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 Nears USD 2,900 Level as Bulls Collectively Hold Their Breath

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The month of May was filled with a couple of new all-time highs for Ether, during which time it crossed the psychologically important USD 3,000 and USD 4,000 thresholds within days of each rally. After some profit-taking, now it is on the comeback trail and traders are predicting a continued upward momentum if the Ether price indeed reaches the latest target, including a possible “retest” of USD 3,650. Some attention from the mainstream financial media has not hurt.

DeFi Pop

Ethereum has been at the center of some of the hottest crazes in crypto, one of which is DeFi, which is short for decentralized finance. Chances are you’ve heard of DeFi, as it is the blockchain industry’s answer to a financial services industry that excludes people who are unbanked or underbanked. DeFi also cuts out the middleman, so there is no need for a third-party provider such as a bank.

The mainstream financial media can no longer ignore the magnitude of the size of this market, and The Wall Street Journal has featured DeFi in a report today. Ethereum is touted as the key beneficiary of DeFi, considering most developers build their decentralized applications, or Dapps, on the Ethereum blockchain. Some of the more popular ones are Compound, Maker, Uniswap and SushiSwap, to name a handful.

There is currently more than USD 100 billion in total value locked (TVL) in the DeFi space, more than USD 60 billion of which is secured on Ethereum, up from USD 1 billion last year. TVL is a reflection of the amount of funds secured in smart contracts via tokens on projects. DeFi has been a driver of the Ethereum rally this year, as users look to bolster their returns using crypto derivatives and adding leverage to their bets. Last year, the Ether price was hovering below USD 200.

Mainstream Adoption

Ethereum is also getting attention on CNBC, where Miami Mayor Francis Suarez told CNBC that he owns both bitcoin and Ethereum with plans to buy even more. He said:

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“I haven’t bought the dip yet but I’m planning to. I’ve just been too busy.”

Mayor Suarez, a bitcoin bull who wants to turn the city of Miami into a crypto hub, suggested that there could be as many as 100 million-150 million people who own cryptocurrencies. The cryptocurrency market has certainly started to come into its own this year.

Buy Etherum with Binance

This article was originally posted on FX Empire

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