Should You (or Anyone) Buy Ethereum?

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Bitcoin’s younger sibling is giving it a run for its money.

Ethereum is a digital currency that claims to be “the world’s programmable blockchain.” It is more nimble than Bitcoin, and chances are you won’t move far into the world of cryptocurrencies before you come across it.

But what does it do? And should you buy it? Read on to find out.

What is Ethereum?

Ethereum, the world’s second-biggest cryptocurrency by market capitalization, is like Bitcoin’s agile little sibling. It uses less energy and has faster transactions and more business applications.

Many digital currencies run on Ethereum’s platform, which launched in 2015. A new, improved, version called “Eth 2” is being rolled out in stages. It will support more transactions per second, consume less energy, and have enhanced security.

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One big difference between Ethereum and Bitcoin is that its blockchain ledger has smart contract capabilities. Smart contracts are self-executing pieces of code that allow an action to be performed when certain conditions are met.

For example, a smart contract in a digital book might set out what royalties should be paid when the book is sold. Or it might mean an insurer automatically pays out in specific situations, without any need for the client to file a claim. Payments could also be set up to transfer automatically as goods move along stages in a supply chain.

Should you buy it?

Like every investment – but especially crypto investments – there are risks involved with buying Ethereum.

For one, its price is volatile. You might see dramatic gains, but you might also see heavy falls. Also, since cryptocurrencies are a new type of investment, it’s difficult to judge which coins will perform well in the long term.

I put a small amount of money into crypto each month. But before I started, I first built up my emergency fund. I also made sure my new crypto investing didn’t come at the cost of my retirement contributions.

These moves ensure I’m only investing money I can reasonably afford to lose. That way, if the price of cryptos collapses tomorrow, I can wait for it to rise again. And if it doesn’t, I can stomach the losses.

Where you choose to invest should depend on your own priorities and strategy, but here are the reasons Ethereum could be interesting.

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Many things run on Ethereum

Ethereum underpins a lot of the exciting applications of blockchain technology. It’s designed to be used to create new coins and run smart contracts. Plus, right now, you need to own Ethereum if you want to do other things – such as trade on some platforms or buy NFTs. If the crypto world continues to grow, so should Ethereum.

Eth 2 will be more environmentally friendly

One concern I have about crypto is the environmental cost. To validate and confirm transactions, a number of cryptocurrencies use a proof-of-work (PoW) model, which uses a lot of energy.

Right now, Bitcoin uses about 130 terawatt hours (TWh) of energy each year, which is about the same amount of energy as countries like Ukraine or Argentina. Ethereum uses about a fifth of that amount, but it’s still as much as a small country like Ecuador.

Eth 2 will move from the carbon-costly PoW model to the more energy-efficient proof-of-stake (PoS) model. I won’t go into the technical details here, but estimates suggest the new mining model could cut its energy consumption by 99%.

Eth 2 will also be easier to scale and more secure, which is a bonus.

I can stake my Ethereum

One way to earn interest on your crypto is through staking.

Staking involves tying up your coins for a set amount of time so that they can be used to mine more coins. One challenge is that there are limited staking windows. Once they are full, you have to wait for another window.

I don’t have that problem with Ethereum. Right now, many top cryptocurrency exchanges will let you stake until the Eth 2 limits are reached. In doing so, you’ll also be part of the Eth 2 development.

The downside? Your Ethereum will be tied up for an undefined amount of time, which could be as long as two years. Since I plan to hold my Ethereum long term, I’m comfortable with this – especially as I’m earning about 8% interest on my staked coins.

What are the risks?

We’ve already touched on the general risks of cryptocurrencies. There are also some Ethereum-specific risks to be aware of.

First, Ethereum is not the only cryptocurrency to offer smart contracts. Currently, several coins are operating in this market. They include:

Neo

Cardano

VeChain

EOS

And if these coins can do it better, there’s a chance they could knock Ethereum off the top spot.

There’s also the ever-present danger of hacking. Not only could the exchange or hot wallet where you store your currencies be hacked, but so could the Ethereum network itself.

That’s why it’s better to be safe than sorry. As with any investment, don’t just take my advice – or the advice of anyone on social media. Do your research and try to understand what the cryptocurrency you’re interested in actually does, and what its long-term potential is.

Here’s Why This Ethereum ETF Might Be the Best Crypto Stock in Canada

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The cryptocurrency industry has exploded since the start of 2020, with Bitcoin up a whopping 470%. However, Ethereum is up over 1,850%. So, when several Bitcoin ETFs were launched in Canada earlier this year, many investors were eagerly waiting for an Ethereum one.

The crypto industry is a tricky place to invest, though. On the one hand, you have assets like Bitcoin and Ether that could actually be solid long-term investments. Then, on the other hand, you have assets like Dogecoin, which was created as a joke and has little to no real value.

There’s a reason, though, why only Ethereum and Bitcoin are going mainstream. There’s a reason you can buy a Bitcoin or Ethereum ETF in Canada, but not one for Dogecoin.

There are many more cryptocurrencies like Dogecoin that offer no real value than there are like Bitcoin or Ethereum, offering real long-term potential.

In fact, you can at least spend Dogecoin in a select number of places, unlike thousands of other cryptocurrencies, which essentially have no use case.

Why Bitcoin and Ether are the top cryptocurrencies

There are certainly cryptocurrencies besides Ethereum and Bitcoin that could be worth an investment. However, as I said before, there’s a reason why in Canada, you can only buy an ETF that invests in Bitcoin or Ethereum. So, unless you understand these technologies well and have hundreds of hours to do the research, your best bet is to stick with these two.

If a cryptocurrency is going to have value as a real currency, one of the most fundamental things it needs are use cases that give it value. For Bitcoin, because it’s so widely held globally, it’s a growing medium of exchange. Plus, as it’s gotten less volatile over the last year, it’s quickly becoming a store of value, especially with many fiat currencies being devalued globally.

The list of places you can spend it continues to grow. Without that, though, Bitcoin would have a lot less value.

Other cryptocurrencies, such as Ether, are worth an investment because of the blockchain technology they power. Investors have caught onto this, which is why soon after several Bitcoin ETFs were launched in Canada, so too was an Ethereum ETF.

Story continues

The Ethereum network continues to have a tonne of potential. Having the ability to enable smart contracts is just the tip of the iceberg, and this technology will only continue to grow as the cryptocurrency industry expands.

For example, many of the most valuable cryptocurrencies you can buy operate on the Ethereum network. An example is Wrapped Bitcoin, the 22nd most valuable cryptocurrency in the world.

Wrapped Bitcoin is a token on the Ethereum network that can be exchanged 1:1 with a real Bitcoin. However, the Wrapped Bitcoin was created so that investors could use Bitcoin more freely and easily on the Ethereum network.

So, while there are plenty of reasons to buy Bitcoin, in my view, the potential Ethereum offers investors over the long term is unmatched.

A top Ethereum ETF in Canada

There are a variety of ways to gain exposure to Ether. You could buy it yourself, or you could buy a stock with heavy exposure to Ethereum. However, one of the best ways, in my view, is to buy CI Galaxy Ethereum ETF (TSX:ETHX.B).

Owning the ETF is a superior investment for several reasons. Firstly, buying the ETF that holds Ether can be beneficial if you do it in a registered account like the TFSA.

This would allow you to save on the taxes instead of buying the Ether yourself outside a registered investment account. With Ether prices up 1,500% over the last 12 months, saving on taxes is a big consideration.

Plus, buying it yourself can be complicated and extremely costly. It will almost surely be cheaper for most investors to simply pay the commission costs of buying an ETF.

Furthermore, buying the ETF is not just less risky than buying the Ether yourself. It’s also a lot less risky than buying a cryptocurrency miner.

Much of the growth and innovation in cryptocurrency happens on the Ethereum network. So, if you’re looking to gain exposure to the rapidly growing cryptocurrency industry, this Ethereum ETF is one of the top investments in Canada.

The post Here’s Why This Ethereum ETF Might Be the Best Crypto Stock in Canada appeared first on The Motley Fool Canada.

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ETH: Ethereum Prices Are a Runaway Train, So Grab Your Ticket

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