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Ethereum (ETH) is the most well-known altcoin in the cryptocurrency space and the second largest cryptocurrency by market capitalization. Its leading position in the programmable blockchain sector, growing institutional adoption and future upgrades and deflationary economics truly puts Ethereum in a league of its own.
However, as the cryptocurrency industry continues to mature and develop, more competing cryptocurrencies are emerging with new and improved solutions to the blockchain dilemma (scalability, security and decentralization). The following discussion will investigate if Ethereum will survive in the long run and stay relevant as the cryptocurrency industry continues to evolve.
Is Ethereum Here to Stay or Just a Fad?
Ethereum, alongside Bitcoin, is at the forefront of the cryptocurrency movement. However, many people believe Ethereum could overtake Bitcoin as the dominant coin in the market in the near future, and for good reason.
Bitcoin is often referred to as a first-generation blockchain. It wasn’t created as an overly complex system, and that’s a strength in terms of security. It’s kept intentionally inflexible and slow to prioritize security and decentralization. However, Bitcoin’s coding language is extremely constrained. This means that it doesn’t accommodate applications outside of transactions very well and is limited in terms of functionality.
In contrast, second-generation blockchains are capable of more. In addition to financial transactions, these platforms provide a greater degree of programmability. Ethereum was the first second-generation blockchain and is the most prominent and decentralized one to date. Ethereum transcends Bitcoin’s aim of creating a fairer and more transparent financial system, and instead aims to create an all-encompassing, new and improved digital economy.
What is Ethereum?
Ethereum is a Layer 1 blockchain, a type of project that represents the base network or underlying infrastructure in a blockchain-based system. Layer 1 blockchains can finalize and validate transactions without the help of another network. They also have their own native token, which is used to pay for transaction fees.
In other words, you can think of Ethereum as a publicly shared global computer network. It doesn’t run on a single device but instead runs simultaneously on thousands of devices around the world. People around the globe contribute their computer’s computing power to secure the network and are paid in Ether (ETH) for doing so. Ether is Ethereum’s native cryptocurrency and can be interpreted as the fuel that runs the network.
The main idea behind Ethereum is that developers can create and launch decentralized applications (dApps) that run across a decentralized network instead of a centralized server. This is done through the use of smart contracts, which refer to programs stored on a blockchain that facilitate the exchange of assets between two parties when predetermined conditions are met. DApps cannot be censored or shut down with ease, effectively shifting ownership and power on the internet away from a few to as many people as possible. DApps built on Ethereum can be developed for a variety of purposes including finance, gaming and social media.
The possibilities are growing all the time. Ethereum’s decentralized finance (DeFi) system allows anyone to send, receive, borrow and earn interest on funds at any time and anywhere in the world without financial middlemen. Moreover, anything you can own can be represented and traded using NFTs, effectively removing intermediaries, creating new markets and simplifying transactions.
Like most cryptocurrencies, Ethereum is supported by a technology known as a blockchain
— a decentralized, distributed ledger that records the provenance of a digital asset. The blockchain secures cryptocurrency transactions by creating incentives to make tampering unprofitable for malicious users. The implication is that ownership of crypto is held probabilistically through trustless enforcement rather, as opposed to certainty.
Unlike Bitcoin, Ethereum’s token emission schedule wasn’t decided at launch. Bitcoin set out to preserve its value by limiting its supply and slowly reducing the amount of new coins coming into existence. Conversely, given Ethereum’s unique aim, the type of token emission schedule best fit for its purpose still remains open-ended.
What is Ethereum 2.0?
Later this year, Ethereum is set to make the biggest change in its near-decade history to address the blockchain’s proof-of-work (PoW) consensus mechanism. Previously called Ethereum 2.0, the Merge will transition Ethereum from PoW to proof of stake (PoS). Ethereum 2.0 now refers to the end goal of Ethereum, that is, achieving decentralization, security and scalability.
According to a report by Bloomberg Intelligence, Ethereum’s upgrade will move the Ethereum network from a PoW consensus algorithm to a PoS one where network validators can verify transactions and stake their ETH. At its core, the Merge to PoS will reduce network energy usage by at least 99.95%. Currently, the network has a carbon equivalent equal to the entire nation of Finland, and the core developers understand that the Ethereum network needs to improve. Other benefits of the Merge include:
- The system will gain long-term scalability and sustainability over time.
- PoS makes participating in the network more accessible for many users, not just large miners.
- More equal distribution of network rewards incentivizes good behavior and opens up yield to more users.
- The lack of mining will cause Ethereum’s overall coin supply to dwindle, which should push up its price.
Ethereum History
After the groundbreaking release of Bitcoin, the blockchain industry quickly sparked the imaginations of developers around the world. In 2013, this interest led a Canadian developer, Vitalik Buterin, to propose a new platform that would allow developers to create dApps and ultimately address the flaws of Bitcoin’s scripting language. The founders of Ethereum were among the first in the space to consider the full potential of blockchain technology beyond just facilitating the secure trading of virtual currencies.
Ethereum’s mainnet launched in 2015, with the first live release known as Frontier. Shortly thereafter, Ethereum was listed on major cryptocurrency exchanges. Since then, Ethereum has undergone a series of upgrades that have improved its deflationary aspects – currently Ether’s inflation rate is around 1% after accounting for the amount of Ether burned from transactions. Ethereum is the leading blockchain in terms of total value locked (TVL) and non-fungible (NFT) marketplace volume.
Pros and Cons of Ethereum
Pros
- Most decentralized second-generation blockchain
- Higher level of trust and stability than many other cryptocurrencies
- Strong network effects and first-mover advantage
Cons
- Ethereum’s PoW mining process not eco-friendly
- Serious scalability issues
- Inefficient
- High transaction costs
Ethereum Competition
As a Layer 1 blockchain, Ethereum’s biggest competitors are other Layer 1 blockchains such as Cardano and Solana. All competitors aim to solve the blockchain trilemma (scalability, security and decentralization) more effectively than Ethereum. Nonetheless, while Ethereum is the most decentralized second-generation blockchain, Etheruem is easily surpassed by competitors in terms of speed and scalability, or a combination of both.
Ethereum’s key competitors include Solana, Binance Smart Chain, Cardano and Avalanche.
How to Make Money With Ethereum
Aside from buying ETH at one price and selling at a higher price, you can make money with ETH through interest-earning platforms such as Gemini or Coinbase Global Inc. (NASDAQ: COIN).
Moreover, you can stake your Ethereum to earn passive income. Staking involves locking up ETH (Ether) to secure the network and earn rewards in the process. Currently, more than 11.5 million total ETH is staked, a significant portion of the entire circulating supply.
However, unlike staking other assets, you have to commit your coins for a longer period of time when staking ETH. Ethereum’s new PoS system is not yet operational, meaning that staking ETH is currently a one-way street. That is, you can stake Ether for interest, but you won’t be able to withdraw your funds until the transition to PoS occurs.
How to Buy ETH
Sum of median estimated savings and rewards earned, per user in 2021 across multiple Coinbase programs (excluding sweepstakes). This amount includes fee waivers from Coinbase One (excluding the subscription cost), rewards from Coinbase Card, and staking rewards. ³Crypto rewards is an optional Coinbase offer. Upon purchase of USDC, you will be automatically opted in to rewards. If you’d like to opt out or learn more about rewards, you can click here. The rewards rate is subject to change and can vary by region. Customers will be able to see the latest applicable rates directly within their accounts.
ETH can be traded on major exchanges such as Coinbase, Gemini, Crypto.com, KuCoin and Kraken. Many of these platforms allow you to purchase ETH using your credit card, through swapping features or through different trading pairs such as ETH/USDT.
Is Ethereum Here to Stay?
Overall, Ethereum is the longest-standing second-generation blockchain, with an unrivaled ecosystem of dApps, a respected and talented team and a booming online community. Ethereum has a significant first-mover advantage from being the first blockchain of its kind, which provides Ethereum with a significant head start over other competitors. This quality makes Ethereum less susceptible to being easily replaced and gives it the honor of being the second-most likely point of contact newbies have with the cryptocurrency industry after Bitcoin.
However, it is important to note that a significant determinant of Ethereum’s future will likely be the success of the Ethereum Merge. If the Merge is successful, Ethereum may be one of the most popular crypto assets for institutional investors for the foreseeable future.
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