What You Need to Know about the Promises and Pitfalls of Investing in Ethereum

Posted byRobert RyersonPosted inBitcoin
cryptocurrency

If you’re new to the world of cryptocurrencies, it can be tough to fully understand crypto trends and which digital currencies are the best fit for your investing needs.

Ethereum is one of the most popular cryptocurrencies, but is it just a fad investment or will it pay off in the long term? Here’s what you need to know about Ethereum to help you make that determination for yourself:

What Is Ethereum?

Ethereum is a decentralized network based on blockchain technology. It allows fast, secure, and decentralized digital transactions. Ethereum aims to create applications that anyone can use without the need for a government to regulate them. These applications can be security programs or payment methods belonging to cryptocurrencies. 

The goal is to offer open access to digital money and information services regardless of the user’s location. Some of the most notable applications created by Ethereum are:

– Gnosis: allows users to vote on anything

– Etheria: has a lot of similarities to Minecraft, but within the Ethereum blockchains

– Bitnation: the first virtual nation in the world

– Weifound: an app for crowdfunding contracts using smart contracts

– Augur: a prediction market that rewards correct predictions

This network, which was first launched in 2015, has a native cryptocurrency known as ether, which is one of the most important and recognized currencies in this niche. Ether often has a very high price. In fact, many traders prefer to invest in ether rather than in Bitcoin precisely because of its high recognition.

Ethereum allows users to validate and confirm all the transactions that are made through these blockchains using smart contracts. These contracts operate under specific clauses and previously programmed parameters. The latest contracts are contributed by Ethereum to blockchain technology. This makes it one of the most innovative and ambitious projects in the crypto environment.

How Does Ethereum Work?

As stated above, the Ethereum cryptocurrency is ether. Participants pay a surcharge of ether referred to as “gas” in order to have their transactions processed. It’s something like the fuel of Ethereum. This means that every movement of Ethereum requires the support of ether to work.

Ethereum then works as an open-source platform based on blockchain technology with many applications beyond money systems. However, unlike Bitcoin, Ethereum has infinite tokens, and the verification of operations is much faster. The Ethereum Blockchain stores transaction histories and downloads current statuses and histories of each smart contract within the network, the balance of each user, and where it is stored.

What Are the Differences between Ethereum and Bitcoin?

Many people erroneously equate Ethereum with Bitcoin. While they are the two most popular cryptocurrencies in the digital market, they’re not the same. Let’s review some of the most important differences between the two cryptocurrencies:

Its Blockchain: The blockchain of the Ethereum network can be built on “DApps” or decentralized applications, which isn’t possible with Bitcoin.

Its Objective: The main objective of Bitcoin is to be a digital currency, similar to but distinct from fiat money, with which various kinds of purchases can be made. Ethereum seeks to execute smart contracts within the network of blockchains.

Its Audience: Bitcoin may be more famous than Ethereum, but the latter is used for a wider range of tasks.

Its Scope: As Bitcoin becomes more embedded into our daily lives, and it aims to operate as a digital currency, it’s now beginning to be accepted by some payments processors worldwide. For its part, ether is accepted only for transactions involving digital applications on the Ethereum network and others that use its blockchain technology.

What Are the Pros and Cons of Investing in Ethereum?

Ethereum is a very new and disruptive technology with a wide range of applications in the world of digital investments. As a result, it’s caught the attention of the public. Although the future of this cryptocurrency is uncertain, many experts believe that in the long run, Ethereum will completely change the way the Internet and financial services and industries function.

With that in mind, you might be unsure as to whether investing in Ethereum is a smart choice. Here are a few pros and cons to help you make the right decision for your goals and circumstances:

On the plus side, as Ethereum increases in value, the popularity and solidity of its currency increases. Additionally, Ethereum solves problems rather than just making digital transactions, offering new methods of communication and the development of direct solutions. Finally, given the attractiveness and increasing ubiquity of cryptocurrencies in financial hubs around the world, Ethereum has the advantage of years of experience carrying out intelligent transactions.

However, when deciding whether to invest in Ethereum, consider the volatility and high price that can make it both risky and rewarding. For example, Ethereum tokens had an incredibly run from the $133 level in mid March of 2020, to a high of over $4,812 only 20 months later, on 11/7/21!  That means a $10,000 investment grew to over $360,000 in less than 2 years!  Conversely, Ethereum crashed from that $4,800 level all the way back down to $1,010 on June 30, 2022—a 79% decline in only 8 months!! You need to have both patience and tolerance for failure. Remember that investments should preferably be made with capital that isn’t needed in the short or medium term. Additionally, the transactions and other operations carried out on the blockchain are definitive and irreversible. So, if you make an erroneous transfer, it could be difficult or impossible to recover the money.

Are You Ready to Invest in Ethereum?

This new but promising technology has very striking technological advancements and initiatives. There is the potential for strong digital investments and safe and private services within the world of cryptocurrencies. If you’re interested in investing in digital currency, Ether is one to consider. Keep an eye on this currency as it continues to transform the way we see and use crypto today.

Published by Robert Ryerson

A financial professional with more than three decades of experience, Robert Ryerson works closely with clients in the Freehold, New Jersey, area to meet their financial planning needs. As a Certified Financial Planner (CFP) at New Century Planning, he focuses on retirement income planning, as well as estate administration, regularly assisting his clients with legacy and estate planning. He also advises them on health and disability insurance, including Medicare, Medicaid, and Medicare Supplement Plans. Mr. Ryerson’s many years helping his clients navigate the complexities of retirement planning gave him a deeper understanding of the healthcare costs that retirees face. In 2013, he drew upon this knowledge to co-author the book What You Don’t Know About Retirement Will Hurt You. Outside of his work at New Century Planning, Robert M. Ryerson is a regular fixture at workshops and seminars on retirement. He has delivered several keynote speeches on the often-confusing topic of required minimum distributions. Mr. Ryerson continues to share his financial expertise as a facilitator of online courses for Certified Public Accountants through The Society for Financial Awareness. In the early 2010s, Mr. Ryerson became concerned about the threat of identity theft after noting the many cybersecurity breaches suffered by major companies. He became a Certified Identity Theft Risk Management Specialist (CITRMS) in 2014. He has since taught identity theft recovery courses at local community colleges. Mr. Ryerson also wrote a book on the topic entitled What’s the Deal with Identity Theft: A Plain English Look at Our Fastest Growing Crime. A graduate of Rutgers University with a degree in economics, Mr. Ryerson began his career in the financial services industry as a stockbroker. He obtained his CFP designation in 1991 and began working as an independent financial planner a few years later. In addition, he is a notary public.