Should You (or Anyone) Buy Ethereum?
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.
The Ascent’s picks for the best online stock brokers Find the best stock broker for you among these top picks. Whether you’re looking for a special sign-up offer, outstanding customer support, $0 commissions, intuitive mobile apps, or more, you’ll find a stock broker to fit your trading needs. See the picks
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.
Buying your first stocks: Do it the smart way Once you’ve chosen one of our top-rated brokers, you need to make sure you’re buying the right stocks. We think there’s no better place to start than with Stock Advisor, the flagship stock-picking service of our company, The Motley Fool. You’ll get two new stock picks every month from legendary investors and Motley Fool co-founders Tom and David Gardner, plus 10 starter stocks and best buys now. Over the past 17 years, Stock Advisor’s average stock pick has seen a 582% return — more than 4.5x that of the S&P 500! (as of 5/3/2021). Learn more and get started today with a special new member discount. Start investing
- 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.
ETH: Ethereum Prices Are a Runaway Train, So Grab Your Ticket
How You Could Double Your Money at Least 6 TIMES This Year
On May 19, iconic growth investor Louis Navellier will reveal how his powerful quant-based stock system could accelerate your wealth and help fund your retirement.
Ethereum Market Cap Now Half the Size of Bitcoin
Get daily crypto briefings and weekly Bitcoin market reports delivered right to your inbox.
Key Takeaways Ethereum’s market cap is now half the size of Bitcoin’s. The ratio between the assets is 0.08.
Many crypto followers believe that Ethereum could overtake Bitcoin to become the largest cryptocurrency by market cap in the future.
Ethereum’s roadmap for the coming months includes EIP-1559 and “the merge” to Proof-of-Stake, which could bode well for ETH’s price action.
Share this article
The recent Ethereum rally has raised calls for what the crypto community has dubbed “The Flippening.”
Bitcoin Dominance Plummeting
Ethereum is catching up with Bitcoin.
The second-ranked cryptocurrency hit a market cap of $478.5 billion today, which is just over half that of Bitcoin. ETH has trended back over $4,000 in the last 24 hours, while BTC is trading just at $50,938—over 20% off its all-time high. ETH has been rallying against BTC for weeks now. The ratio between the two assets has hit 0.08, and Bitcoin’s market cap dominance has slid to around 41%.
One of the strongest narratives in the crypto community of recent weeks has been the possibility of an event that’s been called “The Flippening.” Ethereum believers have long discussed the possibility of the number two network overtaking Bitcoin in market cap terms. Ethereum would need a ratio of 0.016147 to overtake Bitcoin today, which equates to an ETH price of around $8,224. The event has often been described as improbable.
That’s changed this year, with Ethereum regularly hitting new record highs amid surging demand. In the last few weeks, legendary crypto traders like Cobie and Su Zhu have shared the view that Ethereum taking the top spot is likely.
On many metrics, Ethereum already ranks ahead of Bitcoin. It processes about 1.5 million transactions daily while Bitcoin does about 250,000. Ethereum’s daily fees significantly eclipse Bitcoin’s. Ethereum also has a vast ecosystem that’s home to DeFi apps like Aave, Uniswap, and Compound.
Crucially, Ethereum still has a big few months of development ahead. On Jul. 14, the protocol will ship EIP-1559, which will add deflationary pressure to ETH by introducing a gas fee burn on transactions. EIP-1559 inspired the “ultra sound money” meme that Vitalik Buterin and others have discussed recently. After it ships, “the merge” to Proof-of-Stake is due to follow. Certain signs suggest that institutions are starting to take an interest in ETH.
With Elon Musk helping to resurface the environmental debate surrounding Proof-of-Work, Ethereum’s scheduled Proof-of-Stake update could also strengthen its narrative. Should the interest in Ethereum continue, Bitcoin may need a new wave of institutional adoption to hold onto its crown.
Disclosure: At the time of writing, the author of this feature owned ETH, FLI, AAVE, and several other cryptocurrencies. They also had exposure to UNI and COMP in a cryptocurrency index.
Share this article