Ethereum, with a current market cap of $360 billion, is the second most valuable cryptocurrency in the world, behind only Bitcoin. In the past five years, the native token of Ethereum has seen a 1,700% increase in value, turning a $1,000 investment into $18,000. While it has been on a fantastic run since the start of 2021, Ethereum is currently 36% off its all-time high. Before investing in this digital asset, here are three important things to know.
1. Aiming for greater functionality
Ethereum’s key feature is its ability to support smart contracts, which are computer programs that automatically execute transactions between parties. This can potentially lower costs and reduce the need for human intervention. This feature sets Ethereum apart from Bitcoin, making it more useful in various use cases. The Ethereum ecosystem also includes decentralized applications (dApps) that can disrupt traditional industries.
2. Transition to a sustainable future
Ethereum used to operate on a proof-of-work (PoW) consensus mechanism, which is energy-intensive and harmful to the environment. In September 2022, the network successfully transitioned to a proof-of-stake (PoS) system, reducing energy usage by over 99%. This also aims to make the network faster and cheaper, as well as increase its capacity for handling transactions. However, the constant upgrades and technical risks associated with blockchain technology must be considered.
3. Ongoing technical risk
Ethereum has the most developers working on it compared to any other cryptocurrency, which bodes well for its future success. However, constant tweaking and updates to the software bring about technical risks that could potentially disrupt the network. As blockchain technology is still in its early stages, there is still much to be learned and improved upon.
In conclusion, understanding these key factors can help investors make informed decisions before investing in Ethereum. It is important to consider the potential for real-world utility and the ongoing technical risks associated with the constantly evolving blockchain technology. The Motley Fool Stock Advisor has identified the 10 best stocks for investors to buy now, and Ethereum is not one of them. Consider this before making any investments.
