Ethereum a Good Investment or not?

Ethereum is the second largest cryptocurrency after Bitcoin in terms of market capitalization. With the recent upgrade to Ethereum 2.0, there is much hodgepodge around whether or not to invest in Ethereum. In this article we will try and understand the basic principles, the trends, advantages and disadvantages of Ethereum. This will help us to get better clarity to the concepts we can base our investment decisions on.

What is Ethereum? Is it the same as the Bitcoin?

No not entirely. Both Ethereum and Bitcoin are cryptocurrencies and are built on the same technology of Blockchains. But Ethereum has a wider spectrum of use cases. You can get the fundamentals on Bitcoin here and Ethereum here. Bitcoin acts as a currency and has an intrinsic value. Nowadays with rising adoptions, you can purchase a small coffee mug and even real estate using Bitcoins.

Let us quickly define Ethereum. Ethereum is the decentralized (no central nodes like Google) computing platform which is used to develop and deploy Decentralized Applications (DAPPs). You can use computing languages like Solidity to build and deploy applications on the Ethereum Network. Now these applications are Decentralized, meaning these are accessible to whomsoever joins the Ethereum Network.

Note: You can find more about Decentralized and Centralized computing networks here. Simply put the web network that we use normally (Google, Gmail, Amazon, Facebook) is a Centralized computer network. It has a Central Node storing and controlling all of the data in their servers. Even when a person A wants to send some data to person B, then it needs to go through the Central Node. Example, Gmail, the data is routed via the Google Server. Contrary to this in a Decentralized setup, peer to peer connections are made. No Central Node or computer controls and stores the data.

Now the investment we are analyzing for is not Ethereum to be precise. It is on Ether, which is the cryptocurrency for the Ethereum blockchain. Like Bitcoin, Ether is also a cryptocurrency. But unlike Bitcoin its usage is not limited to a digital currency. Ether is also used as a fuel for running decentralized applications on the Ethereum Blockchain. This means you need Ether tokens in order to build applications on the Ethereum blockchain.

Now let us go through various facts which will help you make an informed decision of investing in Ethereum.

Facts in favor

  1. Ethereum is currently trading almost 39% below its all time high of $1432.88 (at the time of writing this article). This means that going by the principles of value investing this is the correct time to invest in Ethereum. Bitcoin on the other hand is trading at an all time high, and a bubble crash is expected.
  2. Ethereum has an intrinsic as well as industrial value. Bitcoin has an intrinsic value just like a currency. You can trade it for another currency. You can use Bitcoin to buy stuff as small as a coffee mug to as big like real estate. Similarly you can use Ethereum for buying and trading. This article will list various places where Ethereum can be used for transactions. But beyond this intrinsic value, Ethereum has an industrial value also. That means besides being used as a currency, Ether is also used as a token for developing and deploying DAPPs and Smart Contracts on the Ethereum Blockchain. DAPPs and Smart Contracts are gaining more adoptions and this might surge the demand for Ethereum in the future, hence raising its price.
  3. Upgrade to Ethereum 2.0. Technically speaking, Ethereum has a better code as compared to that of the Bitcoin. In fact Ethereum was built by removing the drawbacks of the Bitcoin blockchain. The recent upgrade to Ethereum 2.0 promises better scalability, security and energy efficiency. This has attracted attention to the Ethereum blockchain and a surge in price is expected.
  4. The work going on in the Ethereum blockchain is huge. There is a huge number of projects being worked on in the Ethereum blockchain in various sectors including real estate, finance, voting, insurance, etc. Even new cryptocurrencies are being developed on the Ethereum blockchain. This somewhat hints a bright future for the Ethereum and Ether.
  5. Industry leaders are all bullish for Ether. Industry leaders like Tyler Winklevoss, co-founder and CEO of the crypto-exchange Gemini and one of the earliest Bitcoin adopters are bullish for Ether.

Facts which do not favor

  • A fundamental change in how blocks are created. The Ethereum 2.0 uses “Proof of Stake” instead of “Proof of Work” for mining blocks. It implies that the miners with the largest ownership stakes will be granted the right to mine new Blocks in the Ethereum Blockchain. Some believe this could pose risks.
  • Experts recommend Bitcoin over Ethereum at least over the coming 10 years. When it comes right down to it, there appears to be a broad consensus among sophisticated cryptocurrency investors, entrepreneurs and subject matter experts: Bitcoin is, all-things-considered, a better buy than Ethereum at least for the next 10 years.

“Our belief is that Bitcoin has the highest near-term probability of adoption and inclusion in mainstream portfolios,” says a spokesperson at Galaxy Digital, a merchant bank focused on digital assets and the blockchain.

Now you see that there are facts in favor and against buying Ethereum. Personally I do feel Ethereum has a bright future and might mimic Bitcoin in value.

Happy Reading and Happy investing:)

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