Should you Invest in Ethereum?

Many people are still getting used to the idea of Bitcoin and the thought of potentially buying another Crypto currency slightly scares them. Moreover, investors are quite averse to investing in a crypto currency. The general perception seems to be that they are too volatile. While the latter point on volatility is indeed true, this could be for very important reasons. There is no doubt that the demand for an alternative method of transacting is immense. People are increasingly suspicious of the monopoly that large financial institutions have on sending money. There are also numerous arguments around money supply and inflation that makes individuals question the current Fiat money system. This is the reason that Crypto Currencies have taken on even more importance over the past few years both for forex trading and general buy and hold investing. Many people would then be asking whether they should be investing in Bitcoin as it is the “go to” crypto currency. This may, however, be an unwise step to take. This is because there is a new crypto currency on the “block” that seems to have much stronger fundamentals than Bitcoin, and that is Ethereum.

What is Ethereum?

As one can tell, Ethereum is a crypto currency that is based on blockchain technology. Like Bitcoin, it is a cryptographically signed record of a transaction and store of value. Ethereum was first launched in mid-2015. This means it is still a relatively new technology but it is indeed taking the world by storm. Like Bitcoin, Ethereum is also built on a public blockchain. Think of the blockchain as a public ledger of all the transactions that are taking place. The central idea behind the Ethereum protocol is that of “smart contracts”. It is also a piece of blockchain technology that enables developers to build and deploy decentralized applications. On the Ethereum network, miners work to earn “Ether”. This is also used by application developers to pay for transaction fees on the entire network.

Ethereum vs. Bitcoin

Although Ethereum and Bitcoin are both Crypto currencies that are built on blockchain technology, they differ in a number of ways. Most of these are related to the sophistication of the Ethereum protocol. Due to the way that Ethereum is mined, transactions can occur much faster. For example, the standard “block” time in Ethereum is 12 seconds whereas it is about 10 minutes in Bitcoin. This means that people can pay and clear transactions much quicker with Ethereum than Bitcoin. Ethereum also does not have the automatic restrictions placed on supply growth that Bitcoin has. This is because the Bitcoin block rewards halve every 4 years whereas the same amount of Ether is always available each year. Moreover, in terms of supply, Ethereum was crowd funded whereas Bitcoin was released. This means that the early miners of Bitcoin who gathered most of the initial supply own most of the Coins in circulation. Lastly, Ethereum uses a different algorithm to that of Bitcoin. This mitigates against the use of singular application specific circuits. This will therefore encourage more of a decentralized mining operation with people using their GPUs. It is for these particular reasons that Ethereum is viewed more favourably among a number of crypto currency experts. A currency that has many more applications, is more stable and cheaper to use.

Ethereum for the Long Term

For all of the previous reasons, numerous investors have started to take a shine to Ethereurm which explains its recent meteoric rise. Ether went from approximately $16 in early February to over $50 today. This may cause a number of people to question whether it is a bubble and could come to adjust. This can indeed be difficult to judge as the rise was indeed quite sharp. Ethereum is also alot more volatile than Bitcoin currently. However, this is probably as a result of its infancy status. Traders are less capable of dealing with its gyrations as they have not had the opportunity to study it over the long term. Many crptocurrency traders tend to rely on forex signals and even then the direction is hard to judge. Hence, if you are a trader that is looking to make a quick profit on the volatile moves of Ether, then it could be more difficult to give you clear guidance on the short term movements. However, from the perspective of an investment decision, the allure of Ethereum cannot be ignored. Like those investors who buy gold as a store of value, a crypto currency will serve the same purpose. Moreover, many Bitcoin traditionalists have also decided that the long term potential for Ethereum cannot be ignored. Indeed, the technology that underlies Ethereum means that it can be used for a number of other purposes that will be built off of a decentralized and autonomous system. The developers at Ethereum want one to think of the network as a large virtual computer that facilitates applications to run. It is indeed this allure that has been the reason that the project has got the backing from a number of individuals such as Bill Gates.