Many of us are itching to get on the crypto craze that has characterized 2021, but which investment can really reap the fruits of benefits? Ethereum, the second-biggest cryptocurrency following Bitcoin, with a market cap of almost 317 billion US dollars in June, has shattered records.
Over the past year, Ethereum has grown by 1'600%, surpassing the crypto king Bitcoin by a "merely" 380%, even if the market cap of cryptocurrencies plummeted over the last few weeks.
You might be looking to hop on the "crypto craze" bandwagon, even after, to say the least, the turbulent month of May, you are not alone. With wild returns like these, even with the risks they encompass, you might be one investor scrambling to make the big bucks overnight.
Considering Ethereum is in the "high-end" category of cryptos, its brisk fall from value might be one of the best investments you could make right now, especially if you consider it is "on-sale".
However, an affordable investment doesn't always mean a good one either. Ethereum is still a risky investment, and not the best one for every "millionaire to be". Before thinking about investing, consider some crucial pros and cons first.
1. Ethereum 2.0 Can Be Competitively Advantageous
A big criticism of cryptos is that they are incredibly energy-intensive to produce. Explained briefly, "crypto miners" have to locate the new coins by performing a series of complex mathematical equations to unlock the "coin". In the end, only one "miner" or "miner group" (communally called a node), will be awarded this new issue coin.
The main issue behind this process is the enormous energy it requires to produce cryptocurrencies, and crypto critics have pointed to the tremendous energy consumption behind crypto mining.
Coincidently, this exact reason is why Elon Musk announced that Tesla would stop accepting Bitcoin as a form of payment. That reason was also one of the factors behind the crash, as investors questioned the long-term viability of cryptocurrencies for their transactional value.
But, Ethereum is making efforts to make its mining process more energy-efficient. Even though Ethereum is the name of the blockchain technology process, Ether is the token on the said blockchain. Ethereum 2.0 is the updated version of the blockchain process that will come out this or next year, claiming to use 99.5% less energy than its current process.
Of course, if the newly updated version of Ethereum is successful in its energy-efficient process, it could gain a huge competitive advantage over other cryptocurrencies, even Bitcoins.
Even if cryptocurrencies are valued for their speculative trading potential, real tangible transactional value utility is paramount for their survival. Even if Bitcoin is the most popular and accepted crypto, Ethereum's blockchain technology is used for multiple purposes, giving it an advantage.
While not only the host for the Ether token, its blockchain technology hosts also other applications, such as non-fungible tokens (NFTs) and decentralized finance. NFTs can certificate and guarantee ownership of a digital asset, changing how digital goods are sold and bought all together. Decentralized finance creates a decentralized currency production system that eliminates government central banks to regulate fiat currency.
With the newly updated version of Ethereum 2.0, they made plans to make blockchain technology faster and more scalable, making it useful for even more applications.
Ethereum's widespread utility could benefit Ether as well: Its applications on the Ethereum network could reinforce its importance on the crypto market as the legal tender of Ethereum's blockchain, if successful.
Well, it's not necessarily Ethereum that is a risky investment, it's cryptocurrencies: They are highly speculative. Even though some experts and crypto supporters believe they could replace fiat currency one day, the answer is much more complicated.
Despite their bustling activity growth, efficiency, and impressive blockchain technology render, many countries are still anxious about cryptos replacing fiat currency. But even though peer-to-peer currency might be the bane of central banking systems around the world, the simple answer would be: no, cryptos won't replace fiat. Why?
Because their usage is on the rise, their speculative popularity is why they won't be adopted as mainstream legal tender: they are driven for value storage and speculative trading - rather than for transactional value.
For instance, very few mainstream businesses accept cryptos as legal tender - only 2'300 businesses accept it in the United States, which mostly only accept Bitcoins. When you consider that there are over 30 million businesses in the US, a thin fraction accepts Bitcoins, which puts Ethereum at a disadvantage.
As the past few weeks have proven, their volatility can be a double-edged sword: Between May 12 and May 24, Ethereum has lost nearly 50% of its value. While it has somewhat recovered since it is gut-wrenching to see.
But even then, this is not the worst crash Ethereum has seen. Back in 2018, the price had fallen from a staggering 94%.
The recent crash showed that cryptocurrencies are a volatile investment, especially right now. While "on-sale", there isn't any certitude that Ethereum will work in the future, even though there are promising updates that will calibrate it as a viable transactional token.
Ethereum has the potential for extraordinary monetary gains for any risk-seeking investors, but the immense incertitude, especially now, about the crypto market makes it an investment not for everybody.