As the second largest cryptocurrency in the world, ether (CRYPTO: ETH) has a following that in some ways may even be stronger than that of Bitcoin (CRYPTO: BTC). The Ethereum blockchain happens to be the building block on which a number of stable coins, dApps, decentralized exchanges and NFT exchanges (we’ll get to that in a moment) are built on.
Investors who bought into Ethereum five years ago are currently up more than 270x. This kind of incredible capital appreciation is extremely rare within an asset class. But even after this historic run, there is reason to believe that Ethereum could still have a lot of upside potential for long-term investors. That is, provided Ethereum can find a way to swap with Bitcoin and take the lead in the crypto world. This event – called “flippening” – is something that many in the crypto space have been predicting for a very long time.
Let’s discuss three reasons why Ethereum currently remains a top pick for many crypto investors.
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1. Ethereum offers real applications
Perhaps the most important factor in Ethereum’s success has been the inclusion of smart contracts since its inception. As early as 2013, Vitalik Buterin recognized the importance of providing a cryptocurrency network with the ability to execute transactions immediately after certain agreed conditions have been met. This functionality has spurred a number of real world applications ranging from finance to insurance, healthcare and other large sectors waiting to be disrupted.
As an open source, decentralized blockchain has its advantages for those who own ETH tokens. As Ethereum becomes the preferred platform on which developers create dApps or crypto-focused projects, the network effect of Ethereum is growing.
Accordingly, the benefits that Ethereum offers are real and tangible. Other cryptocurrencies struggle with this concept. While other cryptocurrencies have currency-like features, decentralized finance and the real world applications that Ethereum has unlocked are a tipping point in many ways.
The fact that Ethereum is currently powering an insane number of important, high-profile crypto projects leads investors to the idea that owning the basic building blocks of the cryptocurrency ecosystem is a good idea. In fact, this is a difficult concept to refute.
2. Ethereum will go (more) green shortly
Perhaps one of the biggest arguments against owning or accepting cryptocurrencies lately has been the sheer amount of energy it takes to power these blockchain networks. Even one of the most optimistic influencers in the crypto world, Elon Musk, used Twitter to push for change on this topic.
The rise of Ethereum as one of the earliest cryptocurrencies meant that a proof-of-work crypto mining model was required. Miners or those who verify transactions across the blockchain had to be rewarded for this. After all, the additional computing power required to build a network comes at a cost.
However, as the crypto world has apparently evolved into an almost ubiquitous status among investors, Ethereum is trying to change its ways. The cryptocurrency network announced an Ethereum Improvement Proposal 3554 (or EIP-3554 for short) to move to a proof-of-stake model.
By allowing Ethereum users to use their existing Ethereum tokens to verify transactions, significant energy savings are observed across the blockchain. Those who use their tokens will be rewarded in a similar way (via more ETH tokens). However, energy consumption on the blockchain will drop dramatically, which is a good thing for those looking to generate passive income from their holdings without raising the capital for mining rigs and managing ongoing electricity costs associated with mining. The total energy saving across the Ethereum network is estimated by the Ethereum Foundation to be around 99.95%.
This move is expected to significantly improve the social costs of crypto mining (and, indirectly, crypto ownership). Those looking to own a greener, leaner cryptocurrency could shift towards mega-cap Ethereum as the primary choice over Bitcoin for that reason alone.
3. Ethereum powers the NFT world
Perhaps the biggest buzzword in the crypto world is currently NFT (non-fungible token). NFTs have grown in popularity over the past year due to the rapid rise in the ratings of these digital assets. As is known, a non-fungible token was sold for a whopping $ 69 million earlier this year. Such price tags tend to quickly invite speculators to the party.
It just so happens that Ethereum is currently running some of the largest and most well-known NFT marketplaces. Among these, openea.io has seen an incredible volume lately. NFT investors seem to like the flexibility of using Ethereum to trade their artwork. Other cryptocurrencies such as Solana (CRYPTO: SOL) emerge as competitors in the race for NFT market share.
Will Ethereum be able to crowd out the competition in these growing crypto markets? We will see. However, investors who want to bet on the largest and most resilient ecosystem certainly have many reasons to consider Ethereum now.
The cryptocurrency space is certainly a volatile one initially. Investors fascinated by what the cryptocurrency space has to offer might want to take a look at Ethereum. After all, this is one of the most robust and open platforms that much of the crypto ecosystem is built on.
As with any speculative high-risk, high-yielding investment, crypto investors should always remember to stay within their limits. These are digital assets that have boomed and crashed in spectacular ways in the past. Putting all your eggs in one basket like this may not be great, especially for those with lower risk tolerance thresholds.
Still, there is certainly a strong argument that Ethereum fits well as a core position in a well-managed crypto portfolio.
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Fool Chris MacDonald has no position in the securities mentioned. The Motley Fool owns shares of and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
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