (now popularly known as dapps) are apps that function on a blockchain–a shared global infrastructure that can never suffer downtime like regular server architectures do.
Blockchains are highly resistant to third-party tampering (due to its use of consensus), and is able to keep user data private (because of its use of cryptography). In a way, Ethereum lets users utilize thousands of computers all over the world that are connected as one giant, infallible super computer.
Last but not Least, Let’s Think of Smart Contracts
With dapps explained, let’s tackle the definition of smart contracts. Smart contracts are just computer programs that are executed when preconditions are met.
These can be imagined to be like a light switch: for as long as there is electricity, the wire connections are intact, and the lightbulbs are in proper working order, flipping the switch to the ON position will make its respective bulb light up, while flipping the switch to the OFF position will make the bulb turn off.
Because Ethereum smart contracts are built on the blockchain, they always get executed as programmed and in a trustless manner – i.e., much like how Bitcoin enables peer-to-peer payments and cut banks and other financial institutions out of the middle of transactions.
In other words, Ethereum enables parties to form deals with one another without the need for middle men or third parties to enforce the contracts. This functionality has made Ethereum – and its cryptocurrency token called Ether – highly attractive to investors.
Now that we know why Ethereum is such a big deal, the question now becomes: How to invest in Ethereum?
Method One: Make Your Own Dapp
There are a couple ways on how to invest in Ethereum.
One is to commission your own dapp and build a revenue stream from the value that the dapp provides. This requires an entrepreneurial mindset, a long-term strategy (since developing, testing, and debugging a dapp can take time), as well as relatively deep pockets to pay developers for their service – if not esoteric know-how of the Solidity programming language to build a dapp on Ethereum yourself.
Related: 10 Best Ethereum Based Coins
Method Two: Mine for Ether
Another method to build your Ethereum fortune is to mine for ether.
Now before we tackle what that means and how one mines for ether, let’s first talk about what ether is in the first place. Though it is not a currency that can be used to pay for goods the way the US Dollar or Bitcoin can be used, ether is valuable because it is the only coin one can use to pay for transaction fees that one incurs while using the Ethereum platform.
To illustrate, if a programmer edits and adds lines of code to her dapp, she must spend ether for the network to implement the changes because it will take resources such as electricity, hardware, software, and an internet connection to do so. More computational power will require more ether, much like how a car will spend more gas as its load increases.
Special Requirements for Ether Mining
In order to mine for ether, you would need special computers called miners validate data, cryptographically secure the data into a block, and then add the block to the blockchain. In most cases “blocks” refer to currency transactions, but they could be any form of data.
In our example above where the programmer changes the code in her dapp, it is miners that implement those changes. To mine for ether, one will require specific hardware, software, and expertise – go here to learn more about it.
Do note that mining is becoming a losing endeavor because costs are increasing and returns are diminishing – therefore we do not recommend mining as the vehicle for beginning investors.
Method Three: Buy and Sell Ether for Profit
The first two methods involve some barriers to entry, but the third method is the easiest – and arguably the most profitable – means for investing in Ethereum: buying and selling ether.
As one of the most popular coins around (second only to Bitcoin), ether is one of the best – if not the best – cryptocurrency to invest in as of 2018. But this is not financial advice, so we encourage you to continue asking “Should I buy Ethereum?” until you’ve done sufficient research.
There are many cryptocurrency exchanges, such as Coinbase and CEX.io, where you can use fiat (i.e. credit card, debit card, and wire transfer) to purchase Ethereum.
Other exchanges such as Changelly and Bitfinex allow ether to be traded only with Bitcoin and other altcoins. Lastly, you can purchase Ethereum with cash directly from other individuals in a marketplace called LocalEthereum.
Please note that these different methods carry varying levels of costs and risks.
To illustrate, using credit cards normally incur high transaction fees; and LocalEthereum will need you to be sure that the party you are dealing with is legit, otherwise you can stand to lose cash.
This has been a very quick dip into how to invest in Ethereum – we highly recommend that you learn more about it from multiple reputable cryptocurrency blogs or download a cryptocurrency education app such as Hybrid Central.
Needless to say, as with any investment, due diligence is a prerequisite for making a profit.