Is Ethereum a Good Investment?

Is Ethereum a good investment?

Since launching in July 2015, Ethereum has become the second biggest cryptocurrency by market cap, and the most built on blockchain with the widest eco-system.

Coined as a world computer, a decentralized operating system, the web 3.0, it was the main driver behind the altcoin rally in 2017-18, seeing an all time high of near $1350, as almost $800 billion entered the crypto space.

But since then, notwithstanding Bitcoin and a few other coins, the crypto space and Ethereum has been through a cyclical downturn. This has seen many altcoins fall by the wayside, but in a bear market is when the hard work gets done.

So, is it time to be bullish again? Bitcoin has just had its halving, and this is usually a good signal for the crypto space, but what about Ethereum, is it a good investment?

What is Ethereum?

Ethereum is an open-source blockchain network that facilitates the construction of decentralized applications (dApps) on its platform, making it easy for developers to construct such a thing, while also giving them the security of the Ethereum network.

Ethereum

Ethereum is similar to Bitcoin in some ways. They’re both decentralized and have miners verifying the blocks. Both networks have a coin that helps power it, but whereas Bitcoin’s is for peer-to-peer payments, Ethereum’s ETH token is also needed by developers wanting to build on the blockchain.

What’s more, because Ethereum runs through the Ethereum Virtual Machine (EVM) it enables better smart contract capabilities, and its these that really give Ethereum the edge, even against Bitcoin.

A smart contract is a complex software algorithm designed to support commercial contracts that are coded to self-execute when all terms are met. And because the Ethereum blockchain is secure and open, it acts as the guarantor of the contract, thus eradicating the need for any expensive middlemen such as notaries or lawyers.

What Makes ETH Valuable?

When you buy Ethereum, you’re essentially buying ETH. It’s the coin that powers the Ethereum blockchain and it has very different utility and properties to Bitcoin’s native token.

BTC is capped at 21 million, and there will never be any more. It’s primary use case is as a peer-to-peer digital payment system. ETH does not have a limit, and there are 2 ETH for each block reward, meaning an average of about 4.5% inflation per year.

What makes ETH Valuable?

Not having a limit means ETH can’t be considered ‘hard money’ unlike BTC, but that’s by design because a limit to it would ultimately limit the capacity of the Ethereum blockchain.

Users need ETH to pay for transactions. This is called Ethereum Gas, but basically, it’s a fraction of an ETH. Investors can use ETH for speculating on cryptocurrency startups, that are built on the Ethereum blockchain, and developers need ETH to build smart contracts.

More than 90% of the top 100 cryptocurrencies by market cap are built on Ethereum. These include USDT Tether, Chainlink, MakerDAO, and Brave, and all of them are growing at fantastic rates, and have their own economies built in, while using the security of Ethereum.

Although it must be noted that most tokens built on Ethereum have not delivered their promise, yet, and many have been going since 2017. However, with the above tokens mentioned Ethereum really is beginning to show its capabiltiies.

MakerDAO is leading the DeFi space, and most of that is built on Ethereum. Already there is over $800 million locked up in smart contracts in just over two years since launching. As that grows, the need for ETH will grow too.


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Ethereum of The Future

Ethereum development is on-going, and what we have now and what we will have in five years time are very different. The Ethereum Foundation are currently on with Ethereum 2.0, which is slowly being introduced.

Ethereum 2.0 is underway, albeit in Phase 0, which means the internal structure is being developed for Phase 1. When rolled out, Ethereum will shift from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS), and when it does it will move from miners to stakers validating the transactions.

One would need a minimum of 32 ETH to be able to stake ETH when it does move to a PoS algorithm, and it’s believed this will attract some big investors who will see the guaranteed returns as too good an opportunity not to invest and stake.

Locking up a large amount of ETH will create a supply shock, thus boosting and then stabilizing the price after they go on to stake it. But as more stakers stake ETH, the percentage of returns will lessen, however, this could entice whales to buy more ET to maintain a level of earnings, which again would push up the price.

And maybe the icing on the cake for ETH is the Gas charges will no longer be paid out, be instead burned. Gas is basically ETH, which is paid out to miners at the moment. Once Ethereum is a PoS crypto, however, these charges will be burned, meaning the inflation rate will drop drastically, which ultimately means there will be less circulating supply.

Yet another supply shock will mean a higher price for your ETH.

Ethereum PoS

Final Thoughts on Ethereum

Ethereum has grown so much in the five years since launch. It steered the 2017-18 bull run, and is home for thousands of dApps, and is the platform for the new DeFi global economy.

Companies of all sizes from Microsoft, JP Morgan to small independent startups are building on it. They all believe Ethereum has the capabilities to become the platform for the web 3.0.

It’s frustrating waiting for Ethereum 2.0, and even Vitalik Buterin has said things are going slower than expected. But it is being ironed out, and Ethereum will transition to become a PoS platform. Just try and own 32 ETH when it does.

Author: Tommy Limpitlaw

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When I came up with Ethereum, my first first thought was, 'Okay, this thing is too good to be true.' As it turned out, the core Ethereum idea was good - fundamentally, completely sound

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