Ethereum - History and functioning of ETH
Ethereum - History and functioning of ETH

By Roberto D. | CryptoFarm | 1 Aug 2019

What are Ethereum?

Cryptocurrency means a digital decentralized system that is not controlled by anyone and that allows money to be exchanged simply and quickly. In practice, this is a new payment method that anyone can use.

Ethereum, in addition to being a cryptocurrency, has one more feature. Many insiders think that Ethereum uses a revolutionary system. But before shouting for success, it is necessary to analyze all the various features of the network properly.


Ethereum: story of a success

Ethereum was founded in 2013 by Vitalik Buterin, a Russian-born developer who grew up in Canada. At the time, Vitalik was a university student with a great passion for cryptocurrencies. This passion led to the creation of Bitcoin Magazine. During an evening in a Canadian pub, he and some other programmers began to discuss Bitcoin, a novelty at the time. In that evening, the foundations were laid for the creation of a new blockchain, more innovative than that of Bitcoin, and of the Ethereum system.

Buterin in 2014, to raise funds, leaned on a crowfunding operation. This consisted of selling millions of Ether (the future currency of Ethereum) to those interested in buying.

The following year the system became public and accessible to all. Vitalik Buterin is, to all intents and purposes, the founder of Ethereum and in 2014 he received the World Technology Award for the co-creation and invention of Ethereum.

In a few years Ethereum has become one of the most widely used cryptocurrencies in the world with a market capitalization of over 35 billion euros (second only to Bitcoin).


What is Ethereum?

By definition, Ethereum is "a decentralized Web 3.0 platform for creating and publishing peer-to-peer smart contracts (smart contracts) created in a complete Turing programming language". It may seem like a sentence written in Arabic, actually it's simpler than it seems.

The functioning of Ethereum does not differ much from Bitcoin. They both use a blockchain and both are managed by the users themselves. The main difference is that many more operations can be carried out with Ethereum.

In fact, besides being an efficient payment system (faster than Bitcoin), Ethereum allows the creation and spread of smart contracts. These smart contracts are similar to the contracts that are used every day, with the particularity that the process cannot be changed or canceled. Once entered into the Ethereum system, the contract will be concluded without changes, be they legal or illegal. This high security has led the system to be used by millions of users. The Ether currency is used within the network.

As mentioned above, Ethereum uses a blockchain specifically created for smart contracts. The whole system develops globally and is open source. This characteristic allows any programmer to make improvements, after an accurate check by the Ethereum Foundation, a non-profit company based in Switzerland.


Benefits of Ethereum

As with all cryptocurrencies, Ethereum also has both advantages and disadvantages in use. Let's now analyze the main advantages:

  • Freedom of payment: you can receive and send money at any time and in any place. It will be sufficient to have a device (smartphone or computer) with an internet connection. Since it is not controlled or managed by any body, transactions can also be made during the holidays or at night. The sending and receiving of money takes place instantly, with no waiting time.
  • Less risk: all Ethereum transactions are safe, irreversible and do not contain personal data. Contracts created within the network cannot be modified by anyone. This feature reassures companies and users themselves. No fraud, no identity theft, no "robbery".
  • Transparency: all transaction information is available on the blokchain in real time. No private individual or organization can control or manipulate the Ethereum protocol because it is cryptographically secure.
  • Convenient: compared to other payment systems (banks, Paypal, Bitcoin), Ethereum is definitely cheaper. Sending and receiving money will be much more welcome, thanks to low maintenance costs.


Ethereum disadvantages

  • Use: being a revolutionary method, Ethereum is still used by few people. Consider that the same Bitcoin, much more famous than Ethereum, is accepted by few companies as a payment system. On its side, however, Ethereum, probably allowing for the negotiation of smart contracts, will probably have more support from companies and institutions.
  • Volatility: like all cryptocurrencies, Ethereum also suffers from very high volatility. This leads to strong price fluctuations even in the short term. The volatile will be caused by the size of the cryptocurrency market. Being small compared to the world economy, small currency shifts are sufficient to cause large fluctuations on the price. A tomorrow that Ethereum will become more used, volatility will decline, making the currency more stable.
  • Continuous development: Ethereum is a rather recent and therefore constantly changing system. You will have to wait for further updates to have a stable and mature network.


Ethereum: ethical aspect

Because of its high security on user privacy, Ethereum has often been linked to criminal activities. Unfortunately, Ether is a currency, and any currency is used for both legal and illegal purposes. Banks, credit cards and all banking systems are often attacked and used for criminal purposes. Ethereum, for its part, has no central offices, does not own the money directly. It is therefore not possible to carry out a robbery at the "Ethereum bank".

Cryptocurrencies are designed and created to make money safer. Ethereum cannot be counterfeited, an unwanted charge cannot be received and transactions are irreversible. By using backups and passwords, you can protect your wallet from the bad guys.

Some concerns have arisen because Ethereum could be more attractive to criminals, since it can be used to make private and irreversible payments. However, these features already exist thanks to cash payments and bank transfers, which are widely used for illegal purposes.

According to the experts, cryptocurrencies are too complicated for most criminals.


How are Ether created?

The new Ether are generated through a competitive and decentralized process called "mining". This process consists of rewarding individuals for the services they have performed. Bitcoin "miners", by processing transitions and protecting the network using specialized hardware, are remunerated through new Ether.

Mining is a very competitive activity. When more miners join the network it becomes increasingly difficult to make profits. Those who have more computing power will still be able to make a profit at the expense of other users. No central authority or developer has the power to control or manipulate the system to increase its profits. Each Ethereum node will reject everything that does not respect the rules that the system expects to follow.


What determines the value of Ethereum?

The price of a single Ether is determined by the difference between supply and demand. When demand increases, the price rises. Conversely, the price is lowered. As Ethereum is still a small market, it does not need large amounts of money to move the market price down or up. This generates a high volatility of the Ethereum listing.

Since Ethereum is a monetary system based only on supply and demand, there is a real risk of seeing the price fall from one day to another. This does not mean, however, that we are facing a speculative bubble. A bubble occurs when a certain number of people decide to manipulate the market to their advantage, increasing the price of something of value. Ethereum, not being based on traditional economic laws, cannot be a bubble, as nobody has the possibility to modify it.


How to invest in Ethereum

There are several ways to invest in Ethereum, some more secure than others. The main method is the direct purchase of Ether. This happens through specialized sites, called exchange, which allow you to exchange euros for Ether. The main risk of this method is to invest a large sum of money in a currency that is worth the half the next day. As described above, Ethereum is characterized by strong volatility.

An additional form of investment in Ethereum is trading. Thanks to the many existing platforms on the net, it will be possible to try to get profit from Ethereum price instability. Brokers offer this possibility thanks to the use of CFDs. These contracts for difference are assets that follow the trend of the currency in real time. The strong volatility of the cryptocurrency, can allow to obtain high profits, with a careful investment strategy.



The new Ethereum cryptocurrency has revolutionized the world of digital coins. Thanks to the possibility of negotiating smart contracts, the system soon became famous throughout the world. Thanks to the main features of the network, it has all the credentials to reach and overcome Bitcoin.

The possibilities of access to cryptocurrency are numerous. You can decide to become a miner Ethereum, but you need to consider the need for a high-end computer. More computing power means more profit.

Direct purchase is one of the most used methods to enter the Ethereum world. 

Roberto D.
Roberto D.

Born in Italy, I live in Italy, passionate about cryptocurrencies since I discovered ethereum in 2015


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