Ethereum is an attractive investment. Is it time to get in or out? Keep reading to find out more.
Ethereum is not a currency; it is a global computer for running decentralized applications. If you want to utilize Ethereum trade to run your app or execute a transaction, you must pay in Ether (ETH), the cryptocurrency that powers the Ethereum network.
While Bitcoin is an excellent store of value, it does not support smart contracts like Ethereum. One may argue that Ethereum is just as beneficial as a monetary reserve. Having said that, many people choose bitcoin as a means of storing wealth owing to its hard-capped supply. While the number of Bitcoin and Ether in circulation is growing, only 21 million bitcoins will ever be in circulation. However, if Ethereum 2.0 and EIP-1559 proceed as intended, the amount of Ether may actually decrease over time, making the token deflationary.
Since its inception in 2015, Ether has been vying with Bitcoin for the title of the largest cryptocurrency by market capitalization, and it came dangerously close to surpassing Bitcoin in February 2018. Both currencies have now achieved new highs, and 2023 appears to be an optimistic year for their ongoing rise. According to certain observers, Ethereum will “flip” Bitcoin this market cycle to become the main cryptocurrency in the industry.
Ethereum vs. Bitcoin Investing
Bitcoin and Ethereum serve very distinct functions. Bitcoin, like gold, may be maintained for security reasons. Ether may also be used as a store of value, and the Ethereum Virtual Machine enables a variety of novel applications, such as DeFi, NFTs, and the metaverse.
The Ethereum Virtual Machine may be used to create “smart contracts,” which are computer programs. Non-fungible tokens are built on Ethereum smart contracts, which have the potential to automate the processing of thousands of different financial goods (NFTs). Businesses may use smart contracts to create fully functional apps such as decentralized exchanges (DEXs) and automated market makers (AMMs).
Although Bitcoin’s blockchain theoretically allows smart contracts, Ethereum is the most likely long-term settlement layer due to its specialized programming language and large developer team. The blockchain is a distributed ledger that is used to record Bitcoin transactions. Ethereum is a distributed ledger and decentralized digital currency that may be used for more than simply transactions.
It is impossible to say with certainty which of the two is the better investment. Both Bitcoin and Ethereum are likely to thrive for the foreseeable future and can coexist peacefully. Despite being more volatile in general, Ethereum looks to be the most useful cryptocurrency. It is ultimately up to you to make investment decisions (or work with an investment advisor).
What I appreciate about Ethereum
The meteoric rise of Ethereum has piqued the interest of both retail and institutional investors. When compared to more traditional investments, Ethereum and other cryptocurrencies have the following advantages:
Volatility. While this was often seen negatively, experienced investors have learned to forecast market cycles and profit from the huge price rises that occur during market bubbles.
Liquidity. Ethereum has swiftly become one of the most liquid investment assets due to the expansion of exchanges, trading platforms, and online brokerages throughout the world. Ethereum may be instantly and cheaply converted into fiat cash and precious commodities like gold. Bitcoin’s high liquidity makes it an appealing investment instrument for traders looking for short-term returns. Because of their high market demand, digital currencies might be an excellent long-term investment.
Inflationary risk has been reduced. Ethereum has a well-defined inflation mechanism that is less vulnerable to manipulation than international currencies, which are administered by governments. Because the blockchain system is unlimited, there is no need to be concerned about the value of your coin.
Despite the fact that NFTs and many other new applications are still in their early stages, Ethereum and DeFi are fast reaching widespread use. Due to its novelty, this investment opportunity may be susceptible to severe price volatility.
The Downsides of Ethereum
Even though Ethereum has a favorable influence on the future of monetary exchange and global computer networks, you must be aware of the hazards connected with acquiring virtual currencies. The existence of these difficulties may mislead some investors; nevertheless, be assured that they are overstated (or will be handled soon) and do not render Ethereum a bad investment in general.
Ethereum investment characteristics include:
Those who bought Bitcoin on December 17 paid a total of $20,000 for it. After a few weeks, the best price you could have obtained for your investment was $7,051. Maintaining a constant eye on the market, the volatility of Ethereum is not unique, and it is a concern shared by numerous cryptocurrencies (barring a few stablecoins). This is not to imply that Ethereum is a bad investment in general.
Expensive transaction costs
Transaction fees, which are perhaps Ethereum’s main drawback, are preventing the network from gaining widespread use. Because accessing Ethereum’s blockchain may cost hundreds of dollars, private investors with smaller sums of money are barred from using the network. While alternative smart contract blockchains have lower prices, Ethereum’s blockchain has the most applications and use cases.
New rules and regulations
The government is unlikely to allow cryptocurrencies to operate completely uncontrolled for long. New limits may clash with corporate models, resulting in problems that are completely beyond your control.
Online hacking is a risk.
Many bitcoin investors are concerned about hacking. Most exchanges allow you to buy and sell cryptocurrency using a mobile app or website. Many people, however, hold their currencies in exchange wallets. This exposes consumers to the risk of losing their funds if the exchange is hacked and their private keys are stolen. The FDIC does not insure funds held in most bitcoin exchanges.
Emerging smart contract systems such as Binance Smart Chain, Cardano, and Polkadot are challenging Ethereum. While these currencies are more scalable than ETH, they lack Ethereum’s decentralization and the huge DeFi ecosystem.
While Bitcoin’s use of proof-of-work consensus is also a disadvantage, it works better against Ethereum. While bitcoin transactions are solely necessary for money transmission, the Ethereum network is used for a variety of purposes. Proof of work is more expensive and slower than proof of stake, which many ETH competitors now use.