How to Use Ethereum
Should the ‘unstoppable world computer’ be actualized as planned, it could serve as an alternative to the Facebook and Google’s of today. Ethereum might not be instinctive as the today’s web, but, anyone who owns ether – unique pieces of code that allows for updates on the blockchain ledger – can try out the platform given that they possess a smartphone or a computer.
The first thing you need to do is create a secure storage for your ether or at least a place to store your private key and that brings the need of a ‘wallet’. Losing your private key means your ether is lost forever. The removal of trusted parties is a two-edged sword as there is no help desk to turn to for the recovery of your security key due to the absence of intermediaries.
With the knowledge of this, we can choose from either desktop wallets, web wallets, hardware wallets or paper wallets for the storage of the cryptocurrency. The choice largely depends on an individual’s preference for convenience and security, however, the two concepts lie at an odd with one another (the more convenient it is, the worse the security and vice versa).
These wallets run on your personal computers or laptops. An option is to download a copy of the entire Ethereum blockchain (Ethereum client). There are several Ethereum clients written with different programming languages and therefore having different performances. The process can take up to a couple of days and is estimated to become worse as Ethereum grows. The wallet is then required to be constantly synced with the latest transactions on the blockchain network.
Also known as the light clients, the mobile client requires a smaller amount of data to connect to the network and complete transactions and are most suitable for use on a smart phone. This option is very convenient but comes with considerably less security. Complete Ethereum clients validate transactions by themselves and are better secured as they do not require miners or nodes to send them accurate information’s. The storage of private keys on a device not connected to the internet (known as ‘cold storage’) is more difficult to meddle with its content and thereby very suitable for the storage of large ether holdings. This method, however, is not easy to use when compared to the storage on smartphones or computers connected to the internet.
These wallets are devices as small as a finger or two and they offer the best of both worlds. They can be detached from the internet and still sign transactions while offline. However, when ether use is frequent or when on the move, the deposit-box-like system isn’t the best option.
Another cold storage means is the use of a paper wallet where you can either print or scribble the private keys on a paper and lock it somewhere very secure like a deposit box. Online tools have the capability of generating key pairs directly on your personal computers which could expose your private keys once the site is hacked.
Generating keys by making use of the command line once you are in the possession of the necessary cryptographic package installed in a preferred language is also possible. It is important to reiterate that once the private key is misplaced, it is gone forever. Therefore, it is advisable to make multiple copies of the private keys and keep them in a very secure location should one be misplaced or destroyed.
Depending on country or currency, you need to identify with anyone online or in person who is in possession of ether and is willing to trade. The option of meeting face-to-face to buy or sell ether is possible especially if you live in a city with constant Ethereum meetups such in most Australian capital cities.
In less populated areas, face-to-face transactions are not popular but through exchanges, you can either buy ether directly with dollars or bitcoin after completing the signup process. Purchasing ether with a different currency might require an extra step. With bitcoin being the most commonly traded cryptocurrency, users who want to purchase ether with rubles for instance, could purchase the bitcoin using the rubles at an exchange and then trading that for ether. Once in possession of the ether, it can be transferred directly to another person for a little transaction fee paid to the miners.
The application of the ether is quite different from the bitcoin even though they make use of similar terminologies like the wallet and exchanges. Ether users can create smart contracts – codes that automatically executes terms of an agreement without depending on a third party. Bundles of this smart contracts can then be utilized in the creation of decentralized applications (‘dapps’) which can be used or joined.
What’s the system?
Ethereum and other cryptocurrencies have a rather conflicting system of storage but it is useful to compare it to what we already know. Cryptocurrencies allows for the generation of an identification number similar to the numbers in front of a credit card that tells a bank where to send money when swiped.
In this concept, there are two major components necessary for identification: the public key and the private key. The two keys, which are usually a random string of letters and numbers, are linked together by cryptography.
The public keys can be sent to everyone to denote where money can be sent to. When you need ether, you’d need an address (random string of letters and numbers gotten from the similarly random public key) for people to send coins to.
To spend ether, the funds needs to be signed over using your private key which is likened to a password or the PIN used to unlock funds in a credit card at the ATM or in a store. The key benefit on open blockchain such as the ether or bitcoin, is that users can generate an identification number for funds transfer at any given time and don’t require a bank to approve a bank account and present a credit card.