Ethereum as an Investment – What you Need to Know
Ethereum has been on a tear in 2021, much like most of the cryptocurrency market. The Ethereum price has also steadily climbed like Bitcoin, but in terms of returns, it has managed to outperform the pioneer cryptocurrency as well and has reached a new all-time high. As a matter of fact, it has also managed to win over people, such as Mark Cuban. He said that even though he had had his fair share of bitcoin, he prefers Ethereum over others. But, to understand this reasoning, you first need to know what it is and how it works.
Vitalik Buter in first introduced it in a whitepaper back in 2013, but it was in 2015 that it was actually launched. This is a decentralized network that uses open-source code and just like Bitcoin, this network is also built on blockchain technology. This means that it is a digital public ledger that allows financial agreements to be stored and verified by computer software and no third-party is involved. The applications that are developed on Ethereum are similar to those developed on Google’s Android system, or Apple’s App Store. The only difference is that Ethereum’s network is not controlled by a single entity.
Every time new data blocks are added, they are ‘chained’ cryptographically to their parent blocks, which creates a record that cannot be changed. Today, it has become the world’s second-largest cryptocurrency in terms of market capitalization after Bitcoin. This is due to the fact that the Ethereum network doesn’t just handle financial transactions, but boasts other capabilities as well. More specifically, it has helped in extending the Bitcoin blockchain’s capabilities to host decentralized applications called Apps through ‘smart contracts’. Bitcoin was undoubtedly the pioneer of blockchain technology that helped in creating a peer-to-peer system. While it uses similar technology, it has added the ability of creating decentralized apps on top of its platform.
This has resulted in the introduction of decentralized finance (DeFi) apps and games, including marketplaces for non-fungible tokens (NFTs) that include collectibles like games and digital art.
Ethereum and Ether
Many people are confused between Ethereum and Ether. It should be noted that like the Bitcoin blockchain, a network of computers that run software are also needed for validating Ethereum. This is known as the process of mining and it means that transactions are verified by a network of computers. Bitcoin miners receive Bitcoin tokens as compensation, whereas Ethereum miners are rewarded in the form of Ether and this fee is also referred to as ‘gas’.
Ether is the cryptocurrency that powers Ethereum and it is sold on various exchanges, such as Coinbase. However, it should be noted that Ether is less like a digital currency and more like a digital commodity. Ether is required for running applications on the Ethereum blockchain, similar to how you need gasoline for running your car. Ether powers smart contracts and is also used for running Apps, making payments, facilitating transactions on the blockchain and generating tokens during ICOs. Therefore, Ethereum, or Ether, is also described as programmable money.
Should you Invest in Ethereum?
An important thing to remember about the cryptocurrency market is that it is highly speculative and volatile. The Ethereum price has been rising steadily in the past few weeks and has touched new all-time highs. It was expected to reach the $5,000 threshold, before the discovery of the Omicron variant caused a stumble in most of the financial markets including cryptocurrency.
However, the market has recovered since then and Ethereum’s price is once more expected to rise. Nonetheless, people need to consider their risk tolerance before they decide to invest because no matter how well-known the coin may be, there are still risks involved. Forecasts indicate that the price of Ethereum will touch the $6,394.27 marking about a year and a five-year forecast puts the price at $16,503.80, which is also quite an impressive return on investment.
