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What is Ethereum?

In 2013 a young programmer named Vitalik Buterin released a white paper describing a need for decentralized applications and a platform for writing them. Many Bitcoin developers decided to ignore Buterin, leading him to propose a new platform and develop a core team around himself in 2014.

Software development formalized in early 2014 and funding was raised via online public crowd sale in July-August of 2014. The Ethereum system officially went live on July 30th, 2015. A fork occurred in 2016 leading to the continuation of Ethereum Classic (ETC) and the creation of Ethereum (ETH).

Ethereum is an open-source, blockchain-based computing platform that features a scripting function referred to as “smart contracts.” The goal of this platform is to facilitate the creation of decentralized applications (DAPPS).

What are Smart Contracts?

Smart contracts are collections of code that have built-in operations, conditions and features. On the blockchain, a smart contract can act as a sort of self-operating computer – once specified conditions are met, the contract can execute a specified set of actions.

The Ethereum network stores and executes smart contracts in a decentralized fashion by running individually on millions of nodes worldwide. This decentralization of computing allows an array of benefits:

  • (1) Fault-Tolerance
  • (2) Zero Downtime
  • (3) Censorship Resistant
  • (4) An Immutable History

How Does Ethereum Work?

The Ethereum blockchain tracks the state of every account as well as any changes or transfers between accounts (i.e. a transfer of value or information). There are 2 types of accounts on the Ethereum blockchain:

  • (1) Externally owned accounts (EOAs) – controlled by private keys
  • (2) Contract accounts – controlled by contract code and must be prompted by an EOA

The fundamental difference between these 2 types of accounts is the manner by which they operate. An EOA is operated by a person much like a person would operate a Bitcoin account (with their private key). Whereas a contract account is operated strictly by the code in which it was created and an EOA who prompts it to execute.

Ether:

The token of value (a.k.a. medium of exchange) on the Ethereum network is called “ether”. Ether is traded on exchanges under the symbol ETH and is used to pay for computational services and transaction fees on the Ethereum network.

The reason for these small transaction fees is mainly one of security. Because it requires the user to pay for each interaction, malicious computational attacks such as DDoS (distributed denial of service) aren’t feasible.

These transaction fees are collected by “miners” (a.k.a. node operators) who receive, verify, and execute transactions. Transactions are then grouped into blocks which are forever added to the blockchain. Miners are rewarded for each successful block they add to the blockchain.

Ether (ETH) gains value as usage of the network increases. The more people who interact with and create smart contracts on the Ethereum platform, the more valuable ETH becomes.

Why Invest in Ethereum?

Ethereum has risen over 2,458% in the past year (as of 10/8/17)…

There are a lot of reasons to invest in Ethereum. I’ve distilled this discussion into 3 categories.

  • (1) Wide-Ranging Use Cases
  • (2) ERC20 Tokens and a Booming ICO (initial coin offering) Market
  • (3) It’s Early

(1) Wide-Ranging Use Cases:

The value of Ethereum is much easier to understand when compared to Bitcoin. Bitcoin is used as an alternative currency. Ethereum is a platform for creating decentralized applications on the blockchain.

The use cases for Bitcoin are as a superior medium of exchange compared to fiat currency (i.e. USD or Euro). The use cases for Ethereum are as far-reaching as your imagination. According to the Ethereum website, it can be used to “codify, decentralize, secure and trade just about anything.”

Here’s just a few use cases of Ethereum and smart contracts:

  • (1) The tokenization of assets
  • (2) As a financial contract between any # of parties
  • (3) As a means of decentralized governance and voting
  • (4) As a means of sharing information under certain conditions
  • (5) As a system for gambling and wagers

(2) ERC20 Tokens and a Booming ICO Market:

ERC20 tokens are standard for Ethereum smart contracts. This means that ICOs and other cryptocurrencies that are created on the Ethereum platform are classified as ERC20 tokens. Over 50% of all ICOs in 2017 are ERC20 tokens!

To say the ICO market is booming is an understatement. YTD (year-to-date) in 2017, ICOs have surpassed VC (venture capital) investing in blockchains. In fact, just over the summer of 2017, startups raised over $1 billion through ICOs alone.

Before ICOs, startups had to seek investment from capital raises with private groups of very wealthy accredited investors.. Now they can turn towards a much bigger pool of money: public crowdfunding. The best part is that Ethereum is the leading platform for creating an ICO and therefore, right at the center of all this ICO craze. As I mentioned earlier, the more people who interact with and create smart contracts on Ethereum, the greater its value will be.

(3) It’s Early:

Ethereum and all crypto’s are still in their very early stages. This is both good and bad. It’s good in the sense that prices are way below their potential and its bad because people are on edge and susceptible to fudding (FUD = fear, uncertainty and doubt).

A lot of people feel that it’s too late and that they’ve missed the initial “boom” of Ethereum. This is simply not true. Ethereum has a long way to go and as the leading platform for ICOs and smart contracts in general, I see Ethereum rising to prices much, much higher than current levels.

As I mentioned earlier, the idea for Ethereum didn’t even exist until 2013 and software development didn’t formally begin until 2014. Ethereum is still in its very early days. Below is a chart outlining Ethereum’s growth just since the beginning of 2017.

Buy Levels:

Target buy levels are labeled in the chart with a light blue colored line and are subject to change. I update these levels frequently as market changes demand it.

Last Updated: 10/18/17

I currently have a sizable position in Ethereum. It’s hard to say what will happen in the next few weeks/months because of the upcoming hard fork and changes. If I were to add to my position, I would do it around the $250-275 range, though I’m not sure if we’ll see that price level any time soon.

Recent Trades:

This section briefly lists what price I bought/sold at. Every coin listed on my watch-list are, in my opinion, anticipated to be long-term winners; however, I often sell portions of my portfolio according to a set of rules dictated in my overall strategy and then buy back the same currencies when the price drops back to my buy levels. (A full write-up of my strategy will be linked here when it becomes available on the site). 

2017 Q3

September 9, 2017 – Bought at $300.75 per ETH

July 29, 2017 – Bought at $198.90 per ETH

July 19, 2017 – Bought at $189.95 per ETH

July 11, 2017 – Bought at 186.98 per ETH

2017 Q2

June 25, 2017 – Bought at $262.79 per ETH

June 14, 2017 – Bought at $338.91 per ETH

Relevant Links/Tools:

Ethereum.org – Official Website

ethdocs.org One of the best resources for learning about all things ethereum.

See Ethereum on Coin Market Cap – Coin Market Cap is one of the best resources for cryptocurrencies in general.

etherscan.io – an open source web tool that displays information about blocks, addresses, and transactions that occur on the Bitcoin Blockchain.

The Ethereum whitepaper on github.

If you’re storing Ethereum on a centralized exchange or third-party (i.e. Coinbase, Bittrex, etc.), your Ethers aren’t as secure as they probably should be. I prefer to keep the majority of all my cryptocurrency holdings in “cold storage” on a hardware device. My preferred device is the Trezor. (This is not a paid ad, I just like the product).

Ethereum on Reddit