Ethereum (ETH): What It Is, What It’s Worth and Should You Be Investing?

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Cryptocurrencies have skyrocketed in popularity recently and this trend shows no signs of slowing. Given all the talk around these digital assets, you might be wondering whether now is the time to invest. But before pulling the trigger, it’s always a good idea to have an understanding of the underlying asset. Cryptocurrency is no exception and it is quite different than investing in stocks or bonds.

Read: What Is a Non-Fungible Token and Why Are They Booming?

Therefore, we will cover a popular blockchain technology called Ethereum. Like many blockchains, Ethereum has a native coin called ether. Let’s take a closer look at what Ethereum is and whether you should consider investing.

What Is Ethereum?

Ethereum is an open-source, decentralized blockchain technology. Ethereum’s native coin is called ether. This coin is one of the largest cryptocurrencies by market capitalization, second only to Bitcoin (BTC). Although ether has a smaller market cap than Bitcoin, Ethereum is the most widely-used blockchain.

See: What Is Chainlink and Why Is It Important in the World of Cryptocurrency?

One thing that is important to understand about Ethereum is that it is not the same as Bitcoin. Whereas Bitcoin’s purpose is primarily to be a digital currency, Ethereum is much broader. In fact, Ethereum is an open-source operating system and computing platform. It also supports distributed applications (dApps) and smart contracts.

Another key aspect of Ethereum is that it enables decentralized finance, which is an important part of how the system works. Because the system is inherently decentralized, there is not a single entity controlling it or the value of ether.

More: How the IRS Taxes Cryptocurrency – and the Loophole That Can Lower Your Tax Bill

What Is Ethereum Worth?

Like many cryptocurrencies, the price of ether has fluctuated greatly since it launched in 2015. Back then, its price was around $1 and stayed there for several months. The price reached $1,358 in January 2018, its highest price ever at the time. The price began to fall, as did the price of many cryptocurrencies; ether bottomed out at $83 in December 2018.

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The price has ebbed and flowed since then but has risen overall. At the beginning of April 2020, the price was around $140; now, it is almost $2,100. In other words, the price increased by 1,400% in just one year.

Read: Breaking Down the Basics of Cryptocurrency

Should You Invest In Ethereum?

If you decide to invest in ether (and therefore, in Ethereum), you should first ask yourself why you are investing. Although the price of the coin has risen substantially over the past year, it can be extremely volatile. Thus, if you buy ether simply hoping the price will rise, you may end up frustrated.

On the other hand, the Etherum blockchain can be used for many different applications, said Tally Greenberg, head of business development at Allnodes. “Ether is the cryptocurrency required for any transaction made on Ethereum, a blockchain network of applications. A blockchain, on the other hand, is a technology with limitless potential. It doesn’t rest on Ethereum alone and can be used to make a difference in our future with or without cryptocurrencies.”

See: 10 Best Cryptocurrencies To Invest in for 2021

Sam Bretzmann, the owner of Blocklink, agrees with this sentiment. “The difference here is that instead of investing in individual projects which may or may not make it, you can invest in the infrastructure. You can think about it like this, go back to 1999, and instead of having to try and pick which up and coming businesses will survive, you get to just pick ‘the internet’ and invest in that.”

This article is part of GOBankingRates’ ‘Economy Explained’ series to help readers navigate the complexities of our financial system.

Ethereum hits new high after Visa allows virtual currency on its network

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Blockchain technology Ethereum has seen its price reach a new all-time high of $2,150 following Visa’s decision to allow cryptocurrency for transactions on its platform.

The cryptoasset, which hosts the Ether (ETH) cryptocurrency, was trading at just under $150 a year ago but has soared in value over the last year as its popularity grew among both retail and institutional investors.

It reached a previous record in February before falling steeply as markets took a more cautious turn and then rising again due partly to the £50million sale of a painting by artist Beeple as a non-fungible token (NFT).

Simon Peters, a cryptoasset analyst at eToro, believes Ethereum ‘looks poised to continue its steep ascent’ and calls its massive rise over the last year ‘nothing short of incredible’

Visa’s declaration on Monday last week that it would accept the use of USD Coin for trades on its payment network is the latest sign the mainstream financial industry is embracing virtual currencies.

USD Coin is a stablecoin - a cryptocurrency whose value is pegged to an outside asset like gold - that can run on the Ethereum network. Visa’s move is the first time a large payments firm has allowed such a currency for settlement.

Simon Peters, a cryptoasset analyst at online trading platform eToro, believes Ethereum ‘looks poised to continue its steep ascent’ and calls its massive rise over the last year ‘nothing short of incredible.’

He added that Ether’s use in decentralised finance applications and deposit contracts has contributed to its growing status. This, he observes, ‘reduces the supply in circulation while announcements like Visa’s increase demand, thereby pushing prices higher.

‘Likewise, following the network’s London hard fork in July, billions of dollars of ETH are expected to be burnt – i.e. bought and then destroyed by the Ethereum blockchain – further reducing the overall supply and forcing prices higher still.

‘All of these factors combine to suggest that the following quarter and the remainder of the year could be very healthy indeed for ETH.’

Payment: The cryptocurrency market has received a boost from Visa’s announcement last week that it would accept the use of USD Coin for trades on its payment network

Ethereum’s growth also comes as the cryptocurrency industry’s total market capitalisation hits the $2trillion figure for the first time, having doubled in value just over the previous two months.

Bitcoin makes up more than half of the market’s total valuation at $1.1trillion. The currency is still slightly down on its mid-March record but was nonetheless trading at $60,547.70 today.

‘Momentum and interest have begun to expand beyond bitcoin and ethereum,’ said Paolo Ardoino, chief technology officer at crypto exchange Bitfinex.

‘As the industry continues to mature, we expect more blockchain-based applications to be introduced to the world, and coinciding with that, a surge of interest around other alternative assets… as they become more market-ready,’ he added.

Blockchain data provider Glassnode, in a research report, said the fact that bitcoin has held the $1trillion market cap for one week is a ‘strong vote of confidence for bitcoin and the cryptocurrency asset class as a whole.’

Famous Bitcoin supporters include Twitter founder Jack Dorsey, the creators of the Gemini cryptocurrency exchange Cameron and Tyler Winklevoss, and Tesla boss Elon Musk, whose tweets praising the digital currency have prompted its value to increase.

Musk has additionally tweeted his approval of Dogecoin, which was originally started as a joke by a pair of software engineers in 2013. Its value has jumped by over 3,000 in the last 12 months while Bitcoin’s has only grown 750 per cent.

Bitcoin Vs. Ethereum, Which Should You Be Buying?

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Bitcoin and Ethereum are the most widely recognized and largest cryptocurrency markets in the world. Bitcoin was introduced to the market in 2009, initially trading at less than the value of a cent, it has since risen in value to over $50,000, Ethereum, more recently debuted in 2015, has in the space of 6 years increased from $3 a token to selling well over $2000. The near fantastical growth of these two digital assets has drawn investors looking to cash in on the trend.

New investors, however, may be led to believe that Bitcoin and Ethereum are the same. This belief would be encouraged because both services offer cryptocurrency coins. Bitcoin offers the titular Bitcoin, while Ethereum offers Ether; however, nothing could be further from the truth.

Bitcoin, the forerunner of all cryptocurrencies, was designed as a digital currency that would eventually replace fiat currency. It has inbuilt features intended to maintain a stable store of value in the cryptocurrency. As well as being a decentralized currency free from government or commission control, there is a limited supply of Bitcoin in the market, ensuring that its value never becomes inflationary. And because these features make bitcoin very similar to gold, bitcoin has become a favorite of investors looking for long-term investments.

Ethereum, on the other hand, was built around different principles and use cases. Ethereum is a decentralized network designed for the end-level user. One of its most popular features being the creation of decentralized applications by users of the Ethereum network, through which smart contracts can be arranged. These features have unveiled a new world of finance called decentralized finance or DeFi, which aims to put total control of digital currencies in the users’ hands.

Alex Adelman, CEO of Lolli, has compared Bitcoin and Ethereum to Gold and Electricity, respectively, because Bitcoin, like gold, stores value for future use Ethereum, like electricity, facilitates other innovative technologies.

So the curious investor looking for a long-term investment that is stable and assured should buy into the bitcoin market. But for any investors looking for a market with a high potential for rewards, albeit with significant risk, Ethereum, and its smart contracts, may be the right fit.

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