What is Ethereum?

ETHEREUM is a cryptocurrency that was released in 2015 and is the second largest after Bitcoin.

In fact, some experts believe it has the potential to one day overtake Bitcoin as the dominant coin in the market.

The price of Ethereum is up by almost 9% according to data recorded over the past 24 hours.

But what exactly is Ethereum and why is it going up in value? We explain what you need to know.

What is Ethereum?

Ethereum is a decentralised network of computers, designed to execute contracts and transactions.

While Ethereum is a commonly used term, it is not a coin but a blockchain.

It is actually Ether which is the native token on the network.

Ethereum is also a ledger technology – using “blockchain”, like Bitcoin – that companies are using to build new programmes.

A blockchain is where encrypted data can be transferred securely, making it nearly impossible to duplicate or counterfeit.

This ledger is the foundation of any cryptocurrency transaction.

5 risks of crypto investments

THE Financial Conduct Authority (FCA) has warned people about the risks of investing in cryptocurrencies.

  • Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements. 
  • Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
  • Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market. 
  • Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.  
  • Marketing materials: Firms may overstate the returns of products or understate the risks involved.

The cryptocurrency allows people to trade currency or assets digitally outside of any government or bank.

It can also be used in smart contracts, DeFi, non-fungible tokens (NFTs) and as a currency.

Ethereum is trading at $4,392 at the time of writing, according to coinmarketcap.

That's up around 8.8% in the past 24 hours.

Ethereum hit an all time high of $4,837 last month, but has fallen since then.

What are the risks of cryptocurrencies?

Buying cryptocurrencies as well as stocks and shares is a very risky business.

Investing in crypto is not a guaranteed way to make money, so make sure you know the risks and can afford to lose the cash.

Cryptocurrencies are highly volatile, so your cash can go down as well as up in the blink of an eye – and you can lose all the money you put in.

So while Ethereum and other cryptocurrencies have been rising this year, they can easily tumble – as we have seen.

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Plus, some products and cryptocurrency services are very complex to understand. You should only invest in things you understand. 

There's also no guarantee that you'll be able to convert cryptoassests back into cash, as it may depend on the demand and supply in the existing market. 

Fees and charges may also be higher than with regulated investment products. 

Who founded Ethereum?

It was founded by eight people who prided themselves on being blockchain enthusiasts.

One of these is 27-year-old cryptocurrency "celebrity" Vitalik Buterin.

He recently became the world's youngest crypto billionaire as Ethereum soared in value.

Another, Anthony Di Iorio, recently said he was "done with the cryptocurrency world, partially because of personal safety concerns".

What is Ethereum 2.0?

Talk of an Ethereum 2.0 started as far back as 2019, but the full release of the xx is not expected to happen until early next year.

Ethereum 2.0 – or Eth2 – is a set of upgrades designed to make Ethereum more scalable, secure and sustainable.

Some experts have predicted that the changes could see Ethereum topple Bitcoin's dominance of the industry.

Users of Ethereum or those who hold ETF don't need to do anything.

What price could Ethereum reach?

Ethereum has rocketed in value over the course of this year.

It hit an all time high in November after a wave of interest across crypto which pushed up many digital coin prices this year.

The surge to a record high of $4,837 meant Ethereum rocketed by more than 2,000% since last year.

The price of Ethereum is currently $4,392 at the time of writing, according to coinmarketcap.

Cryptocurrencies across the board crashed last month after a crackdown by China was announced and billionaire entrepreneur Elon Musk raised concerns over the environmental impact of Bitcoin mining.

The plunge follows a startling rise for Ethereum as investors bet that ether will be of increasing use in a decentralised future financial system.

James Quinn, managing director at Q9 Capital, a Hong Kong cryptocurrency private wealth manager, said Ethereum's rise over the year was also down to a number of other factors.

These include improvements made to the ethereum blockchain, and agrowing shift towards “DeFi”, or decentralised finance, which refers to transactions outside traditional banking for which the ethereum blockchain is a crucial platform.

Brits are being warned they risk losing all of their money if they invest in bitcoin and other cryptocurrencies.

It comes after a ban on some crypto-related investment products.

From Dogecoin and Litecoin to Bitcoin – here are the different cryptocurrencies explained.

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