Ethereum, also known as Ether, is the second largest cryptocurrency in the world behind Bitcoin, and like any digital currency, it has seen its fair share of ups and downs in its relatively short lifespan.
Ethereum’s price hit an all-time high of US$4,800 at the end of 2021, marking an increase of more than 900% over the previous 12 months and sparking speculation that Ether would overtake Bitcoin in value.
However, Ether was not immune to the crypto rout of May 2022 and fell in value along with many other cryptocurrencies. Ether is now trading at US$1423 (July).
What are cryptocurrencies?
In the truest sense, cryptocurrencies are a digital medium of exchange that uses cryptography as a form of security. But more recently, the term “cryptocurrency” has evolved to encompass a decentralized financial system (DeFi), a highly volatile asset class that can dip or rise on the back of a tweet, a space where bad actors can steal identities and money of vulnerable investors, a form of asset diversification and a form of digital payment.
Ethereum once had an effective market cap of around $250 billion, but recently lost over $100 billion due to the May 2022 crypto slide and now sits at around $135 billion in market capitalization.
If you’re familiar with Bitcoin but less familiar with its closest rival, here’s what you need to know about Ethereum, including why it may one day still become the dominant player on the cryptocurrency scene.
First a Crypto Wealth Warning
You don’t have to follow the financial world that closely to know that cryptocurrencies have become one of its biggest stories in recent years.
These days, they worry governments and large financial institutions, dividing opinion over whether they are essentially Ponzi schemes that need to be heavily regulated, or just volatile asset classes for investors who like to gamble with high stakes.
If your financial plans revolve around capital preservation – hanging on to what you have – then the volatile behavior of cryptocurrencies is definitely not for you.
Last month, Jerome Powell, the chairman of the US Federal Reserve, described crypto assets as nothing more than “vehicles for speculation”. And at its annual general meeting in May, legendary Berkshire Hathaway VP and investor Charlie Munger said Bitcoin was “disgusting and contrary to the interests of civilization.”
However, such comments cannot deter millions of aficionados around the world from trying to make money from cryptocurrencies, including Bitcoin. This includes Australians, who are increasingly taking the plunge: new research by Roy Morgan found that 5%, or more than a million adult Australians, own at least one cryptocurrency.
If that includes you, Laith Khalaf, UK financial analyst at brokers AJ Bell, offers some simple advice: “Those looking to gain exposure to cryptocurrencies should only do so with a small amount that they are willing to lose,” suggests he. . .
It should be added that investing in cryptoassets is unregulated in Australia, as well as in most EU countries and the UK, and there is no protection for consumers in the event of a problem.
Which brings us back to Ethereum.
What is Ethereum?
According to online brokers eToro, Ethereum is unique in the cryptocurrency universe.
Launched in 2015, Ethereum includes an open source software platform that developers can use to create cryptocurrencies and other digital applications.
Ethereum’s original cryptocurrency is called Ether (the trading symbol is ETH), while Ethereum actually refers to a specific blockchain technology, the decentralized distributed electronic ledger that keeps track of all transactions. Ledgers are the foundation of cryptocurrency transactions.
Think of Ether as the cryptocurrency token derived from the Ethereum blockchain. A blockchain allows encrypted data to be transmitted securely, making counterfeiting almost impossible. As with Bitcoin, these tokens are currently “mined” via computers that solve mathematical problems.
Bitcoin also uses blockchain technology (see above for the differences between the two cryptocurrencies), but Ethereum is considered more sophisticated and can be used to run applications. It is this aspect, some commentators say, that could one day help push Bitcoin away from the top spot among cryptocurrencies.
In recent times, Ethereum’s popularity has increased among retail and institutional investors.
What are the benefits of buying into Ethereum?
According to eToro, Ethereum can be easily traded or exchanged for other cryptocurrencies.
In addition, the broker claims that the cryptocurrency can be used by a growing number of online and brick-and-mortar retailers. Transaction times are faster compared to Bitcoin, and it also provides access to a number of decentralized applications (dApps) that allow developers to create new tools online.
Advances in retail payments were highlighted in March 2021 when the UK’s Christie’s became the first auction house to accept Ether as payment for an artwork by Beeple. Titled “Everydays: The First 5000 Days,” the purchase price was worth $69.3 million.
At the end of April 2021, confirming the financial sector’s growing interest in cryptocurrencies, the European Investment Bank issued its very first digital bond of 100 million euros for two years via the Ethereum blockchain.
Meanwhile, in early May, S&P Dow Jones launched several cryptocurrency indices, including one for Ethereum, with the aim of measuring the performance of digital assets.
This can be done through a crypto exchange like Coinbase or through online platforms like Gemini, Kraken or eToro. You can also choose from a number of Australian-based exchanges, such as CoinSpot and BTCMarkets, which allow users to buy cryptocurrencies with AUD, including by bank transfer in some cases or via BPAY.
You create an account with the chosen provider by confirming your residence and identity, then you log into your bank account to buy the currency. Fees vary from provider to provider and may depend on the amount you wish to deposit, (optionally) withdraw and the transactions you wish to perform.
Payment methods may include those via debit/credit card to PayPal and bank transfers. New investors may require a higher level of customer support compared to experienced traders.
Could the price of Ethereum rise further?
In the world of cryptocurrencies, little can be taken for granted and there is no certainty. And as we reported above, many prominent figures in the financial community have deep reservations about the safety, if not the viability, of the overall concept of crypto.
But Nigel Green, CEO and founder of international financial advisory firm deVere Group, has previously suggested that Ethereum is the crypto to watch: “Ether can be expected to significantly reduce Bitcoin’s market dominance over the next year and beyond. Compared to its biggest rival, Ethereum more scalable, offers more uses and solutions, such as smart contracts already used in many industries, and is built on superior blockchain technology,” he said. – he adds.
AJ Bell’s Laith Khalaf acknowledges Ether’s relative strengths in the context of cryptocurrency, but he urges extreme caution: “Ether, or Ethereum, is more flexible than Bitcoin because it is programmable based on usage, so it can be used to verify transactions. transactions or contracts and making payments.
“But the value of this asset is still only what someone else will pay for it, and while it may be a lot right now, it may not be worth much once the crypto fever subsides. It’s not the code, it’s i. written.”
This article is not an endorsement of any particular cryptocurrency, broker or exchange, nor does it constitute a recommendation of cryptocurrency as an investment class.