Should I Buy Ethereum? 5 Things You Should Consider
There are thousands of cryptocurrencies in existence today. CoinGecko tracks 13,000 of them while CoinMarketCap follows over 18,000 of them.
Ethereum is the second-biggest of them with its market cap of over $367 billion. It is also one of the most popular cryptocurrencies globally. So, if you are wondering whether you should buy Ethereum, here are the top things to consider.
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1. Ethereum is transitioning
One of the most important things you need to know when investing in Ethereum is that it is going through a transition.
For starters, Ethereum is a proof-of-work (PoW) platform that enables developers to build their blockchain projects. As a PoW cryptocurrency, it means that all coins are generated through mining.
Like with Bitcoin, this process is usually highly expensive and inefficient. Therefore, developers are currently working on ETH 2.0, which will transition to become a proof-of-stake (PoS) network.
The goal of this transition is to make it faster and more energy-efficient. Instead of using complex miners, the system uses validators to verify transactions.
The transition process is going on and analysts expect that the merge between Ethereum and the Beacon chain will happen in the third quarter of 2022. Therefore, there is a likelihood that the Ethereum price will likely keep rising towards and after the merge.
2. Ethereum will have a sharding mechanism
Another thing you need to know about Ethereum is that the network will embrace the sharding mechanism. Sharding is a technology that was first introduced by Zilliqa. The idea is relatively simple. Instead of the network processing blocks in all sizes, it divides them into smaller pieces known as shards.
The goal of using sharding is to make a blockchain network significantly faster and highly scalable. As a result, sharding will help increase the overall speed of the network from less than 20 transactions per second (tps) to more than 1,000.
Zilliqa, the first network to embrace sharding, now has over 2,500 tps. Other networks like Near Protocol and Elrond that use sharding handle thousands of transactions per second.
This sharding mechanism will be integrated with the network after the merge of Ethereum and the beacon chain happens in June this year. Therefore, there is a likelihood that the network will see more activity after the merger happens.
3. Ethereum is handling competition well
If you are considering investing in Ethereum, it is important to note that the network is facing stiff competition. It is seeing substantial competition from other blockchain networks that have better speeds, lower costs, and more interoperability.
There are many blockchain projects that seek to become the default platform for developers. In general, there are two main types of these networks: layer 1 and layer 2.
Layer 1 is a project that is built from the ground up to help developers build applications. Examples of these networks are Avalanche, Solana, BNB Chain, Cronos, and Near Protocol among others.
Layer 2 networks, on the other hand, are built with the goal of accelerating and supercharging the speeds of Ethereum applications. They are simply sidechains that use Ethereum but then transact outside of Ethereum. Some of these networks are Polygon, Mina Protocol, Immutable X, and Loopring among others.
However, while Ethereum is facing a lot of competition, it has managed to maintain a market share. A good example of this is in the decentralized finance (DeFi) industry. DeFi is an industry that is attempting to disrupt traditional finance by introducing products like lending, investing, and trading. Some of the most important applications built using Ethereum are AAVE, Curve, and Uniswap among others.
Ethereum has a total value locked (TVL) of more than $116 billion. This means that it has a market dominance of 55.3%, considering that all DeFi apps have a TVL of more than $211 billion.
Ethereum also has a leading market share in the NFT industry. While there are many blockchain platforms in the industry, it has a commanding lead. For example, it has been used to build the biggest NFTs in the world like Bored Ape Yacht Club, Mutant Ape Yacht Club, Imposters Genesis Aliens, CloneX, and Cryptopunks, among others.
4. Ethereum is offered by most exchanges
Another thing to know when you want to buy Ethereum is that it is one of the easiest coins to buy. That’s because it is widely offered by many exchanges and financial platforms. For example, Ethereum is provided by all exchanges ranging from well-known brands like Coinbase and eToro to smaller ones like CEX and Gate.
Second, it is offered by various online wallets like PayPal, Skrill, and Revolut. All you need to do is to have money in your account and then execute the trade. In most cases, the process of buying and storing the coin will take less than 5 minutes.
Third, you can buy Ethereum using one of the most popular forex and CFD brokers. These companies let you buy digital coins using leverage. A CFD is simply a financial asset that tracks the price of Ethereum.
5. You can stake Ethereum 2
Finally, like many other proof-of-stake tokens, it is possible to stake the second version of Ethereum. Staking is the process of buying a cryptocurrency and delegating it to one of the validators. You will then earn some money every month. According to Staking Rewards, investors have staked Ethereum worth more than $32 billion. They are earning an APY of about 8%, making it a good investment.