Despite its heartbreaking volatility, ongoing regulatory uncertainty, and questionable utility, the cryptocurrency market doesn't look like it's going away anytime soon. Investors will continue to try to find winners among the wild asset class.
Ethereum (CRYPT: ETH) could be a smart choice. This block chain The network has seen its price skyrocket historically. If you were smart enough to invest $1,000 in Ethereum five years ago in early 2019, you would have a balance of $21,500 today. That translates to a ridiculously large gain of over 2000%, which crushes the bigger picture. Nasdaq Composite index.
Let's take a closer look at Ethereum's past, as we try to figure out what investors can expect in the future.
The second cryptocurrency
bitcoin It was launched immediately after the great financial crisis of 2008 and 2009 as the world's first cryptocurrency. With this invention, people from anywhere in the world could send value to another person without the use of an intermediary. It was truly revolutionary.
But Ethereum wanted to be much more than that. It was the second cryptocurrency, launched in 2015. The difference with Bitcoin was that Ethereum allowed the creation of smart contracts. These are software programs that run automatically when the parties to a transaction meet their requirements. Consider an earnest money payment that is released to a seller only after a buyer receives the property, for example. This innovative feature put Ethereum on the map.
Today, there are many other cryptocurrencies that enable smart contract functionality. But Ethereum is still the leader. According to Electric Capital, a venture investment fund, there were 2,400 full-time monthly active developers working on advancing the Ethereum network, far more than any other crypto asset. This bodes well for Ethereum's ability to continue introducing new features that could drive adoption in the long term.
However, Ethereum has already become the most popular cryptocurrency when it comes to decentralized applications (dApps). There are 3000 different dApps operating on Ethereum. Ethereum's ultimate success will depend on its ability to drive greater use cases, something it is well positioned to do compared to other cryptocurrencies out there.
What the future could hold
Like Bitcoin, Ethereum originally operated on the work test consensus mechanism. This meant that the so-called miners had to expend energy and computational resources to approve transactions and validate the blockchain. But as critics believe this is a waste of electricity, Ethereum made the long-awaited transition to a proof of stake model in late 2022 with the completion of The Merge. This system leaves the approval of transactions to Ethereum owners who have locked their holdings. It is intended to be significantly more energy efficient.
The merger was seen as a major breakthrough for Ethereum, not only because of its lower energy needs, but because it sets up the cryptocurrency to scale better in the future. The problem with Ethereum is that it can still only process 13 transactions per second, which doesn't even compare to the 65,000 that a massive payments network like Visa You can handle. If Ethereum wants to achieve greater adoption around the world, it needs to scale better. And The Merge is a step in that process because it can help reduce transaction fees while speeding up processing times.
Ethereum developers have many other technical updates in the works. While this adds a lot of implementation risk, as many things can go wrong that were not anticipated, it is encouraging for supporters to see that the blockchain is constantly trying to improve itself.
Ethereum is currently 52% below its all-time high. Bullish investors who have been on the sidelines may want to take a closer look at this cryptocurrency. It is best to start with a small position and potentially add more as your knowledge and convictions grow.
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Neil Patel and its clients have no position in any of the stocks mentioned. The Motley Fool positions and recommends Bitcoin, Ethereum, and Visa. The Motley Fool has a disclosure policy.
If You Invested $1,000 In Ethereum In 2019, Here's How Much You'd Have Now was originally published by The Motley Fool
