Why Ethereum is my favorite cryptocurrency ?
Cryptocurrencies have taken the world by storm. Since 2013, the value of all
cryptocurrencies in circulation have soared from $1.6 billion to more than $1.6
trillion at Wednesday's prices and roughly $1.4 trillion of that value was added
in the past year, according to CoinMarketCap.
Bitcoin has been the leader of the pack, thanks to its first-mover advantage as
the original cryptocurrency. However, in recent months, Ethereum has stolen
Bitcoin's thunder. In the past year, Ethereum has gained roughly 1,600%, while
Bitcoin is up 300%.
Ethereum has caught fire for a number of reasons, but the most important aspect
of the Ethereum network is its use of smart contracts. These smart contracts built
on the Ethereum network are spurring a couple of innovations that give
Ethereum its value: decentralized finance (Defi) and non-fungible tokens (NFTs),
whose popularity should be closely followed by investors.
The Defi movement can't be ignored
One of the biggest innovations spurred by the Ethereum network is Defi.
Defi uses smart contracts on the Ethereum blockchain to offer traditional
financial products, like insurance or loans, without the need for intermediaries
like brokerages or banks. Two hands, made out of digital networks, form a
These smart contracts eliminate the need for a trusted third party to verify the
transaction. Nick Szabo, an early pioneer of digital currencies, likened them to
digital vending machines. Smart contracts are programmable contracts
between two parties that self-execute when specific conditions are satisfied.
The third party is eliminated because the contract is programmable and exists
on the blockchain, a secure and decentralized form of digital ledger technology.
The ultimate goal of Defi is to eliminate third parties and make financial products
such as loans, insurance, and trading more accessible to underserved markets.
According to World Bank, 1.7 billion adults across the globe lack access to
However, two-thirds of those do have access to a mobile phone
and internet connection and could benefit from Defi. Given the problem it looks
to solve, Defi is a very attractive space right now.
A real-world example:
Munich-based Etherisc built its first product, flight delay insurance, with smart
contracts on the Ethereum network. It works this way: When a customer
purchases flight delay insurance, it's recorded on the blockchain in smart contract
If a flight is delayed by 45 minutes or more, the self-executing contract
pays out customers instantly. The smart contract allows the customer to avoid
making claims with an insurance company, making insurance more efficient.
Etherisc sees insurance as one industry ripe for disruption by utilizing smart
contracts, saying they could make the purchase and sale of insurance more
efficient, lower operational costs, and provide greater transparency into
Ethereum leads the pack when it comes to decentralized contracts, whose
popularity has taken off this year. According to Defi Pulse, over $63 billion was
locked up in smart contracts as of Wednesday, a 65-fold increase from the $953
million locked up in smart contracts just one year ago.
Leading the NFT trend, too
The Ethereum ecosystem is perfect for another purpose as well: non-fungible
One of the problems in the digital age is the ease with which we can duplicate
digital assets like images, videos, and songs. NFTs aims to make digital
products more like physical ones, by giving them scarcity, uniqueness, and
proof of ownership.
NFTs have exploded in popularity in the past year. According to NonFungible,
there were nearly $67 million in sales related to NFTs in 2020. So far in 2021,
sales are an astounding $840 million, representing over 11 times growth from last
year's total -- and the year isn't over yet. Comparing the full month of April to the
same month last year, NFT sales were up 82-fold. To say NFTs have exploded is an
The Ethereum network plays a key role in NFTs, as most NFTs are priced in Ether -
The digital token of the Ethereum blockchain. In fact, the earliest and most
popular NFTs, with names like CryptoKitties and CryptoPunks, are run on
the Ethereum blockchain.
Ethereum is my favorite cryptocurrency
While Bitcoin was the original cryptocurrency, I think the smart contracts built
into the Ethereum network make it a better cryptocurrency to invest in over
the long haul. After all, there's no denying the popularity of Defi apps and NFTs
which are largely hosted on the Ethereum blockchain.
However, when dealing with cryptocurrencies, investors must be careful of a
potential bubble, especially in the NFT space. According to NonFungible, the
average sale price for crypto art had dropped 60% from its February high through
the end of April. If the NFT bubble does pop, Ethereum and other
cryptocurrencies will take a hit.
As an investor, it's important to understand the volatility of cryptocurrencies
and allocate your capital accordingly. Despite how much I like Ethereum, I also
know the price could potentially correct 40% to 60% or more due to rampant
speculation in the space.
This doesn't mean it's a bad long-term investment, though. The best approach as
a long-term investor is to allocate a small percent of your portfolio to the
cryptocurrency and dollar-cost average into that position over time. Dollar-cost
averaging will help smooth out the average price paid for your position, as you
should be buying along peaks and valleys along the way while keeping a long-term
investment perspective in mind
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