Ethereum maintains its position as the 2nd most popular cryptocurrency, following Bitcoin. As a result, many perceive it as a great financial tool with incredible real-world use cases. Moreover, Ethereum also enables new technologies to be created, such as dApps and NFTs.
But what are the reasons behind the intrinsic value of Ethereum? We’ll answer this question in this blog, so stick with us to find out!
Ethereum: what is it, and how does it work?
Ethereum is an open-source, blockchain-based, decentralized software platform that allows developers to build and deploy DApps(decentralized applications) and smart contracts. Its crypto, called Ether (ETH), is used to pay transaction fees and incentivize network participants to validate transactions and maintain the network. The best way to buy Ethereum is through a crypto exchange like Binance, as these platforms offer multiple payment options, including credit/debit cards or bank transfers.
Ethereum has become one of the most widely used blockchain platforms, and many projects and companies have built their applications on top of it. Ethereum is programmable, scalable and secure, which is why many developers and enterprises find it highly reliable – this crypto has the potential to change how industries operate, and this is highlighted through its valuable applications.
A myriad of use cases for Ethereum
Ethereum provides utility in numerous sectors, including healthcare, real estate, and entertainment. All these industries are creating innovative tools on the protocol, boosting trust and efficiency and democratizing access to different services. For instance, Ethereum enables musicians to manage royalties by giving them ownership rights over their tokens.
Moreover, this digital currency enables faster, cheaper and direct cross-border payments in the global remittance industry. Many companies rely on the blockchain to avoid intermediary banks that charge considerable transaction fees.
Ethereum also benefits the supply chain sector, as it provides transparency regarding the provenance of products. This is possible through blockchain-based cryptography, which enables supply chain businesses to track the entire journey of a product and ensure the data hasn’t been tampered with. This way, end consumers can rest assured knowing that the purchased products are genuine.
Through cryptographic methods, Ethereum also ensures information sharing is done securely – which is imperative when it comes to sensitive data like identity information or medical records. Lastly, Ethereum increases access to products that were once out of reach for many people. Some Ethereum-based startups provide fractional ownership, which means that instead of owning a whole good, you can only own a piece of it. This enables the diversification of assets, which can benefit consumers in the long run.
4 main reasons behind Ethereum’s intrinsic value
Gas fees are a crucial element of the Ethereum network and are essential to its intrinsic value. They are paid in Ether and used to compensate miners who validate transactions and maintain the network. These fees can vary depending on network congestion and the complexity of the transaction.
During periods of high network activity, such as during the DeFi surge in 2020, gas fees can increase considerably, reflecting the increased demand for network resources. Users need to acquire and hold ETH to participate in transactions, which creates a base-level demand for the crypto.
There are four main reasons why Ethereum is intrinsically valuable as crypto:
- Smart contracts capability. Ethereum was designed as a platform for building decentralized applications (DApps) and executing smart contracts. These smart contracts are self-executing computer programs that can automate the exchange of value and enforce the rules of a contract. Because Ethereum allows for the programmable execution of smart contracts, developers can build a wide range of decentralized applications on top of the platform. This includes decentralized finance applications, which enable peer-to-peer lending, borrowing, and crypto trading, and NFTs – unique digital assets that can include anything from artwork to collectibles.
- Speed and scalability. Ethereum is different from Bitcoin in two fundamental ways. First of all, Ethereum block times are between 10-15 seconds, which is the equivalent of 10 minutes for Bitcoin. Secondly, each of the transactions on Ethereum process in 15 seconds- five minutes, while bitcoin transactions can take around 40 minutes to be completed. The transaction speed is a great indicator of which crypto is reliable and efficient, and Ethereum doesn’t disappoint regarding this aspect. Plus, the Ethereum upgrades expected in the future are meant to boost Ethereum’s scalability considerably, making it even more effective. While in the pre-merge era, only 15-40 transactions were supported, Ethereum will be able to support 100,000 transactions per second through sharding.
- A different type of connectivity. Ethereum’s architecture has the potential to revolutionize technology and finance by enabling the development of DApps and smart contracts. Ethereum-based DApps already have a profound impact on decentralized finance, disrupting financial systems by allowing crypto trading without relying on banks. Additionally, they can also transform different industries, including governance, mortgage transfers, and securities trading. Creating and executing programmable smart contracts on a decentralized network can increase efficiency, reduce costs, and boost transparency in many industries.
- A shift to the PoS consensus mechanism. Initially, Ethereum used a PoW consensus algorithm, just like Bitcoin. However, this has recently changed due to the Merge. As a result, Ethereum now uses a PoS (proof-of-stake) consensus algorithm to validate transactions. While under PoW, miners have to compete to solve complex mathematical problems, under the PoS algorithm, transactions are validated based on how many cryptos they hold and are willing to stake. The PoW system is much more energy-efficient and scalable than PoW, making Ethereum environmentally sustainable. This feature can play a significant role in the global financial system, enabling new use cases for DApps and smart contracts.
Is Ethereum a good investment in 2023?
As highlighted in this blog, Ethereum is a valuable cryptocurrency for various reasons, such as its increased speed and smart contracts capability. Over the years, it has brought considerable gains to investors, as its track record shows. However, whether Ethereum is a good investment can’t be answered with a simple ‘yes’ or’ no’, as this differs from person to person.
Different factors come into play when determining whether an investment is successful, such as your risk tolerance and financial goals. Ethereum (like any other cryptocurrency) can be volatile and may put your capital at risk. But it may be worth getting started with it, considering its potential for gains. If you decide to invest in cryptocurrencies, be sure to do your research and don’t put your life savings into it. Instead, make informed decisions and ask for financial help if necessary.