Ethereum is the second most popular cryptocurrency worldwide, only surpassed by Bitcoin. It was released in 2015 and now has a total market value of hundreds of billions of dollars. Many valuable projects have been built for the Ethereum blockchain and its native currency, Ether. This article will explain the advantages and disadvantages of investing in this token.
What Is Ethereum?
It is a decentralized blockchain that powers smart contracts. It was conceptualized in 2013 by a software developer named Vitalik Buterin. He teamed up with other experienced developers and entrepreneurs to launch the blockchain formally in 2015. Ether (ETH) is the native token of this blockchain.
As a decentralized project, no central authority controls this blockchain. Instead, decisions are voted on by ETH holders. The Ethereum Foundation, a registered non-profit organization, promotes the project.
Many developers have built decentralized applications (dapps) atop this network. Examples include decentralized exchanges, games, non-fungible token (NFT) marketplaces, etc. ETH is the official currency for transacting on these apps.
Advantages Of Investing In Ethereum
1. Unlocks Access To A Broad Dapp Ecosystem
Ethereum is the most popular blockchain platform for developers worldwide. People have built millions of apps to add utility to the platform. For instance, you can trade easily on decentralized exchanges built atop this platform or use lending protocols to earn interest on your tokens. Investing in Ether unlocks access to a world of dapps you’ll hardly find on any other blockchain.
2. Updated Tokenomics
Ethereum began as a proof-of-work blockchain. This consensus algorithm used powerful computers to solve difficult puzzles in order to validate transactions and mine new tokens.
The project switched from proof-of-work to proof-of-stake in 2022, which made things easier. You no longer need powerful, energy-intensive computers to validate transactions. You can simply stake coins to validate transactions on the blockchain and earn more as a reward.
Staking generates significant passive income for validators. However, you must stake at least 32 ETH to become a validator.
3. Strong Liquidity
Ethereum has a very liquid market. It is the second most traded cryptocurrency, only beaten by Bitcoin. You can buy and sell a large number of tokens with little hassles; you’ll likely find a counterparty for any trade. This feature makes ETH a favorite for investors because they can always buy or sell the tokens when they want. The high demand favors the Ethereum price.
Disadvantages Of Investing In Ethereum
1. Slow Transaction Speed
This blockchain currently processes around 20 transactions per second. This means that transactions get slow when there’s high network demand. There are plans to increase the network’s speed to up to 100,000 transactions per second, but it’s not there yet.
2. High Fees
This network has notoriously high fees, especially during increased demand. Users pay a gas fee to fulfill transactions, and the higher they pay, the faster their transactions get processed. Hence, the transaction fee gets steep when there’s high demand.
3. Complicated Development Process
This network uses a native programming language called Solidity, which is similar to other languages like C++, Python, and Java. Solidity is a complex language to learn, discouraging developers from building more apps for the platform.
4. Infinite Supply
Ether has an infinite supply, unlike Bitcoin and many other tokens. An infinite supply affects the extent to which the token can appreciate.
