What is Ethereum?
Ethereum is one of the most popular and well-known blockchain networks in the world. Ethereum is powered by Ether (ETH), the network's native cryptocurrency. We may know it as an attractive investment option, but Ether (ETH) is also the cryptocurrency that powers the Ethereum network.
Ether is second only to Bitcoin in market capitalization. Ethereum was created in 2013, while Bitcoin was established in 2009. This rapid growth showcases Ethereum’s popularity. In 2015 the price of one ether reached €15. Fast Forward to November 2021, and ether hit a new high of €4,153.
You may have heard of ETH in the news recently as the acceptance of cryptocurrency continues to grow. Celebrities that have endorsed ETH include Reese Witherspoon, Gene Simmons, and Stephen Curry.
How does Ethereum work?
The Ethereum Network is a blockchain where users can build decentralized applications (dApps). These might look similar to the applications currently found on desktop and smartphone devices, but are different in that the underlying technology is decentralized. This means that the dapps are not controlled by one centralized authority.
Imagine if you could use an application, such as Instagram or Twitter, on your smartphone — only this time the application would not be controlled by the companies we know to have built them. Instead, the information stored in this app would be distributed across a network of code, so that it could never be tampered with or stolen.
This concept gives rise to a whole host of benefits including less restricted access and fewer technological errors as Ethereum relies on many different computers. With more investment being pumped into blockchain, we are likely to see a continued rise in the adoption of dApps. This is evidenced by Ether’s price increase.
What is ETH used for?
ETH allows for the production of decentralized applications or ‘dApps’ on the Ethereum network and is the required form of payment for running an app or processing a transaction on the network. Many people now buy ETH as an investment, without using it to run an application on the network. With continued adoption of Ethereum-based dApps becoming more popular, ownership of ETH is likely to continue rising, positively impacting the potential profitability associated with the cryptocurrency.
Ethereum is hailed as the foundation of the booming Decentralized Finance (DeFi) market. Many of the dApps running on Ethereum promise to revolutionize the financial world through the implementation of DeFi. The main characteristic of DeFi is the removal of central intermediaries, like banks, from the processing of financial transactions. Financial processes, including lending, borrowing, trading, and investing, can all be completed without costly third party involvement or oversight from a government which we might not trust. ETH is the currency used to transact in this growing decentralized space.
Brands open to ETH payments are Digitec Galaxus, the largest online retailer in Switzerland, and TapJets, a private jet booking firm.
What are Ethereum's risks?
When Ethereum debuted in 2015, one ETH cost less than €3. The price of one Ether has increased significantly since then, reaching over €3,500 in October 2021. For obvious reasons, this growth makes ETH interesting for many investors.
As with any investment, there is a risk that investors can potentially lose money if the value of the asset drops. For example, a drop in the network's popularity amongst blockchain developers could set about a plunge in price. The Ethereum Network is well known for having slow transaction speeds and high user fees. For this reason, a number of competing blockchains, such as Cardano and Solana, have begun to identify as ‘ETH Killers’ and threaten to take traction from Ethereum. While Ethereum is upgrading to fix these issues, there is the possibility that this competitive environment will also cause the value of ETH to drop. It is important to be aware of these developments when considering investing in ETH.
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