Ethereum
3 facts to know about Ethereum before buying the cryptocurrency
With a current market capitalization (as of the afternoon of April 17) of $360 billion, Ethereum (CRYPTO: ETH) is the second most valuable cryptocurrency in the world. It’s only behind Bitcoin when it comes to market domination.
In the last five years alone, EthereumThe value of ‘s native token soared by almost 1,700%. This would have turned an initial investment of $1,000 into a staggering balance of $18,000 today.
Ethereum has also seen fantastic growth since the start of 2023, benefiting from the broader crypto market recovery. But this digital asset remains 36% of its high. Before you rush out to buy the dip, here are three things you need to know about Ethereum.
Aim to improve functionality
The main feature of Ethereum is that it enables smart contract functionality. These are computer programs that run automatically once the various parties to a transaction satisfy the terms of the agreement. Consider an escrow account that immediately releases funds once a home buyer meets certain conditions. In theory, Ethereum could handle this without human intervention, which could reduce costs.
This feature is what makes this cryptocurrency much more useful compared to Bitcoin, according to what Ethereum bulls think. In fact, Ethereum has a vast ecosystem of decentralized applications (dApps), ranging from gaming and financial protocols to non-fungible tokens and the metaverse. Smart contracts enable these types of use cases, which could disrupt traditional industrial structures.
Given this basic knowledge, it’s no surprise that Ethereum is often nicknamed “the world’s decentralized computer.”
A sustainable future
As Bitcoin has long done, Ethereum operated a proof-of-work consensus mechanism. This is an energy-intensive way of processing transactions and securing the blockchain. Estimates show that the Bitcoin network uses the same amount of energy as a small country.
Believing that this was harmful to the environment and unsustainable, Ethereum developers successfully transitioned the network to a proof-of-stake (PoS) system in September 2022. After the so-called Merge, in this configuration, token owners who lock their holdings have the right to validate transactions. According to the Ethereum website, the PoS consensus mechanism reduces energy consumption by more than 99%.
The other hope of the PoS transition is that it will make Ethereum a much faster and cheaper network. It can only handle 14 transactions per second. And when demand is high, fees can skyrocket. For Ethereum to one day usher in several new use cases, as many hope, throughput must increase. Further improvements are planned to one day make this a reality.
The story continues
Permanent technical risk
Besides the merge, Ethereum developers are planning four major updates in the future. Each focuses on a specific area of improvement. The end goal is to have a fully functioning Ethereum network that is good for the environment, fast, cheap and capable of having a large dApp ecosystem running on top of it.
Of all the cryptocurrencies in the world, Ethereum is by far the one with the most developers working on it. This bodes well for its future, as it means smart people are focused on solving complex problems to continue progress. I always say that I believe that the ultimate success of a cryptocurrency depends on its ability to provide real-world utility. Ethereum is trying to do this.
The problem, however, is that as smart as the upgrade pipeline looks on paper, it introduces immense technical risk. We cannot forget that blockchain technology is still in its infancy. There is a lot to learn. Constantly modifying and modifying the software means that there will always be the possibility that something will break along the way.
If you’re bullish on Ethereum, understanding these three key areas should help you gain insight before putting your money to work.
Should you invest $1,000 in Ethereum right now?
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Neil Patel and its clients have no position in any of the stocks mentioned. The Motley Fool posts and recommends Bitcoin and Ethereum. The Mad Motley has a disclosure policy.
3 facts to know about Ethereum before buying the cryptocurrency was originally published by The Motley Fool