Investing in cryptocurrencies has become quite common among people. It’s gone from being an activity meant for geeks and people who are always on the cutting edge to something anyone does nowadays.
And when it comes to contenders in the altcoins arena, Ethereum remains the dominant cryptocurrency.
For some, Ethereum intelligent contracts may ultimately dethrone Bitcoin as the leading cryptocurrency, particularly with the arrival of version 2.0 of its blockchain.
While there are several factors to consider before starting to invest in cryptocurrencies, there are two big reasons why people decide to put their money into this sector:
- They want to make a profit.
- They believe in the benefits of technology for society.
Ethereum was created as a blockchain that offers the opportunity to develop your applications on top of them. What is known as DApps.
Since its inception, it has always had that functionality built in. And therefore, we have seen reflected in its price the belief on the part of people that this project has everything to succeed.
In this article, we will explore the Pros & Cons of Ethereum Investment by delving into the fundamentals of Ethereum and assessing its viability as a cryptocurrency worth investing in. We’ll provide insights into the advantages and disadvantages of an Ethereum investment.
We will analyze the pros and cons of putting our money in it, and, in a way, we will even compare it with its big sister, Bitcoin.
If you are wondering if it is a promising cryptocurrency to invest in, today you will find out if you stay and read.
HOW DOES ETHEREUM OPERATE?
The Ethereum blockchain operates similarly to other blockchains within the sector. In this system, transactions undergo validation through entities known as miners.
Using their computers, these people make sure that the transactions are correct (they have the funds and the private key to spend them). When the process is complete, a new transaction is added to a block to integrate the chain we have already discussed.
But Ethereum has a significant difference from other solutions, especially Bitcoin, which is the ability to execute smart contracts. In a way, Bitcoin also has contracts, but not with the capacity we find in Ethereum.
The Bitcoin blockchain can process certain conditions when executing a contract (such as combinations of private keys or executions conditioned to a specific date). Still, its primary function is to be a financial transaction system without further ado.
On the other hand, in Ethereum, we find smart contracts that, as their name suggests, allow you to execute code as if it were a computer or cell phone program.
This is perfect for creating contracts between people who do not need a third party to resolve a dispute and for creating complex applications that run on the Ethereum network.
Ultimately, there’s ETH, the designated currency of the network. It serves as the medium for sending and receiving value within or independently of these contracts.
THE PROS OF ETHEREUM
One question on everyone’s mind is whether they should put their money into Ethereum, which is a difficult question to answer, as that depends on many factors.
But it’s a good idea to start your research about this asset’s analysis by seeing its benefits and negative aspects, thus exploring its features.
Leaving aside the conflict that resulted in the creation of Ethereum Classic in 2016 (a product of the DAO hack) and the congestion of its network due to digital cats called Crypto Kitties, the Ethereum network has not suffered significant setbacks, making it an excellent platform to create your application on it.
In addition, it has not been a victim of censorship (which we will talk about later), nor of 51% of attacks that do occur in other less popular cryptocurrencies.
Ethereum version 2.0 has been a project that developers have been working on for years. It aims to vastly improve the Ethereum network, making it more scalable and easier to use.
The idea is to move from a Proof-of-Work consensus algorithm to a Proof-of-Participation (what are they?) one, which will do away with mining and high electricity consumption.
Instead, miners only need an underpowered computer and keep at least 32 ETH in their account.
Another feature of the second version of Ethereum is sharding, which consists of dividing the blockchain into 64 shards, each with a particular set of information. Thus, the miner can only validate part of the complete blockchain but one of these shards.
This is intended to make the platform scale better and make transactions much faster.
This is a clear advantage for Ethereum, which will integrate significant improvements for the ecosystem of this cryptocurrency’s users, developers, and holders.
3. THE SUPPORT OF LARGE COMPANIES
Among the investors of this project, we find significant companies and people:
- You may know the Winklevoss brothers from Facebook, but also for having an investment fund called Winklevoss Capital and the cryptocurrency exchange Gemini.
- Ashton Kutcher is an actor known for his work in TV series and movies and is also very interested in startups and technology.
- Mark Cuban is a multi-millionaire entrepreneur known for owning the Dallas Mavericks and participating in the show Shark Tank.
- Richard Sherman is a former NFL player and investor.
But these are just a few names, as the list comprises Fortune 500 companies such as IBM, Microsoft, J.P. Morgan Chase, and Amazon. Who have all commented on buying Ethereum as a form of protection against the economic changes that society is undergoing.
Being a blockchain that works from nodes, and in this particular case, thousands are scattered worldwide, it is a project with considerable decentralization.
The benefit of this is that it is protected against failures, attacks, and malicious actors.
This holds significant importance in eradicating censorship on Ethereum and preventing any single entity or government from exerting undue control over it.
5. LOW INFLATION RISK
Despite not having a limit on the number of coins that can be created, as is the case with Bitcoin, ETH limits the amount that can be produced per year (18 million).
In turn, each year, the reward received by miners drops between 30% and 40%, with a recent proposal to reduce the reward to 75%.
These factors and the evolution of DeFi platforms, which allow cryptocurrencies to be held, will reduce the amount of ETH in circulation. Thus protecting Ethereum from inflation.
6. THERE IS NO LIMIT TO ETH
This is a controversial issue since Ethereum is designed to increase the amount of ETH that exists year by year. This is an advantage because, as long as demand increases above supply, the price is going to behave deflationary.
This is an important flaw for some people because it behaves similarly to the dollar or the euro. However, we’ve observed mechanisms in place to mitigate the impact of inflation.
7. ATTRACTS MORE BUSINESS
Both institutional and individual investors know the actual value of ETH. Unlike Bitcoin, ETH is used here for a fundamental function: to send and receive money with low commissions (at least if we compare it to BTC).
This is why companies such as J.P. Morgan Chase, Microsoft, Intel, Credit Suisse, and Accenture are affiliated with what is known as the Enterprise Ethereum Alliance. A group aimed at utilizing and raising awareness of Ethereum’s blockchain technology.
8. BE THE FIRST
Ethereum is the second largest cryptocurrency in market capitalization, behind Bitcoin. Although Bitcoin pioneered the concept of cryptocurrency, Ethereum took this initial idea and expanded upon it with its advanced functionalities.
An illustration of this is smart contracts and the myriad possibilities they unlock. There are still unexplored avenues and intriguing use cases awaiting discovery in the future.
Even so, developers are not resting on their laurels and are always looking for new ways to innovate and changes to improve the platform to new limits.
For numerous individuals, Ethereum is synonymous with innovation, decentralization, and trust.
9. RAPID DEVELOPMENT
Coding a smart contract on the blockchain is straightforward if we know what we are doing. For that, it is necessary to know some programming, particularly the language used in the Solidity platform.
Even so, while it has its complications (being a language not as well known as Python or PHP), the reality is that it is relatively easy to learn. If we can develop clean and safely, making the necessary tests, generating a smart contract is simple.
Which can be a more than relentless job outlet for anyone in the future, with more and more companies and individuals looking to bring their businesses into this new era.
On the other hand, it is also to Ethereum’s advantage that more projects choose the platform to integrate their ideas into cryptocurrencies.
Ethereum’s code and its design are what ensure its transparency. Both Ethereum itself and the applications built with it are open-source platforms.
Developers can review its code anytime, check it to learn how it works, and even reuse it for their projects.
The community is also vital for Ethereum, as it provides a wide variety of resources for anyone who wants to participate in the ecosystem.
11. WELL-KNOWN FOUNDERS AND AN EXPANDING COMMUNITY
Launched in 2015, Ethereum has quickly revolutionized the cryptocurrency sector.
While Ethereum may not be the initial cryptocurrency, ETH has become one of the most widely embraced digital assets. The team behind Ethereum, particularly Vitalik Buterin, is a well-known figure in this environment.
The developer ecosystem of Ethereum is continually growing, boasting over 250,000 active developers, as reported by Consensys. This strong support is undoubtedly an advantage when investing in Ethereum.
THE CONS OF ETHEREUM
Despite the numerous advantages of Ethereum, it is essential to acknowledge that this cryptocurrency also presents certain controversial aspects. When contemplating an investment in this project, it is wise to analyze its potential drawbacks thoroughly.
1. HAS ALWAYS BEEN SECOND TO BITCOIN
Despite leveraging the popularity of the initial cryptocurrencies, Ethereum remains in the second position, trailing behind despite its numerous advancements.
The price difference with the leading cryptocurrency is substantial, and for those who support Bitcoin over other cryptocurrencies, Ethereum needs the capabilities to surpass it in price.
It remains to be seen whether Ethereum’s functionalities are sufficient to surpass Bitcoin significantly as the latter has evolved more into a store of value than a transaction medium.
2. SCALABILITY PROBLEMS
Scalability is a problem for Ethereum and cryptocurrencies in general, but at least in the case of Ethereum, solutions are constantly being sought through improvements in its code.
Presently, Ethereum processes transactions at a speed of 15 per second, surpassing Bitcoin’s 4.6. However, there is ample room for improvement, especially when aspiring to build a robust ecosystem of applications and smart contracts.
Given the expansive network size (boasting approximately four times as many developers as any other platform), the current transaction speed substantially hinders widespread adoption.
The anticipated solution lies in Ethereum 2.0, which promises a significant resolution to this challenge through successful implementation, aiming to elevate the transactions per second to 10,000. However, implementation could be faster, and there is no precise date to realize this.
3. ETHEREUM 2.0 CREATES CONFLICT IN THE COMMUNITY
While Ethereum has experienced conflicts before (as witnessed with DAO), this significant upgrade has stirred considerable discord within the community, particularly among miners.
The source of this tension lies in the fact that the costly equipment they have invested in stands to become obsolete overnight due to the shift from a proof-of-work to a proof-of-participation algorithm.
The community is currently split between miners and developers.
While the roadmap tells us that the implementation of what is known as sharding should come before the change in the consensus algorithm, the miners only care about the latter.
4. RISING GAS PRICES
For the blockchain to work, there needs to be a type of commission that rewards people for the work of validating transactions. This enables intelligent contracts’ functionality and facilitates ETH’s sending and receiving.
The fees were so exorbitant in specific periods that paying commissions became impractical for many individuals, leading to frustration among developers and traders. Thankfully, the upcoming code enhancement is designed to address this issue. However, once it is fully implemented, challenges in this area are expected to persist.
If you’re wondering whether you should invest in Ethereum, that’s something I can’t answer for you. It’s a personal decision that will depend on the funds you have, the availability of those funds, and your investment horizon.
Ethereum is one of the premier cryptocurrencies today; however, some individuals tend to buy during optimistic market conditions only to sell within a few months when the markets experience a downturn. If you are not going to invest with a long-term heart, cryptocurrencies may not be for you. Since finding the perfect time to buy and sell is a fairy tale, no one gets it.
Indeed, this is just one aspect of the entire picture, and assessing the prospective outlook for this cryptocurrency is equally crucial. New developments and the long-awaited upgrade can take Ethereum to another level.
If you think this is enough to catapult its price, it is a good idea to put some money you are not afraid of losing and will not use soon. Subsequently, exercise patience and await what the future holds.