Would you like to start investing in the world of cryptocurrencies? Here are some reasons why Ethereum could be a great place to start.
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Being the second largest cryptocurrency in the world, Ethereum (ETH) has a following that may even be stronger in some ways than that of Bitcoin (BTC). There Ethereum blockchain seems to be the building block on which a range of stable currencies, dApps, decentralized exchanges and NFT exchanges are based (more on that later).
Investors who bought Ethereum five years ago saw their money increase over 270 times. This kind of incredible capital appreciation is extremely rare within any asset class. However, even after this bullish run, there is reason to believe that Ethereum could still have many benefits for long-term investors.
Many argue that Ethereum can find a way to surpass Bitcoin, taking the top spot in the world of cryptocurrencies. That event – called ‘the flippening’ – is something that many in the crypto space have been predicting for a long time.
We discuss three reasons why Ethereum remains the top choice among many cryptocurrency investors right now.
Ethereum provides real world applications
Perhaps the key ingredient of the success of Ethereum is its inclusion of smart contract since its inception. Way back in 2013, Vitalik Buterin saw the importance of providing a cryptocurrency network with ways to execute transactions immediately after some agreed conditions are met. This feature has spurred a series of real world applications extending from finance to insurance, healthcare and other large sectors waiting to be shut down.
Being a decentralized and open source blockchain has its advantages for those who hold ETH tokens. As Ethereum becomes the platform on which developers build dApps or projects focused on cryptography, theEthereum’s network effect grows.
Consequently, theutility provided by Ethereum is real and tangible. Other cryptocurrencies struggle with this concept. While other cryptocurrencies possess currency-like characteristics, the decentralized finance and real-world applications that Ethereum has unlocked is a game changer in many ways.
The fact that Ethereum powers an incredible number of major and high-profile crypto projects right now leads investors to the idea that owning the basic building blocks of the cryptocurrency ecosystem is a good idea. Indeed, this is a difficult concept to argue against.
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Ethereum will be (greener) soon
Perhaps one of the biggest arguments against ownership or acceptance of cryptocurrencies in recent times is the sheer amount of energy needed to power these blockchain networks. Also one of the most optimistic influencers in the cryptocurrency world, Elon Musk, took to Twitter to push for a change on this issue.
The rise of Ethereum as one of the first cryptocurrencies necessitated a proof-of-work cryptocurrency mining model. Miners, or those who verify transactions through the blockchain, had to be rewarded for doing so. After all, there are costs to add the computing power needed to build a network to begin with.
However, with the world of cryptocurrencies which appears to have evolved to an almost ubiquitous status among investors, Ethereum seeks to change its ways. The cryptocurrency network has announced a proposed enhancement of Ethereum 3554 (or EIP-3554, for short) to move to a proof-of-stake model.
By allowing Ethereum users to stake their existing Ethereum tokens to verify transactions, a significant reduction in energy is observed across the blockchain. Those who stake their tokens will be rewarded in a similar way (via multiple ETH tokens). However, the amount of energy consumed through the blockchain will drop dramatically, which is a good thing for those looking to make passive income from their holdings without investing the capital for mining rigs and managing the ongoing energy costs associated with mining. The total reduction of energy through the Ethereum network is estimated by the Ethereum foundation to be around 99.95%.
This move is expected to greatly improve the social costs of the cryptocurrency mining (and indirectly, ownership of cryptocurrencies). Those looking to own a greener, leaner cryptocurrency might start shifting to mega-cap Ethereum as their primary choice over Bitcoin for this reason alone.
Ethereum powers the NFT world
Perhaps the biggest buzzword in the cryptocurrency world right now is NFT (non-fungible token). NFTs have become popular in the past year, due to the rapid increase in the ratings of these digital assets. Notoriously, a non-fungible token was sold earlier this year for a whopping $ 69 million. These types of price tags tend to invite speculators to the party quickly.
It just so happens that Ethereum powers some of the NFT markets largest and best known at this time. Among them, opensea.io has seen an incredible volume in recent times. NFT investors seem to like the flexibility of using Ethereum to trade their artwork. However, other cryptocurrencies such as Solana (SOL) are emerging as competitors in the race for NFT market share.
Will Ethereum be able to crowd out the competition in these growing cryptocurrency markets? Time will tell. However, investors looking to bet on the larger and more robust ecosystem certainly have their fair share of reasons to consider Ethereum right now.
The cryptocurrency space is certainly volatile to begin with. Investors intrigued by what the cryptocurrency space has to offer may want to take a look at Ethereum. After all, this is one of the most robust and open platforms on which much of the crypto ecosystem is built.
Like any high-risk, high-yield speculative investment, cryptocurrency investors should always remember to stay within their limits. These are digital assets that have exploded and crashed spectacularly in the past. Putting all of your eggs in such a basket may not be great, particularly for those with lower risk tolerance thresholds.
That said, there is certainly a strong argument to be made as to whether Ethereum fits well with a central position in a well-managed crypto wallet.
Find out which are the best cryptocurrencies to invest in in 2021
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