The idea of using ethereum may sound intimidating, but it could be rewarding.
If the “unstoppable world computer” is developed following to the idea, it could provide alternatives to Facebook and Google that many people use every day (as explained in “What is Ethereum?“).
It is possible that Ethereum is not as intuitive as the web as we know it today, but still, anyone with a computer or a smartphone can try the platform as long as it has ‘ether‘: unique pieces of code that allow updates to the blockchain ledger
First, you need a place to securely store your ether (or at least one place to store your private keys). This brings us to the “wallets” of ethereum.
One caveat is that losing your private key is much more important than losing a password: it means losing your ether, forever.
Eliminating trust parties is a two-edged sword. While intermediaries are no longer needed to verify transactions, there is no helpdesk to turn to for help recovering your secret key.
With that in mind, there are many options for wallets to store cryptocurrencies: desktop wallets, web wallets, hardware wallets and paper wallets.
Choosing one depends on your convenience and security preferences. In general, these two concepts disagree with each other: the more convenient, the worse the security (and vice versa).
Desktop wallets run on your PC or laptop. One option is to download the ethereum client software (a copy of the entire ethereum blockchain). There are some ethereum clients written in different programming languages and with different performance compensations.
This process can take up to a couple of days and will only increase as the ethereum grows. Then, the wallet must be synchronized with the latest blockchain transactions.
Mobile clients, or “thin” clients, require that less data be downloaded to connect to the network and perform transactions, so they are more suitable for downloading to a smartphone.
The thin client option is more convenient, but not so safe. Ethereum full customers offer a safer way to receive transactions because they don’t need to rely on miners or nodes to send them accurate information: they validate the transactions themselves.
The storage of private keys on a device that is separate from the Internet (a method known as “cold storage”) is more difficult to hack and is better used to store large amounts of ether.
However, the method is not as easy to use as when the ether is stored on a smartphone or a computer connected to the Internet.
Hardware wallets, which are often as small as a finger or two, offer the best of both worlds. These secure devices that can often be disconnected from the Internet and can sign transactions without being online.
But, again, this deposit box type system is not a good option if you want to use the ether frequently or on the move.
Another cold storage option is to carefully print or write by hand a private key on a piece of paper, a “paper wallet”, and lock it in a safe place like a deposit box. Online tools can generate key pairs directly on your computer, not on a website’s servers, which could leave the keys vulnerable if the site is hacked.
It is also possible to generate keys using the command line, provided you have the necessary cryptographic packages installed for your preferred language.
All that has been said, once again, if you lose your private key, it is gone forever.
Therefore, the best practice is to spend extra time creating multiple copies of the private key and hiding them in different secure locations, in case one is lost or destroyed.
Obtaining ether varies by country, or at least depending on the currency. You need to find someone online or in person who has ether and wants to trade.
There is always the option of meeting in person to buy or sell ether, especially if you live in a city with frequent ethereum meetings, such as New York or Toronto.
That is not always an option in less populated areas. The exchanges allow users to buy ether directly with dollars or bitcoin. Usually, there is a registration process.
Buying ether with another currency could take an additional step.
Bitcoin is the most used cryptocurrency, and people around the world are more likely to want to exchange it in their currency. So, if you want to buy ether for rubles, for example, the easiest way could be to buy bitcoin in an exchange and then exchange it for ether.
Once you have an ether, you can send it directly to someone else (“peer-to-peer”). It will probably cost a small transaction fee paid to the miners.
What can users do once they have ether?
You may have noticed that the wallet and swap jargon up to this point have been quite similar to Bitcoin. But the applications of ethereum are quite different.
Users with ether can join or create smart contracts (code that automatically executes the terms of an agreement so you don’t have to depend on a third party).
Smart contract packages can be used to create decentralized applications (“dapps”), which you can use or join.
What is the system?
But before continuing, it is worth explaining a bit about how it works. Ethereum and other cryptocurrencies have a certainly confusing storage system.
It may be useful to compare it with what we already know.
Did you notice the number chain on the front of your credit card? It is necessary for banks to determine where they should send money when the card is slipped. Cryptocurrencies allow you to generate similar identification numbers that identify where to debit the funds.
In this system, users need two main components for identification: the public key and the private key. Generally represented as an encoded string of numbers and letters, the two keys are linked by cryptography.
The public key can be sent to others so they know where to send their money. If you want people to send you ether, you need an address: a coded string of letters and numbers derived from the public key coded similarly, for people to send coins.
To spend ether, you must sign the funds with your private key, which, as the name implies, is similar to a password. In the credit card analogy, it is similar to the pin used to unlock your funds at the ATM or in a store.
So what is the benefit of this system? A key difference in open block chains (such as bitcoin and ethereum) is that users can generate an identification number for their funds at any time. They do not need to wait for a bank to approve a bank account request and submit a credit card.
Article Source: http://www.coindesk.com