It’s a wise investment decision to add Ethereum to your portfolio, especially after the Merge because it’s the second-largest cryptocurrency by market capitalization. Suppose you’re not new to the crypto market or the internet; you already know that Bitcoin is king in the industry, and for a while, no other cryptocurrency will be able to dethrone it. Let’s call it a Game of Cryptos where Bitcoin sits comfortably and unbothered on the throne.
Ethereum developers claim that the altcoin is a decentralised financial system built on blockchain that has extensive utility outside of storing value and being a medium of exchange. All its features make it a worthy addition to any crypto portfolio.
What should traders know about Ethereum?
Let’s assume that you have never heard about Ethereum. According to crypto specialists, it’s a blockchain-distributed computing platform using smart contract technology. It enables peer-to-peer network contracts and transactions via the token Ether. Vitalik Buterin developed the cryptocurrency in 2013, intending to overcome the shortcomings of Bitcoin. Traders and investors consider Ethereum a helpful application platform because it has its own distributed financial ecosystem.
You can think of this altcoin as a secure database anyone can access. New data blocks are cryptographically chained to parent blocks to record changes and prevent further alterations. Ethereum managed to become the second-largest cryptocurrency by market capitalisation because it has the potential to change the market. It enables more diversified actions by allowing developers to run smart contracts and host dApps. The altcoin differs from Bitcoin because it enables the creation of decentralised applications on its platform.
Let’s understand how Ethereum works
Now that we hold a grasp of what Ethereum is, let’s find out more about the way it works. Ethereum was created on a public and decentralised blockchain, so all transactions in the ecosystem are recorded, public, and verified. No one can modify information because the ledger records all activities. Vitalik Buterin created Ethereum, similarly to Bitcoin, to rely on node operators to process transactions on the network and receive a fee for running the necessary software and hardware. The network paid the operators ether and called the fees gas fees because they powered the blockchain. However, since its creation, Ethereum was designed to switch from the proof-of-work protocol to the proof-of-stake one and become more sustainable. The new consensus required validators to stake at least 32 ether to be selected randomly to create blocks. The validators that put more Ether on the stake are more likely to be chosen by the network to validate new blocks.
Ethereum uses similar strategies to BitTorrent to provide a decentralised operating system for dApp developers to create software. People often name Ethereum a cryptocurrency, but the reference is wrong because it’s the platform that hosts Ether, the digital currency that functions within.
Are Ethereum and Ether different?
As stated earlier, Ether is the native cryptocurrency of Ethereum. Ether or ETH is the name of the digital currency traders use in the Ethereum ecosystem to store, trade, exchange, or invest in assets. Investors deposit cash through a crypto exchange using their debit card or bank link to buy ETH. Before purchasing Ether, it’s smart to keep an eye on the Ethereum price’s evolution over an extended period to ensure you purchase the tokens at the best value.
Ethereum is the blockchain network traders use to exchange or hold Ether. However, besides being a cryptocurrency holder, it also plays other roles.
– The system completes transactions automatically, transferring the tokens from one user to another when the conditions in the contract are fulfilled. The network doesn’t require the involvement of third parties in the process, as traditional contracts do.
– Ethereum doesn’t imply the involvement of a central authority to manage the operations on the blockchain. The trading parties establish the agreements’ conditions and exchange assets and goods with the terms published on the smart contract.
– Ethereum enables the storage of data via decentralised applications. The term data is used to refer to transactions of financial or personal information.
What does the Mere mean for Ethereum
We mentioned earlier that Ethereum completed the transition from the proof-of-work consensus to the proof-of-stake one. The network completed the switch called the Merge on September 15, 2022.
The Ethereum Foundation, the non-profit that funds Ethereum ecosystem development, states that after the Merge, the network will cut its energy usage by over 99%. The new consensus takes control from the hands of those who afford to invest in fancy mining rigs and puts it in the hands of validators who stake crypto. Both consensus protocols hold a series of centralisation and security risks, so we cannot say which one is best. However, proof-of-stake is a less battle-tested system.
Many investors wonder if Ethereum fees will decrease after the Merge. Specialists believe they won’t because it didn’t affect its price. However, they expect future network updates to bring changes in the fees.
Before the Merge, Ethereum blocks were issued every 13-14 seconds, and the new protocol enables the creation of new blocks every 12 seconds. Users won’t notice this improvement, and Ethereum still remains behind competitors like Avalanche and Solana which mine new blocks at a 10-seconds interval.
Predicting how the Merge will impact Ethereum’s price is challenging because there weren’t significant changes before or after the transition. The Community supporting the altcoin has always described the Merge as a massive upgrade to the blockchain’s core technology because it addresses the environmental concerns of mining cryptocurrency. The PoS consensus introduces a new utility for Ether, staking, which lowers the rate at which the token is issued. Some think it could impact its price, but we must keep an eye on the market to understand how the upgrade will affect the altcoin’s value.
Ethereum is a worthy addition to any investment portfolio because it uses blockchain technology to enable the creation of decentralised apps. The platform uses the token Ether as fuel to allow for speculative investments.