From being digital money acknowledged by very few, cryptocurrency has turned into a lucrative investment opportunity now. For investors who are in search of expanding their portfolios, cryptocurrencies such as Bitcoin, Ethereum, and other altcoins offer a great option. Ethereum, which is valued at around $1000 in 2018, is among the cryptocurrencies that are considered as a good investment. While there is a widespread belief that the cryptocurrency bubble is about to burst, is it wise to buy Ethereum now? Let us consider the pros and cons of investing in the cryptocurrency.
What is Ethereum and how it works?
Ethereum uses blockchain technology like Bitcoin, but it differs in the way it is utilized in different applications. Ethereum digital platform is a brainchild of Vitalik Buterin. Founded in 2015, the Ethereum token, Ether (ETH), started to be used for all transactions within the Ethereum blockchain. Ethereum is, therefore, a ‘financial system’ that is independent of government intervention and oversight.
Ethereum has an exclusive programming language that helps developers create software which is used to automate and achieve specific results by blockchain transactions. The software created is named as Smart Contracts.
Just like a conventional contract helps to lay down the specific conditions of an agreement, the Ethereum smart contract helps to ensure the terms are met with the help of code. The software executes an agreement when the predefined terms are satisfied. Thus the contract helps cut the costs and avoid delays that are often involved in manual transactions. While this is a basic concept, it can be expanded to encompass complex settings with endless potential for use in property, legal or financial services as well as insurance and other fields.
Advantages over Bitcoin and other cryptocurrencies
While Bitcoin is considered the most dominant cryptocurrency, Ethereum has the potential to grow well beyond Bitcoin and other altcoins because of the following factors:
- Ethereum does not have a cap on the number of units to be issued unlike Bitcoin;
- The blocks capacity of Bitcoin is very small, leading to limited possibilities of its usage. Ethereum does not have such a limit. But it has the Ether cost needed to execute a transaction which can, however, be increased if the miners decide to raise the limit;
- Mining Ether takes just 14 seconds, whereas it is 10 minutes for Bitcoin. This is very fast even if Ether needs 30 confirmations in contrast to one needed for Bitcoin;
- Ethereum is about to switch to a Proof-of-stake algorithm from the earlier Proof-of-work system to prevent hacking episodes.
The cryptocurrency bubble
The high level of volatility that cryptocurrencies show has spurred on mixed reactions among investors and the general public. Despite sudden drops in the value of cryptocurrencies at different points of time, the prices of Bitcoin, Ethereum and other altcoins have rallied strongly making them a good investment alternative. Besides, various countries like Switzerland and Japan have started to support the cryptocurrency, while Russia has declared its intention to create a cryptocurrency of its own, CrytoRuble.
In spite of the high value and novelty that cryptocurrencies introduce, they remain a risky investment. When the bubble bursts, it can spell trouble for many, while several others may stand to profit out of it. However, the rallying of the cryptocurrencies indicates that the time for bubble bursting is not anywhere near.
Factors to consider before investing in Ethereum
For investors who consider buying Ethereum, here are a few considerations to mull over:
- The scaling and congestion problems have not affected the price of Ethereum unlike Bitcoin;
- As mentioned before, the transaction time and costs are high for Bitcoin while Ethereum is quicker and less expensive;
- Ethereum is not in the limelight unlike Bitcoin but has a broader and greater application and can be used profitably;
- Ethereum is still an entity that is not exploited to its full potential.
While the benefits offered by Ethereum are more significant when compared to other types of cryptocurrencies, it has its own risks. It is a developing currency and a volatile one at that. Its value has been fluctuating erratically in the past year along. For instance, its price changed from a high of $360 in June 2017 to a drop of $180 the very next month, and then an increase to $377 in September. However, since the apps that run on the Ethereum blockchain are growing in popularity, it poses a lucrative potential that cannot be ignored.
When to buy Ethereum – Should you take the plunge or rush out?
From the beginning of 2018, Ethereum has stood at around $1000, which makes buying it at around this price level a good choice. Since the cryptocurrency has rallied well against stronger rivals like Bitcoin and indicates that it can have a price rise that is independent of the other cryptocurrencies, it is emerging as a force to be reckoned with. While Bitcoin Cash, Litecoin, and Bitcoin showed a downward trend in the initial two weeks of January 2018, Ethereum had a stable increase in price.
Whether or not you should take the plunge is ultimately in your own hands. Before you decide on investing in the cryptocurrency, take the usual precautions as you would when you invest in any other trading commodity. Research the cryptocurrency well and make sure you invest only money that you will not miss if you lose it. Consider the volatile nature of the cryptocurrencies and investing long term to ensure profitable returns. If you invest, make sure you watch the market movement and fix automatic sell options and price alerts, so you can make use of the upward trend when it occurs.
Before you decide on investing in Ethereum, make sure it is being mined as this indicates that it is a profitable entity. If developers are willing to purchase hardware for mining a cryptocurrency, it shows that the currency has a profitable future. Further, you should also consider whether Ethereum is accepted by businesses and can be traded commonly. And ensure it has good growth potential. When there are very few loopholes that could lead to the currency being manipulated, it will gain more trust and increase in value. Ethereum has this potential and so is a safer option to consider among the cryptocurrencies that are in the market now.