This top cryptocurrency has definitely captured the attention of most investors.
The current market capitalization (as of the afternoon of April 17th) is $360 billion. Ethereum (Ethereum 1.54%) It is the second most valuable cryptocurrency in the world.Only the back Bitcoin When it comes to market control.
During the last five years or so, EthereumThe value of its native token soared nearly 1,700%. That way, his original $1,000 investment would have now turned into his amazing $18,000 balance.
Ethereum has also had an impressive performance since the beginning of 2023, benefiting from the broader cryptocurrency market rally. However, the digital asset is still 36% off its highs. Here are three things you need to know about Ethereum before you rush out and buy.
Aiming to improve functionality
The main features of Ethereum are that it enables the following functions: smart contract. These are computer programs that are automatically executed when the different parties to a transaction meet the objectives of the contract. Consider an escrow account that releases funds as soon as the home buyer meets certain conditions. In theory, Ethereum could handle this without human intervention, potentially reducing costs.
Ethereum bulls believe that this feature makes the cryptocurrency much more useful compared to Bitcoin. In fact, Ethereum has a vast ecosystem. decentralized application (dApps), from games and financial protocols to non-fungible tokens and the metaverse. Smart contracts enable these types of use cases and have the potential to disrupt traditional industry structures.
Given this background knowledge, it's no wonder Ethereum is often referred to as “the world's decentralized computer.”
sustainable future
Just as Bitcoin has been for a long time, Ethereum was once proof of work consensus mechanism. This is an energy-intensive way to process transactions and secure the blockchain. Estimates show that the Bitcoin network uses the same amount of energy as a small country.
Recognizing that this was harmful to the environment and not a sustainable path, Ethereum's developers successfully migrated the network. proof of stake The (PoS) system will start in September 2022. merge, In this setup, token holders who have locked up their holdings have the right to verify transactions. According to the Ethereum website, the PoS consensus mechanism reduces energy usage by more than 99%.
Another hope for the PoS transition is that Ethereum will become a faster and cheaper network. It can only process 14 transactions per second. Additionally, fees may rise as demand increases. For Ethereum to one day bring multiple new use cases, as many hope, throughput will need to increase. There are other upgrades planned to someday make this possible.
Ongoing technical risk
Besides the merge, Ethereum developers are planning four major updates in the future. Each focuses on specific areas of improvement. The ultimate goal is to build a fully functional Ethereum network that is green, fast, cheap, and capable of running a vast dApp ecosystem on top of it.
Of all the cryptocurrencies in the world, Ethereum has the most developers working on it so far. This bodes well for its future, as it means it has smart talent focused on solving complex problems to continue making progress. I have always said that I believe the ultimate success of cryptocurrencies will depend on their ability to provide real-world utility. Ethereum is trying to achieve this.
However, the problem is that no matter how smart your upgrade pipeline looks on paper, it poses significant technical risks. It is important to remember that blockchain technology is still in its infancy. There's a lot to learn. Constantly tweaking and tinkering with software means there's always a chance that something will break along the way.
If you're bullish on Ethereum, understanding these three key areas will help you understand before committing your money.
Neil Patel and his clients have no positions in any stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
