When it comes to cryptocurrency, Bitcoin (CRYPTO: BTC) is the big name in town. But ether (CRYPTO: ETH) has had an incredible year.
Since the beginning of the year, the price of Ethereum has increased by 435%. In the past 12 months it has increased by more than 1,700%. By comparison, the price of Bitcoin has increased about 100% so far this year and 518% over the past 12 months.
Approaches like this can be hard to ignore, and some experts believe Ethereum has a bright future. But is it time to buy?
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What is ethereum
First of all, it is important to distinguish the difference between Ethereum and Ether. Ether is a type of cryptocurrency, similar to Bitcoin. Ethereum is the blockchain technology behind Ether.
Ether and Bitcoin have a lot in common. They are both digital currencies that transactions can be carried out with. As with Bitcoin, you can invest in Ether directly by buying coins. However, Ether is significantly cheaper than Bitcoin. Ether costs around $ 4,100 per coin as of this writing, while Bitcoin costs around $ 57,400 per coin.
It is also possible to invest in Ethereum technology. Some of your options include:
- Invest directly in ether: By purchasing ether coins, you are also supporting the Ethereum technology behind the cryptocurrency.
- Investing in a managed fund: Fund like Grayscale Ethereum Trust (OTC: ETHE) You can deal with Ether and Ethereum without having to buy coins directly.
- Invest in certain stocks: Buying stocks that are in some way related to Ethereum technology is another option. Companies like NVIDIA and AMDFor example, create computer chips that are commonly used during coin mining.
Ethereum is a widely used technology that has a wide variety of uses. Before investing, however, it is important to understand the pros and cons.
Consideration of the benefits
One of the biggest advantages of the Ethereum blockchain is its flexibility. While it is primarily known for hosting ether, it is also used for NFTs (Nun-Fungible Token), decentralized finance, and blockchain solutions for businesses.
In other words, there are applications outside of the cryptocurrency world. Even if the cryptocurrency itself fails in the long run, Ethereum could still be used in other ways.
Another major criticism of cryptocurrency, especially Bitcoin, is how energy-intensive it is. Cambridge University researchers estimate that the Bitcoin mining process uses more electricity than the entire Swedish country.
However, Ethereum strives to be more environmentally friendly. Developers of the technology are currently working on changing the way coins are mined to make the process more energy efficient. This could give Ethereum an edge over Bitcoin, especially among environmentally conscious investors.
As the Ethereum network changes, some of the Ether coins can be destroyed in the process. However, this could actually be a good thing for investors as a lower supply of ether could make it more valuable and increase its price.
Image source: Getty Images.
Understand the risks
Despite its flexibility and wide scope of application, there are still risks involved in investing in Ethereum and Ether.
For one, volatility is almost guaranteed – especially if you invest directly in ether. Cryptocurrency is generally a risky investment as it is very speculative right now. Some experts also believe that we are in a crypto bubble and that digital currencies like Bitcoin and Ether are overvalued. If so, prices could fall when the bubble bursts.
Also, new laws and regulations could pose a threat to the future of Ethereum. Investing in cryptocurrency can come with high taxes, which can limit the number of people willing to invest. In addition, lawmakers are still considering how to regulate the crypto market. This could lead to more volatility and higher risk.
Before investing in Ethereum, you should think about your risk tolerance. Would you be able to sleep at night if your investment dropped 20%? What about 50%? Ethereum is a volatile investment. So make sure you are familiar with the risk before you buy.
If you choose to invest in Ethereum, make sure you have a well-diversified portfolio and only invest money that you can afford to lose. By investing most of your money in safer investments, you can limit your risk in the event Ethereum deteriorates.
Ethereum could be a smart investment, but it’s not for everyone. Be sure to weigh the pros and cons and consider your own risk tolerance. Make sure that you make this decision carefully whether you are investing or not.
This article represents the opinion of the author who may disagree with the “official” referral position of a Motley Fool Premium Consulting Service. We are colorful! Questioning an investment thesis – including one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.
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