Ether is the native currency of the Ethereum platform that creates dApps or distributed applications. Ethereum-enabled smart contracts is the USP of the Ethereum platform. These Smart contracts are highly secure and auditable with the utmost transparency. Similar to bitcoin’s blockchain system, Ethereum’s blockchain or smart contracts is immune to manipulations, frauds, and even downtime.
Understanding Ether and Ethereum
Ether typically serves two purposes; it serves as a digital asset for cryptocurrency trading; it also serves as a token for running programs on the Ethereum platform. Simply put, Ether is used to monetize work and to run applications inside the Ethereum platform.
Bitcoin, the first cryptocurrency was created primarily to serve as a globally accepted digital currency. Although Bitcoin has yet to achieve this feat, it has managed to become a highly volatile and liquid cryptocurrency. Ether came into existence in 2015, six years after the inception of bitcoins. Unlike Bitcoin, Ether was created to serve as payment for programs that run on the Ethereum network. Nonetheless, Ether, like bitcoins, is exchanged on a myriad of cryptocurrency exchanges and trading platforms.
How Ether’s Market Works?
Ethereum mining is the process of creating Ether. Ethereum mining is based on the Ethash algorithm and involves solving complex mathematical problems. Typically, Ethereum mining involves finding the hash of unique header metadata of the block. Once mined the new block is added to the blockchain network post validation on the Ethereum network.
Both Ethereum and Bitcoin mining use the PoW or Proof-of-Work protocol. However, the creators of Ethereum’s blockchain would be shifting from PoW to PoS or Proof-of-Stake protocol. And, once this happens, new blocks will be created via PoW mining; however, with PoS, each node would participate in the consensus mechanism where it would directly be proportional to the Ethereum blockchain’s stake.
How Does Mining Affect Price?
Initially, for every block mined, the miners were rewarded with 5 ETH. However, by the last quarter of 2017, the reward was reduced from 5 ETH to 3 ETH. The year 2019 witnessed ‘the thirdening’ of the reward, which was reduced from 3 ETH to 2 ETH. On the contrary, the reward for every Bitcoin block mined is 12.5 BTC. Nevertheless, the reward is likely to get halved sometime in 2020, according to Ethereum News Today.
Ethereum mining increases the supply of Ether, and thus, affects its market price. Besides, only a specific number of bitcoins (21 million) can be generated indicating that Bitcoin mining will cease once this mark is reached. Although this is the case, surprisingly, Ethereum is more volatile than Bitcoin in the cryptocurrency market.
Ether’s Market Volatility
According to the Cryptocurrency Volatility Index or VIX, the annual VIX of Bitcoin is 53%, whereas the annual VIX of Ethereum is 70%. Likewise, the daily VIX of Bitcoin and Ethereum are 2.77 and 3.66 respectively.
How Does Ether’s Price Market Fluctuate?
The high value of bitcoins and their potential use as a globally exchanged mode of payment makes them highly volatile. However, cryptocurrency experts believe Ethereum will likely surpass bitcoins in value in the years to come. In fact, there are many reasons attributed to the volatility or price fluctuation of Ether (ETH) that makes it a trending crypto, which is on par with bitcoins (BTC.)
Triangular arbitrage involving Bitcoin, Ethereum, and Ethereum Classic (ETC); major technology giants like Microsoft, Intel, etc using Ether, negative media coverage, and the lack of government regulations are reasons attributed to Ethereum’s price fluctuation. And, crypto traders bank on these fluctuations for generating profits.
Top 5 Tips When Trading Ethereum
Ether is one of the highly volatile cryptocurrencies traded in the crypto market. Here are five Ether trading tips that every trader must know.
- Risk Management : Generally, the higher the leverage, higher the profits or losses. Make sure to set stop-loss and take profit limits for minimizing losses.
- Use Fundamental and Technical Analysis: A blend of both is ideal for analyzing trading signals and market indicators.
- Diversify Your Portfolio: Cryptocurrencies in general are highly volatile and unpredictable, which makes diversification of one’s portfolio a must.
- Market Cap: Rather than buying any crypto token for its low price, gauge its market capital, because the higher the market cap better the profits.
- Keep Emotions at Bay: Successful traders make trading decisions based on market analysis and not by their emotions (greed, excitement, etc.)
Trends come and go, profits fall and rise, and Cryptocurrencies are unpredictable, but have the potential to generate passive incomes. Ether is one of the highly volatile cryptocurrencies. So make sure you follow the Ether trading tips listed above to maximize profits. Also, You can also check out Ethereum Prediction by crypto experts to get more knowledge about it.