Ethereum, also known as Ether, is the second largest cryptocurrency in the world behind Bitcoinand like any digital currency, it has had its fair share of ups and downs in its relatively short lifespan.
Ethereum’s price reached an all-time high of US$4,800 at the end of 2021, which signified an increase of more than 900% over the previous 12 months and sparked speculation that Ether would overtake Bitcoin in value.
However, Ether was not immune to the May 2022 crypto routing and fell in value alongside many other cryptocurrencies. Ether is now trading at US$1423 (July).
What are cryptocurrencies?
In the truest sense, cryptocurrencies are a digital medium of exchange who use cryptography as a form of security. However, more recently, the term “cryptocurrency” has evolved to encompass a decentralized financial system (DeFi), a highly volatile asset class that can dive or surge on the back of a Tweet, a space where bad actors can stealing the identities and money of vulnerable investors, a mode of asset diversification and a form of digital payment.
Ethereum once had an effective market cap of around $250 billion, but recently lost over $100 billion due to the May 2022 crypto slide and now sits at around $135 billion in market cap.
If you’re familiar with Bitcoin but less familiar with its closest rival, here’s what you need to know about Ethereum, including why, one day, it could still become the dominant player in the market. cryptocurrency stage.
First, a Crypto Wealth Warning
You don’t need to follow the financial world so closely to know that cryptocurrencies have become one of its biggest stories in recent years.
These days they are of concern to governments and big financial institutions and divide opinion on whether they are essentially Ponzi schemes that need to be heavily regulated or just volatile asset classes. for investors who like to play at high stakes.
If your financial plans revolve around capital preservation – hanging on to what you have – then the volatile behavior of cryptocurrencies is definitely not for you.
Last month, Jerome Powell, the chairman of the US Federal Reserve, described crypto-assets as nothing better than “vehicles for speculation.” And at his annual general meeting in May, legendary Berkshire Hathaway VP and investor Charlie Munger declared Bitcoin to be “disgusting and contrary to the interests of civilization.”
However, such comments fail to deter millions of aficionados around the world from trying to make money from it. cryptocurrencies including Bitcoin. This includes Australians, who are increasingly getting into the act: recent research by Roy Morgan found that 5%, or more than one million adult Australians, own at least one cryptocurrency.
If that includes you, Laith Khalaf, UK financial analyst at brokers AJ Bell, offers some simple advice: “Those who want exposure to cryptocurrencies should only do so with a small amount of money they are willing to lose,” he suggests. .
It should be added that investing in crypto-assets is not regulated in Australiaas well as in most EU countries and the UK, and there is no consumer protection if something goes wrong.
Which brings us back to Ethereum.
What is Ethereum?
According to online brokers eToro, Ethereum is unique in the world of cryptocurrencies.
Ethereum, launched in 2015, includes an open-source software platform that developers can use to create cryptocurrencies and other digital applications.
Ethereum’s native cryptocurrency is called Ether (the trading symbol is ETH), while Ethereum actually refers to a specific blockchain technology, the decentralized distributed electronic ledger that keeps track of all transactions . Ledgers are the foundation of cryptocurrency transactions.
Think of Ether as the cryptocurrency token derived from the Ethereum blockchain. A blockchain allows encrypted data to be transferred securely, making counterfeiting nearly impossible. As with Bitcoin, these tokens are currently “mined” via computers solving mathematical problems.
Bitcoin also uses blockchain technology (see above for the differences between the two cryptocurrencies), but Ethereum is considered more sophisticated and can be used to run applications. It is this aspect, some commentators say, that could one day help push Bitcoin away from the top spot among cryptocurrencies.
In recent times, Ethereum’s popularity has increased among retail and institutional investors.
What are the benefits of buying into Ethereum?
According to eToro, Ethereum can be easily traded or swapped for other cryptocurrencies.
Additionally, the broker claims that the cryptocurrency can be used by a growing number of online and physical retailers. Transaction times are faster compared to Bitcoin and it also provides access to a number of decentralized applications (dApps) allowing developers to create new tools online.
Advances in retail payments were highlighted in March 2021 when UK-based Christie’s became the first such auction house to accept Ether as payment for an artwork by Beeple. Titled “Everydays: The First 5000 Days,” the purchase price was worth $69.3 million.
At the end of April 2021 and confirming the growing interest of the financial sector for the sphere of crypto-currencies, the The European Investment Bank has issued its first-ever two-year €100 million digital bond via the Ethereum blockchain.
Meanwhile, in early May, the S&P Dow Jones has launched several cryptocurrency indicesincluding one for Ethereum, aimed at measuring the performance of digital assets.
How to buy Ethereum in Australia?
This can be done through a crypto exchange like Coinbase or through online platforms like Gemini, Kraken, or eToro. You can also choose from a range of Australian-based exchanges, such as CoinSpot and BTCMarkets, which allow users to buy cryptocurrencies with AUD, including by bank transfer in some cases, or via BPAY.
You create an account with the chosen provider by confirming your place of residence and your identity, then you log in to your bank account in order to buy the currency. Fees vary from provider to provider and may depend on the amount you wish to deposit, (optionally) withdraw and the transactions you wish to carry out.
Payment methods may include those via debit/credit cards to PayPal and bank transfers. New investors may require a greater level of customer support compared to seasoned traders.
Could the price of Ethereum rise further?
In the world of cryptocurrencies, little can be taken for granted and there is no certainty. And as we reported above, many prominent figures in the financial community have deep reservations about the safety, if not the viability, of the overall concept of crypto.
But Nigel Green, CEO and founder of international financial advisory firm deVere Group, has previously suggested that Ethereum is the crypto to watch: “Ether can be expected to significantly reduce Bitcoin’s market dominance in over the next year and beyond. Compared to its biggest rival, Ethereum is more scalable, offers more uses and solutions, such as smart contracts that are already used in many industries, and is built on superior blockchain technology,” he said. -he adds.
AJ Bell’s Laith Khalaf acknowledges the relative strengths of Ether in the context of cryptocurrency, but he urges extreme caution: “Ether, or Ethereum, is more flexible than Bitcoin because it is programmable based on usage. , so it can be used to verify business transactions or contracts as well as to make payments.
“However, the value of this asset is still only what someone else will pay for it, and while that may be a lot right now, once the crypto fever subsides, it may not be worth much. not be the code in which it is written.”
This article is not an endorsement of any particular cryptocurrency, broker, or exchange, nor does it constitute a recommendation of cryptocurrency as an investment class.