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.

Ethereum Could Soon Steal Bitcoin’s Thunder as Inflationary Hedge

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By Yasin Ebrahim

Investing.com – Ethereum is still well below its May highs, but a hotly anticipated update expected in the coming weeks could pit it against bitcoin as a destination for institutional dollars seeking a hedge against inflation.

“The main goal of the 1559 Ethereum improvement proposal, or the London fork [expected to kick off July] is to change how users make transactions on Ethereum, and we believe that it should be very positive for the price of ETH,” Amber Ghaddar, PhD, Founder AllianceBlock said in an interview with investing.com.

The Ethereum community is betting big that this fork will give ether, or ETH, the token used to fund operations on the Ethereum network, that all-important scarcity factor that could see it ride the same wave of institutional demand that bitcoin has enjoyed.

At its core, the update will divide transaction fees on Ethereum into base fees and tips. The base fees will be burned, or destroyed, cutting the amount of the ETH in supply, keeping inflation in check.

“There’s hope the London fork coming in July is going to make ether a deflationary asset,” Ghaddar said. “Some ETH is going to be burned … [potentially] making it more attractive as a store of wealth, allowing Ethereum to expand its target market.”

While the deflationary feature of the improvement proposal has many excited, the high fees on Ethereum - as a result of congested network – has kept scalability on a short leash. Ethereum has been the go-to protocol for developers, raking in the bulk of Decentralized Financial, or DeFI activity, but rivals including Cardano, Binance and Polkadot are providing competition.

While the London fork will make the Ethereum “highway” wider, easing congestion and helping to reduce fees, it isn’t the real solution. The real solution is to build more highways, and the Ethereum 2.0 holds the key.

“The London fork is going to make the highway wider, but you need to build more highways, and this is only going to occur with Ethereum 2.0,” Ghaddar added.

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The timeline is uncertain as to when the full transition to Ethereum 2.0 will be completed, with some touting early 2022 as a potential timeline.

The importance of getting a handle on spiraling fees holds sway for the wider adoption of Ethereum particularly for the masses, who have been left behind.

“The whole idea of blockchain is to decrease fees, and to democratize access to capital, and we are very far from this at the moment, because the issues that we have, due to the way the blockchains are set up,” Ghaddar added.

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