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Your guide to trading Ethereum (ETH)

Capital.com's guide to trading Ethereum (ETH): Everything you need to know on how to trade Ethereum. No commission. FCA and CySEC regulated.
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Why is Ethereum important to traders?

Ethereum is an open platform that enables developers to build and deploy decentralised applications (dApps). The easiest way to think of Ethereum is as a programmable Bitcoin. Ethereum allows participants to run decentralised blockchain applications called smart contracts. Smart contracts are highly secure, and run with the perfect digital history, making them auditable, trustless and unstoppable. These smart contracts can be programmed without any chance of downtime, censorship or fraud.

Smart contracts were designed to allow the digitalisation of legal contracts. Smart contracts can store data record information, fact, associations, balances and any other information needed to implement logic for real world contracts. The Ethereum blockchain and smart contracts form a shared global supercomputer, that can move value, represent ownership, transmit tokenised assets and digitize many more complex financial applications. This lets developers create markets, shared ledgers and digital organisations – all without a middle man and maintaining immutability.

Ether is the native cryptocurrency of Ethereum, however, many people refer to the cryptocurrency by the platform name. Ethereum is described as a utility token, as holding it provides access to the services offered by the project, and in particular its decentralised operating system. The value of a lot of cryptocurrencies is linked to the projects behind them, even if the project does not use the native coin by default.

Ethereum

Ethereum trading hours

You can trade Ethereum CFDs on Capital.com 24/7.

How to trade Ethereum CFDs

An individual has two options when trading in the cryptocurrency market. Firstly, they can buy actual cryptocurrency on exchanges, such as buying Ethereum on an exchange like CEX.IO , so they own the Ethereum themselves. This is considered a long-term investment, as the individual is waiting for the price to rise significantly, so they can sell their crypto coins on an exchange.

Alternatively, they can trade a contract for difference (CFD) on a particular cryptocurrency, and speculate on the price difference. A CFD is a financial instrument, which is a contract, typically between a broker and an investor, where one party agrees to pay the other the difference in the value of a security, between the opening and closing of the trade. You can either hold a long position (speculating that the price will rise) or a short position (speculating that the price will fall). This is considered a short-term investment as CFDs are used within shorter timeframes. For instance, to trade Ethereum CFDs, you can speculate on the ETH/USD pairing.

There are pivotal differences between buying a cryptocurrency and trading a CFD in a crypto market. When buying cryptocurrency, it is stored in a wallet, but when trading CFDs the product is stored in your account, which is regulated by a financial authority. You are more liquid when you purchase CFDs because you are not tied to the asset, you have merely purchased the underlying contract. As well as this, CFDs are a more established and regulated financial product.

What is Ethereum? What is cryptocurrency?

Ethereum is the native cryptocurrency of the Ethereum platform, which is also described as a utility token as it provides access to the Ethereum decentralised operating system. Cryptocurrencies can be split into either: utility tokens; providing access to the services provided by a particular project, security tokens; something representing an underlying asset, or a payment token (like Bitcoin).

A cryptocurrency is a digital asset conceived for use as a medium of exchange, which uses cryptography to secure transactions, control the supply of additional units, and corroborate transfers. In short, cryptocurrency is a decentralised electronic currency. Cryptocurrency is stored in a ‘wallet’, which can take various forms. For instance, Ether coins can be stored in an online wallet, or alternatively in an offline electronic wallet, and it can even be stored physically in hardware.

Why trade Ethereum CFDs with Capital.com

Advanced AI technology at its core: A Facebook-like News Feed provides users with personalised and unique content depending on their preferences. If a trader makes decisions based on biases, the innovative News Feed offers a range of materials to put him back on the right track. The neural network analyses in-app behaviour and recommends videos, articles, news to polish your investment strategy.

Trading on margin: Providing trading on margin (up to 2:1 for cryptocurrencies), Capital.com gives you access to the cryptocurrency market with the help of CFDs.

Trading the difference: When trading an Ethereum CFD, you don’t buy the underlying asset itself, meaning you are not tied to it. You only speculate on the rise or fall of the Ethereum price. CFD trading is nothing different from traditional trading in terms of strategies. A CFD investor can go short or long, set stop and limit losses and apply trading scenarios that align with his or her objectives.

All-round trading analysis: The browser-based platform allows traders to shape their own market analysis and forecasts with sleek technical indicators. Capital.com provides live market updates and various chart formats, available on desktop, iOS, and Android.

Focus on safety: Captal.com puts a special emphasis on safety. Licensed by the FCA and CySEC, it complies with all regulations and ensures that its clients’ data security comes first. The company allows to withdraw money 24/7 and keeps traders’ funds across segregated bank accounts.

History of Ethereum

Ethereum

The concept of Ethereum was initially outlined in late 2013 by a programmer with the goal of building decentralised applications on top of a blockchain network – allowing more people to build on top of a blockchain, opposed to having to create their own blockchains first.

In March 2017, many different blockchain start-ups, research groups and Fortune 500 companies announced the creation of the Enterprise Ethereum Alliance (EEA) – an organisation allowing cooperation between the FinTech, finance and technology industries to accelerate the adoption of Enterprise Ethereum.

FAQ

Before buying Ethereum, you will need a place to store it. This is what a wallet is for, and it consists of two elements: a private key and a public address. A wallet requires a private key, specific to the individual, that enables access to the Ethereum address stored in the wallet, which is also the public key. The wallet is what enables Ethereum, or any cryptocurrency, to be a secure medium of exchange. Essentially, people can send Ethereum, to certain wallets using the public key, which only the individual can access with their private key. Some individuals choose to keep their coins in their wallet provided by their cryptocurrency exchange, due to the fact that a lot of exchanges have mobile apps that allow people to easily buy, sell and spend cryptocurrencies.

Cryptocurrency exchanges or online wallets are far from immune to the dangers of cybertheft. The infamous case of the Mt Gox Bitcoin exchange highlights this. Historically, Mt Gox was the largest global exchange for Bitcoin, until it declared bankruptcy in 2014 after its security had been compromised. Mt Gox had 850,000 Bitcoins, valued at $450 million in February 2014, before their exchange was emptied by hackers. It is believed that the private keys of Mt Gox’s digital wallet were stolen from as earlier as 2011. These risks are avoided when trading Ethereum CFDs because you do not need a wallet.

A ‘bubble’, in market terminology, is where the price of an asset far exceeds its intrinsic value. For instance, the dot-com bubble that occurred between 1995 and 2001, is a prime example, where information technology industry firms saw their stocks rise, merely because of the market sentiment around that particular industry, irrespective of their profits or chances of succeeding. This market then crashed in March 2000.

The problem here is that it is hard to determine the value of cryptocurrency to begin with. Although a lot of investors are holding cryptocurrencies as if they were equities, they are not. Yet they do not particularly act like currencies either, which makes comparisons to currency valuations difficult.  However, with any new technology, caution is advised. It could well be the case that the valuations of Bitcoin or Ethereum are not overvalued, and that the bubble, if there is one, is represented by the various new cryptocurrencies that are being driven by market sentiment. Arguably, this is comparable to the dot-com instance, where stocks like Amazon were not overvalued, but others like Pets.com, which went from IPO to liquidation in 268 days, clearly were. So, it seems that only time will tell whether the market is overheating, but in either case, there are options to trade using CFDs to take both long and short positions.

From late 2017 to early 2018, there was a surge in the price of Bitcoin (reaching $20,000 per Bitcoin), followed shortly behind by other cryptocurrencies. The market then crashed between January and February 2018, and Bitcoin free fell, dropping 65% in value. Consequently, most other cryptocurrencies crashed as well. So there clearly was a bubble in the crypto market. The question that this begs is whether there still is one. The value in most cryptocurrencies is derived from their potential; how they could be used to advance society in the future. Without institutional acceptance however, the potential value, will remain merely potential, but whether this implies that cryptocurrencies are overvalued is another question.

In May 2016, a venture capital fund called The DAO, built on Ethereum, raised around $168 million, with the aim of investing in projects through smart contracts. In the same month a paper was released detailing security vulnerabilities with the DAO, which could allow Ethereum tokens (Ether) to be stolen. Later that year in June, 3.6 million Ether tokens (approximately $50 million USD) was stolen from accounts in the DAO, exploiting one of the vulnerabilities that had been raised in May.

Members of the Ethereum community and the DAO decided to implement a hard fork (a substantial chain to the underlying blockchain) in the Ethereum code, in order to move the Ethereum tokens taken to a new smart contract through which it would be restored to the original owners. Ethereum Classic then came into existence when some members of the Ethereum community rejected the hard fork on the grounds of "immutability", the idea that the blockchain cannot be changed, and decided to keep using the unforked version of Ethereum, coined Ethereum Classic.

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