What is Ethereum and how do you buy it?

Liza Visser
8 JUN 2017 • 4 minute read

Recently we’ve seen a renewed interest in Ethereum from our customers. Like Bitcoin, Ether (or ETH, the underlying currency) has soared to an all-new record high over the past few weeks as more and more people warm up to the promising number of possibilities that Ethereum can provide.

At Luno, we currently only support Bitcoin, which to date is still the dominant cryptocurrency, with the largest market cap and the most integrations.

Since we’ve been receiving a large number of questions from our customers about how Ethereum works and how they can purchase it, we have come up with some easy steps for you to follow (see further down).

Ethereum and Ether

People often use the terms Ethereum and Ether interchangeably, however, they are technically different. Ethereum is the smart contract network, whereas Ether is the token or currency needed to fuel the network.

With Bitcoin, both the network and the currency are called "Bitcoin".

Ethereum at a glance

Put simply, Ethereum is an open-source platform, based on blockchain technology, that allows software developers to build smart contracts and decentralised applications, or "dapps" for short.

Whereas Bitcoin is mostly a decentralised, blockchain-powered form of money (a storage of wealth and a means of payment), Ethereum is a decentralised, blockchain-powered software platform.

Just like Bitcoin can be bought, sold, traded and stored on Bitcoin platforms (like Luno), Ether can be bought, sold, traded and stored on Ethereum platforms.

With the Ethereum blockchain —instead of mining for Bitcoin— miners work to earn the currency Ether, which is tradable, just like Bitcoin. However, Ether is also used by developers to pay for transaction fees and services on the Ethereum network when using it to build smart contracts.

When comparing Bitcoin and Ether, it is important to note that Ether is not designed to function as a global digital currency, whereas Bitcoin is. It is designed to fuel the Ethereum network and potential investors should note that supply consistency is not guaranteed in the Ether market, whereas in the Bitcoin market it is.

What is a smart contract?

A smart contract is a term used to describe computer code that can promote the exchange of value; such as money, content, equity shares or even property rights.

Due to the nature of the blockchain, these contracts have the ability to automatically execute when certain terms are met. The contract can handle enforcement, management, performance and payment all by itself, like a self-operating computer program.

For instance, you could develop a crowdfunding platform on Ethereum. When a campaign reaches a certain goal, the funds can automatically be transferred to the fundraising entity (and even to their agreed-upon partners and distributors). Ownership of the items created can be automatically be assigned to (and eventually delivered to) the backers of the campaign.

A benefit of running on the Ethereum blockchain, instead of a centralised system, is that they run as intended without any possibility of:

Censorship
Downtime
Fraud
Third-party interference
With Ethereum, developers can build as many applications as they want and go way beyond anything seen before, in new and surreal ways, such as apps that reward you for living more sustainably.

Ethereum and the future

The number of possibilities that Ethereum can provide is promising. It may have the power to disrupt hundreds of industries, with more possibilities and interesting ideas coming to light every month.

Recently, the United Nations announced that it will be using Ethereum to distribute funds from the World Food Program to refugees. Use of the blockchain cuts out the need for a middleman, decreasing costs and increasing efficiency.

This means, we no longer have to only imagine a world where companies and services are always controlled by any single person, board or other central entity.

Known as a decentralised application, or ‘dapp’, next-generation developers are creating ground-breaking apps with the ability to replace everything that today requires a centralised form of leadership, from companies and services to governments.

Although this all sounds truly amazing, one must be cautious when considering Ethereum and many of the possible solutions punted, as this sentiment is usually attributed to the so-called ‘blockchain hype’. Once hype is over, attention generally shifts elsewhere.

👉 You can learn more about this in our piece where we published our views on why most ‘blockchain’ applications are bound to fail. Luno is still team-Bitcoin (for now) as it is evident that Bitcoin is winning the cryptocurrency race because of significant and potentially unbeatable advantages.

However, we will continue to keep a close eye on Ethereum and demand for it in the market, as we find it great to see how far the innovative technology has come.

How to buy Ether with Bitcoin
Below is a simple step-by-step guide in how you could purchase Ether from the Luno-supported countries.

1. STEP ONE: GET A LUNO ACCOUNT

Get your free Luno account. You will be asked for some identity information, which we need to verify.

1. STEP TWO: DEPOSIT MONEY INTO YOUR LUNO WALLET AND BUY SOME BITCOIN

Log into your Luno account and navigate to Accounts. Click on 'Deposit' shown under your local currency account. After you’ve added money to your Luno wallet, you’ll be able to buy some Bitcoin with it.

1. STEP THREE: FIND A BITCOIN-TO-ETHER EXCHANGE

You can buy a lot of things with Bitcoin, including other digital currencies!

CoinMarketCap has an extensive list of exchanges that allow you to buy and sell Ether. Look for the the ETH/BTC currency pair; they’re ranked by 24h volume. Poloniex has historically held the highest volumes.

Another popular solution is an "instant exchange" like ShapeShift or Changelly, both which will require you to send Bitcoin (from Luno) and it will convert it to Ether, which it will send to your Ether wallet.

👉 Note that we can’t make any recommendations nor can we provide customer support for any third party platforms or wallets. You'll need to do your homework and decide on the platforms that work best for your needs.

Handy article: How to send Bitcoin with Luno

Once the Bitcoin arrives, simply follow the platform’s instructions how to purchase ETH.

In closing

Since day one, we’ve been keeping a close eye on the progress, use cases and adoption of Ethereum, all around the world. We'll keep monitoring the payment and crypto-currency landscape, keep listening to our customers and keep working hard with the community building the financial system of the future.