Bitcoin’s younger sibling is giving it a run for its money.
Ethereum is a digital currency that claims to be “the world’s programmable blockchain.” It is more nimble than Bitcoin, and chances are you won’t move far into the world of cryptocurrencies before you come across it.
But what does it do? And should you buy it? Read on to find out.
What is Ethereum?
Ethereum, the world’s second-biggest cryptocurrency by market capitalization, is like Bitcoin’s agile little sibling. It uses less energy and has faster transactions and more business applications.
Many digital currencies run on Ethereum’s platform, which launched in 2015. A new, improved, version called “Eth 2” is being rolled out in stages. It will support more transactions per second, consume less energy, and have enhanced security.
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One big difference between Ethereum and Bitcoin is that its blockchain ledger has smart contract capabilities. Smart contracts are self-executing pieces of code that allow an action to be performed when certain conditions are met.
For example, a smart contract in a digital book might set out what royalties should be paid when the book is sold. Or it might mean an insurer automatically pays out in specific situations, without any need for the client to file a claim. Payments could also be set up to transfer automatically as goods move along stages in a supply chain.
Should you buy it?
Like every investment — but especially crypto investments — there are risks involved with buying Ethereum.
For one, its price is volatile. You might see dramatic gains, but you might also see heavy falls. Also, since cryptocurrencies are a new type of investment, it’s difficult to judge which coins will perform well in the long term.
I put a small amount of money into crypto each month. But before I started, I first built up my emergency fund. I also made sure my new crypto investing didn’t come at the cost of my retirement contributions.
These moves ensure I’m only investing money I can reasonably afford to lose. That way, if the price of cryptos collapses tomorrow, I can wait for it to rise again. And if it doesn’t, I can stomach the losses.
Where you choose to invest should depend on your own priorities and strategy, but here are the reasons Ethereum could be interesting.
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1. Many things run on Ethereum
Ethereum underpins a lot of the exciting applications of blockchain technology. It’s designed to be used to create new coins and run smart contracts. Plus, right now, you need to own Ethereum if you want to do other things — such as trade on some platforms or buy NFTs. If the crypto world continues to grow, so should Ethereum.
2. Eth 2 will be more environmentally friendly
One concern I have about crypto is the environmental cost. To validate and confirm transactions, a number of cryptocurrencies use a proof-of-work (PoW) model, which uses a lot of energy.
Right now, Bitcoin uses about 130 terawatt hours (TWh) of energy each year, which is about the same amount of energy as countries…
Read More:Should You (or Anyone) Buy Ethereum?