Ethereum: what is it and what’s it worth?

Cryptocurrency investors have over a thousand digital coins to choose from in today’s market but only a select few consistently find themselves at the top of the pile. 

One of those virtual currencies is Ethereum, which has been playing second fiddle to bitcoin since joining the market in 2015. 

The cryptocurrency was one of the standout digital tokens at the start of the year, says The Daily Telegraph, after it jumped from a value of around £340 per coin in December to over £1000 in mid-January. 

Prices have since tumbled due to a number of policy changes, such as South Korea’s ban on anonymous cryptocurrency exchanges in February, but Ethereum is still the second most valuable virtual coin in existence. 

Here are some key facts about bitcoin’s closest competitor:

What exactly is Ethereum?

Much like bitcoin and other digital currencies, Ethereum is a virtual coin that allows for anonymous transactions online. 

The cryptocurrency was created by the Russian-born programmer Vitalik Buterin in 2013, when he was just 19 years old, says Wired, and was listed on public exchanges two years later. Buterin established Ethereum as an open-source alternative to bitcoin, meaning that third parties could use the technology for stocks, bonds or even “deeds to houses”.

The cryptocurrency is decentralised, says Digital Trends, meaning the digital tokes – commonly referred to as Ether – aren’t held or regulated by a single company or bank. Instead, Ethereum tokens can be purchased, stored and used for anonymous transactions by the individual. 

So how does it work?

Ethereum is based on blockchain technology, an anonymous online list that logs all the cryptocurrency’s digital coins in existence and who owns them. 

The ledger itself isn’t stored in one place, says BBC News. Instead it’s distributed across thousands of computers through the internet. 

When you purchase an Ethereum token using a cryptocurrency exchange, such as Coinbase, the online ledger is updated. You are then given an encrypted digital key to access your block on the list, the BBC says. The ledger records every transaction ever made and cannot be altered or tampered with.

This process is similar to most cryptocurrencies. It was pioneered in 2009 by bitcoin’s mysterious founder, who uses the pseudonym Satoshi Nakamoto.

What sets Ethereum apart from its rivals is its open-source architecture, which makes it simpler for third party companies to work with. 

Bitcoin’s appeal, according to The Daily Telegraph, is that it allows users to store their money outside banks. Ethereum, on the other hand, can be used to store files on a cloud storage service or spawn smaller independent digital tokens known as initial coin offerings (ICOs).

Ethereum has a loyal fan base. These fans believe the cryptocurrency’s value lies in its ability to improve the efficiency of transactions, rather than in its ability to store money online, the paper says.

Which companies use it?

Cryptocurrencies have met with a mixed reception so far, due to their volatility as well as to scams associated with the technology, but the Ethereum network has been adopted by several corporations over the past 12 months. 

According to Time, nine major companies, including JP Morgan Chase, Microsoft and Intel, now use the technology. These firms recently established the Enterprise Ethereum Alliance in a bid to get more firms to use the Ethereum technology. 

A number of start-ups also use Ethereum in surprising ways, Business Insider reports. Rather than focusing on making millions for their investors, their goals are more modest.

Ixo Foundation, for example, uses the Ethereum network to keep track of volunteer workers, the news site says. Users can log how many hours they tutored a child or how many trees they planted on the network, which can then be accessed by people across the world through the blockchain. 

How much is it worth?

The average value of a single Ether coin sits at around $535 (£381), according to the ranking site CoinMarketCap. This value can fluctuate sporadically throughout the day. 

Ethereum’s current value is significantly lower than its all-time high at the start of the year. Figures from CoinMarketCap reveal the cryptocurrency peaked at around $1,400 (£1,000) in January. 

Analysts told the Daily Express that the virtual coin’s drop in value could be attributed to Google’s announcement last week that it was planning to axe cryptocurrency adverts.

A number of other cryptocurrencies were affected by the announcement, the paper says, including key Ethereum rivals bitcoin, Ripple and Litecoin.