Ethereum: All You Need To Know To Decide If This Crypto Is Worth the Investment

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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.

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Therefore, we will cover a popular blockchain technology called Ethereum (ETH). 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.

Read: Dogecoin: Is It a Worthwhile Investment?

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; and as of May 18, it is at around $3,349, according to Coindesk. That’s a pretty hefty increase in just over a 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.

Will Ethereum Kill Bitcoin?

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A common critique of Bitcoin (CRYPTO:BTC) is that it is outdated technology in the fast-moving world of cryptocurrency and it will eventually be replaced by something better. There are different versions of this theory, with some saying another decentralized cryptocurrency will overtake bitcoin as the best crypto money and others saying bitcoin will eventually be made obsolete by central bank digital currencies (CBDCs).

Let’s focus on the former theory. The Ethereum (CRYPTO:ETH) network’s underlying ETH cryptocurrency has the most support. During the initial coin offering (ICO) bubble of 2017, various crypto market commentators claimed that ETH overtaking BTC as the largest and most popular cryptocurrency is inevitable. Although this didn’t happen back then, the idea of a “flippening” taking place has gained traction once again, as the BTC-denominated price of ETH has nearly tripled so far this year.

The argument for ETH over BTC

The main argument for Ethereum over Bitcoin is that the latter of the two cryptocurrency networks is limited by a lack of technical functionality in the form of smart contracts. Smart contracts enable advanced crypto use cases such as non-fungible tokens (NFTs) and decentralized finance (DeFi). Mark Cuban has pointed to these sorts of use cases as his reasoning for preferring ETH over BTC.

DeFi in particular has been the main source of attention for Ethereum over the past year or so, as various apps have enabled new ways of doing traditional financial activities like issuing assets, trading, borrowing, lending, and more. The argument is that ETH will overtake BTC as the most widely used cryptocurrency due to these additional applications.

The argument for BTC over ETH

A key argument against the idea that DeFi and other types of decentralized applications is that much of the activity on Ethereum today is likely unsustainable. Many of the Ethereum use cases that are popular today, such as stablecoins and the trading of those stablecoins against ETH, involve the reintroduction of third-party risk, which puts into question whether it makes sense to build these applications on a decentralized blockchain.

Bitcoin itself also has various solutions for implementing many of the use cases that have gained popularity on Ethereum. Sovryn is a relatively new DeFi application built on Bitcoin that combines many of Ethereum’s touted use cases into a single interface. It has long been argued that Bitcoin can adopt any new tech that is developed by its competitors, and Sovryn is an illustration of that point happening right in front of our eyes.

If Bitcoin is able to adopt the features of its competitors, then the real competition between cryptocurrencies has more to do with their monetary properties than anything else. And in that department, bitcoin is still by far the most liquid, stable form of crypto money with the most credible, unwavering monetary policy.

When Will Ethereum 2.0 Launch? • Benzinga

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Ethereum is the leading smart contract-enabled blockchain and it has big plans for 2021.

Currently, Ethereum is a proof-of-work (PoW) cryptocurrency, meaning its network is secured by energy-intensive hashing algorithms. Other cryptocurrencies like Bitcoin, Litecoin and Dogecoin use PoW consensus, but this model drastically reduces the blockchain’s capacity.

ETH2 will be the most monumental upgrade to come to Ethereum’s blockchain. It will change the way Ethereum’s network is secured, allowing for a much higher transaction throughput as well as significantly reduced transaction costs.

What is Ethereum?

Ethereum is one of the largest cryptocurrencies by market capitalization, second only to Bitcoin. While both Bitcoin and Ethereum use blockchain technology to secure their networks, they aren’t direct competitors. Bitcoin aims to be a store of value –– you can think of Bitcoin as digital gold. Ethereum aims to be the settlement layer for the internet; you can think of Ethereum as the reserve currency for decentralized finance (DeFi).

The most notable advantage that Ethereum has over Bitcoin is its smart contract capability. Smart contracts are code that’s uploaded to the blockchain, making the code immutable and uncontrollable by a 3rd party. Smart contracts are currently being used for decentralized exchanges (DEXs), lending, insurance and many other financial functions.

If you’re active in the cryptocurrency space, you may have heard about Ethereum gas fees. Gas fees are needed to use Ethereum’s blockchain, and these fees are calculated based on the computational power needed to execute functions on the blockchain. For example, you’d need to pay a small amount of gas to send a transaction, but you’d need to pay higher gas fees for functions like swapping crypto, deploying code and providing liquidity.

What is DeFi?

DeFi is short for decentralized finance. It’s an innovative new field within blockchain technology and it allows users to conduct financial functions without using a centralized 3rd party like a bank or cryptocurrency exchange.

Most of DeFi is built on Ethereum — and is the largest blockchain network that supports smart contracts. While this is currently the case, competitors like Cardano (ADA) and Binance Smart Chain (BSC) are attracting many new users due to their low transaction costs compared to Ethereum.

The DeFi industry is growing fast, and many projects have gained significant attention due to their unique benefits over centralized financial services. Here’s a quick overview of some of the leading decentralized finance projects on the market today:

Uniswap is the leading decentralized exchange on Ethereum. Users can anonymously trade cryptocurrency directly from their crypto wallet, so there’s no need to trust a centralized exchange to hold custody of their funds. Chainlink is also built on Ethereum, and it seeks to connect real world data with the blockchain. It does so through oracles, which you can learn more about on Chainlink’s website. Wrapped Bitcoin is essentially just Bitcoin on Ethereum’s blockchain. Being able to own Bitcoin on Ethereum allows you to interact with any DeFi programs on Ethereum, such as Uniswap, Aave and Compound. Aave is a decentralized lending platform on Ethereum. It allows users to take out collateralized loans without needing approval from a lending institution. Instead, you must collateralize its loan with cryptocurrency, which will be taken if you default on your loan. PancakeSwap is the leading DEX on BSC. Since BSC is already proof-of-stake, the network fees are significantly lower than Uniswap, which uses Ethereum’s network.

Proof-of-Work vs. Proof-of-Stake

The underlying upgrade on ETH2 is the shift from proof-of-work (PoW) to proof-of-stake (PoS). As mentioned previously, PoW involves cryptocurrency miners that use immense amounts of electricity to solve complicated problems in exchange for mining rewards. In contrast, PoS will secure Ethereum’s blockchain through validators that hold a financial stake in the network.

There are plenty of benefits that come with proof-of-stake consensus. Most notably, Ethereum will be able to scale much more effectively as a PoS coin. Transaction fees will be around 1% of what they are today, and Ethereum will be able to process many more transactions in the same amount of time.

Also, proof-of-stake will make Ethereum an eco-friendly blockchain. Proof-of-Work cryptocurrencies use a ton of electricity –– Bitcoin miners use more energy than most small countries, and the amount of energy is only growing.

One aspect where PoW beats PoS is security. Generally speaking, PoW coins are more secure than PoS coins, as it’s extremely hard to acquire 51% of a network’s computational power (needed for a 51% attack). Because of this, Ethereum developers are working hard to create a decentralized and secure PoS system on the ETH2 testnet before deploying the upgrade to the Ethereum mainnet.

Where to Buy Ethereum

Since Ethereum is such an established cryptocurrency, most dedicated cryptocurrency exchanges support the token. The best trading platform for you depends on your needs as an investor. If you’re simply looking for the lowest fees, Robinhood is your best option.

However, Robinhood doesn’t let you send or receive cryptocurrency from your account, so you won’t be able to interact with DeFi programs if you choose Robinhood. Some great options for beginners that allow you to send and receive Ether tokens include Coinbase, Gemini and eToro.

Best For Crypto Investing Overall Rating Read Review Get started securely through Coinbase’s website More Details Best For Crypto Investing N/A 1 Minute Review Coinbase is one of the Internet’s largest cryptocurrency trading platforms. From Bitcoin to Litecoin or Basic Attention Token to Chainlink, Coinbase makes it exceptionally simple to buy and sell major cryptocurrency pairs. You can even earn cryptocurrency rewards through Coinbase’s unique Coinbase Earn feature. More advanced traders will love the Coinbase Pro platform, which offers more order types and enhanced functionality. Though Coinbase doesn’t offer the most affordable pricing or the lowest fees, its simple platform is easy enough for complete beginners to master in as little as a single trade. Best For New cryptocurrency traders

Cryptocurrency traders interested in major pairs

Cryptocurrency traders interested in a simple platform Pros Simple platform is easy to operate

Comprehensive mobile app mirrors desktop functionality

Coinbase Earn feature rewards you with crypto for learning about available coins Cons Higher fees than competitors Best For New Investors Overall Rating Read Review try for free securely through Gemini Crypto’s website More Details Best For New Investors N/A 1 Minute Review Gemini is a cryptocurrency exchange and custodian that offers investors access to 26 coins and tokens. Founded in the US, Gemini is expanding globally, in particular into Europe and Asia. Offerings include both major cryptocurrency projects like Bitcoin and Ethereum, and smaller altcoins like Orchid and 0x. Gemini is 1 of the only brokers with multiple platform options based on skill level. New investors will love the streamlined interface of Gemini’s mobile and web apps, while advanced investors might appreciate all the tools that come with ActiveTrader. In addition to a host of platform choices, Gemini users also have access to insured hot wallets to store tokens without worrying about digital asset theft. Learn more about what Gemini can do for you in our review. Best For New investors looking for a simple mobile and web app

Experienced investors who need a more advanced platform with more tools

Users looking for a 1-stop-shop to buy, sell and store all of their coins Pros Easy and quick signups — can get started in as little as a few minutes

Multitude of platforms to accommodate traders of all skill levels

Hot wallets include insurance to protect your from theft and hacking attempts Cons Charges both a commission and a convenience fee for users buying and selling through the desktop or mobile app Best For Intermediate Traders and Investors Overall Rating Read Review Get started securely through Webull’s website More Details Best For Intermediate Traders and Investors N/A 1 Minute Review Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit. Webull is widely considered one of the best Robinhood alternatives. Best For Active traders

Intermediate traders

Advanced traders Pros Commission-free trading in over 5,000 different stocks and ETFs

No account maintenance fees or software platform fees

No charges to open and maintain an account

Leverage of 4:1 on margin trades made the same day and leverage of 2:1 on trades held overnight

Intuitive trading platform with technical and fundamental analysis tools Cons Does not support trading in mutual funds, bonds or OTC stocks Best For Buying & selling Bitcoin Overall Rating Read Review get started securely through Robinhood’s website

How to Stake Ethereum for Interest

With proof-of-stake, you can stake your Ether tokens on Ethereum’s blockchain to become a validator. Investors are incentivized to do so, as they can earn interest on their cryptocurrency through staking Ether tokens on the network.

Staking allows you to earn between 6% to 8% annual interest on Ethereum. This interest is paid in Ether tokens, so you’ll be earning an effective interest rate higher than 8% if Ethereum appreciates. So, if Ether goes down in value, then the interest you earn will effectively be less. If you believe Ethereum will succeed over the long term, then staking is a great way to grow your crypto portfolio.

Coinbase has a waiting list for Ethereum staking which you can sign up for today. If you want to stake your ETH as soon as possible, then you can make an account with Gemini to begin staking your Ether tokens today.

When will ETH2 Release?

In short, ETH2 will be released when the developers are confident in the network’s security. The testnet is live, and billions of dollars in Ether tokens are already staked on the testnet. The upgrade has been in the works for years; the initial release was slated for November 2020.

The Ethereum foundation is taking its time to make sure the network is as secure as possible. Hopefully we’ll see a proof-of-stake Ethereum by the end of 2021, but the transition to ETH2 may not be available until 2022.

Is Ethereum a good investment?

Most cryptocurrency enthusiasts believe Ethereum is a good investment. Looking at the past price movements of ETH, the asset has outperformed Bitcoin, making it an extremely lucrative investment for any investors who’ve gotten into Ether before the beginning of the year. Ethereum’s network is far from its final form, and investing before ETH2 may turn out to be a great investment opportunity.

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