Why should you invest in Ethereum?

Following the success of Bitcoin, developers thought of creating other cryptocurrencies to improve on what Bitcoin was already offering or to design something different in the finance space. Ethereum is one of those projects that was meant to carve out its niche by being a payment cryptocurrency and a platform that developers would use to build decentralized apps.

Ethereum is one of the growing technologies in the ever-evolving world of digital currency. The blockchain-based network has grown from $1.50 a share to over 2,000. Despite Ethereum’s skyrocketing value, not many people understand what it is and if it’s a good investment.

Is Ethereum a sustainable form of currency, and should you invest in it? This guide will walk you through everything you need to know about ETH, how to invest in it, and all the pros/cons of Ethereum investing.

The Conceptualization of Bitcoin and How it Gave Rise to Ethereum

Bitcoin was the first cryptocurrency to fuel the growth of blockchain technology. Its conceptualization transformed the way people conducted financial transactions as it assured people of anonymity and security.

BTC eliminated the need for intermediaries as the digital currency was stored on the cloud through blockchain technology. The network also revolutionized the banking industry by removing the need to have high transaction charges.

Despite the growth of Bitcoin, it had its shortcomings. Bitcoin could only confirm three to four transactions per second. BTC is also limited as a digital currency, which means you cannot use it for another purpose.

Network congestion and mining efficiency largely influence the transaction fees and speed. Furthermore, the use of this digital currency depends on internet availability.

These drawbacks led to the formation of Ethereum, which is the second-largest cryptocurrency in the market. Ethereum was created to improve and augment Bitcoin and expand its capabilities.

What is Ethereum?

Vitalik Buterin, a programmer, first came up with the idea of Ethereum in late 2013. He thought that Bitcoin needed an avenue for developers to create their apps on the blockchain. However, developers rejected the idea, and Buterin decided to create Ethereum with three more people.

Ethereum is a blockchain-based network that uses smart contracts to build other types of apps beyond simple transactions. Smart contracts execute transactions automatically when specific criteria is met. That provides more flexibility compared to Bitcoin that only allows simple transactions.

Unlike Bitcoin that acts as a digital currency to facilitate transactions, Ethereum is a blockchain-based network that uses Ether as a cryptocurrency to fuel the Ethereum network and operate smart contracts.

That means that any user looking to make changes to an application on the Ethereum blockchain will pay a transaction fee in Ether to compensate the network that facilitates the changes on the blockchain.

The number of Ether it takes to complete a transaction depends on the time required to process and computing power.

Worth noting is that Ethereum also supports different tokens like ERC-20 tokens. Tron and Binance Coin all started on the Ethereum blockchain.

Why Should You Invest in Ethereum?

Some of the reasons you should consider investing in Ethereum

Ethereum Has Different Applications Beyond Peer-to-Peer Digital Transactions

Unlike Bitcoin that only facilitates digital transactions as a cryptocurrency, Ethereum does more. ETH can create digital agreements written in code to help users make payments and agreements with each other without a third party involvement, also known as smart contracts.

These contracts are blockchain programs that get executed based on how the programmer developed them. For example, if a developer sets a parameter that any funds deposited into an account can only be withdrawn when all parties agree, funds will be released once all the parties reach a consensus and agree.

Developers can also build decentralized applications on the Ethereum blockchain using Solidity, a native programming language. Under the D’apps framework, new businesses are being developed on the Ethereum blockchain network. Having many blockchain businesses and apps running on Ethereum creates demand for Ether and pushes its price up.

The platform also gives you access to several Defi (Decentralized Finance)projects. These are some of the reasons investors opt for Ethereum as they can use it in industries like gaming, energy distribution, medicine, and more. ETH promotes the tokenization of healthcare records, ID verification, voting history, and other agreements.

High Liquidity and Low Inflation Risk

Ethereum is a highly liquid investment asset, which means you can trade it for cash or other assets at low fees. The platform’s transparent inflation plan is subject to less risk as the blockchain network is infinite. You don’t have to worry about the cryptocurrency losing its value.

Decentralized Structure

Another reason you should consider investing in Ethereum is the platform’s decentralized structure. Decentralization is achieved through the use of tokens and smart contracts. That means you don’t have to deal with high transaction fees, restrictive regulations, or global censorship.

Based on Open-Source Software

Ethereum being a blockchain-based network relies on open source software. That in return creates transparency, which strengthens the blockchain. A good example is ERC20 from Ethereum is open source

Having access to open source software means anyone any approved developer can join the community and access the source code.

Ether Is Not Capped

Unlike Bitcoin that is capped at a specific limit, Ether is available as more tokens are in circulation. Users also get to have access to self-executing contracts and fast transaction speeds. It takes about 15 seconds to earn Ether and up to 10 minutes for Bitcoin transactions.

Integration of NFTs

NFTs are Ethereum-based tokens used to verify ownership of any asset attached to the token. Various platforms allow you to use Ether tokens as payment for NFTs. With non-fungible tokens, anyone can buy and sell digital media online. These tokens rely on the blockchain to authenticate artwork, which makes Ethereum a profitable channel to invest in.

NFTs can benefit creators and artists working in the digital space. The Kings of Leon rock band applied NFTs into their latest album and generated engagement and revenue. Ethereum is providing new livelihood for creators and allowing them to venture into more projects whether it’s in gaming, fashion, art, or finance.

New Opportunities for Growth

Cryptocurrency trading is still in its early stages, and Ether coins are becoming mainstream. There are improvements to the Ethereum blockchain that could make Ethereum a huge success and further push the price up.

Although Ethereum uses a Proof-of-Work system to validate transactions, the developers plan to move the platform to a Proof-of-Stake system. The PoW method needs extensive computing power and electricity, while the PoS is more cost and energy-efficient.

Ethereum could be more decentralized and valuable than Bitcoin if Ethereum implements Proof of Stake. The new changes could make the network more secure than BTC.

The rise of Ethereum 2.0 is another factor that will influence the growth of Ethereum in 2021. This new technology will focus on staking and energy efficiency rather than minIng.

Blockchain technology is evolving, and this is expected to attract more crypto traders as this network can facilitate commodities trading, online payments, and loan distribution.

What are the Risks of Ethereum?

Although Ethereum may contribute to global computing systems and monetary exchange systems, you should also be aware of the risks and concerns surrounding Ethereum investing.

Some of the potential disadvantages of Ethereum include:

Scalability Issues

Despite Ethereum’s growth, its current state cannot support a significant enterprise-level D’app. The network can only support 15 transactions per second, shared among the entire network of decentralized apps running on the platform.

Although Ethereum is designed to work as an operating system for dapps to operate on, its functionality is limited to large projects and entities. You’ll realize that enterprises need high throughput of transactions, but Ethereum cannot provide that to its users.

Uncertainty Over Its Future

There’s uncertainty over Ethereum and its growth as the network is still being developed. A good example is the Ethereum 2.0 upgrade that proposes the transition of the blockchain network from a Proof-of-Work to a Proof-of-Stake algorithm. In case the transition doesn’t go as expected, the system could crash.

Security Concerns

Back in 2016, an anonymous hacker stole $50 million in Ether. The security breach led blockchain developers to develop a protocol change that led to the establishment of Ethereum classic. It was a cryptocurrency independent of ETH.

Volatility

The price of Ether has gone through dramatic fluctuations. A good example is in 2021, when the currency hit an all-time high of $3,542 after rallying from $2081 at the start of the month.

Final Thoughts

Ethereum as a developing platform has limitless potential and applications. Its innovative technology and low-risk nature make it an attractive investment. The increased use of DeFi projects is expected to raise the ETH value further.

Understanding how Ethereum works and ways to make the most out of your investment is essential, whether you’re a new investor or someone looking to profit from trading on the platform. You need to know all the potential risks you could be exposed to because of Ethereum’s high volatility nature and market risks.