The Rise of Ethereum. Your Guide.
Curious about Ethereum (ETH)? Read on for everything you need to know about Ethereum and its recent bull run.
Back when Ethereum was created, it was only worth about $1. Since then, its highest value has reached $5,000. That makes Ethereum one of the most successful cryptocurrencies in history. But what drove this Ethereum price increase? And will Ethereum be able to hold on to that increase, or will it lose it?
Why Is Bitcoin Worth More?
Bitcoin was the first cryptocurrency created. Anybody interested in cryptocurrency was automatically interested in Bitcoin. That gave it a head start over all cryptocurrencies that came to be later.
However, that first-mover advantage also comes with certain disadvantages. Bitcoin is one of the least advanced cryptocurrencies. It can’t do anything besides function as a medium of exchange on the blockchain. Many other coins today are far more functionally versatile. After Bitcoin, the most valuable coins on the market have won their value by providing innovations that Bitcoin could not.
How Did Ethereum Increase So Much in Price?
After thousands of competitors, Ethereum has won the fight to take second place in Bitcoin’s price so far. The main thing that it provided that other coins did not was the ability to make smart contracts. That made it the obvious choice for anybody who wanted to do something with cryptocurrency other than just use a new medium of exchange.
At the same time, Ethereum was a pioneering cryptocurrency, too. As a result, it shares some of the first-mover advantages of Bitcoin. But, unfortunately, as one of the first cryptocurrencies to offer smart contracts, it also does so inefficiently.
What does that look like in practical terms? Although you can do many things using the functionality that Ethereum provides, you pay a significant fee to do so. In some cases, these fees can be almost 10% of the total transaction amount. Therefore, Ethereum’s ability to hold on to its current position depends on its ability to start providing the same functionality at a lower price.
Ethereum needs to start offering its functions lower because other coins are beginning to become competitors. For example, Cardano (ADA) is a coin that offers very low fees. So far, it has not provided smart contracts, so it is not a competitor with Ethereum in that way. But Cardano is about to start offering smart contracts. At that point, it will offer a lot of the same functionality as Ethereum but with much lower prices. Does that mean that it will overtake Ethereum?
The answer is, possibly, but probably not right away. There are a lot of infrastructures built up around Ethereum smart contracts. There are dozens of apps and functions that are designed to work with Ethereum. People will be reluctant to duplicate all of that work for Cardano. But if Ethereum stays more expensive, then they may eventually decide to do so. At that point, if Cardano has the same functionality and the same infrastructure, all at a lower price, then it is unlikely that Ethereum could maintain its position.
How Do Smart Contracts Function?
Why are smart contracts such a big part of the success of a cryptocurrency? The reason is that they provide financial power that nothing else provides. With traditional contracts, execution is ultimately handled by specific people. If an individual or company is not trustworthy, then they might try to get out of enforcing a contract when it is not in their benefit to do so.
In most cases, that won’t work because the government will enforce the contract. So people that try to get out of their contracts end up in the court system, and the court system has the power to compel people to keep the promises they make in contracts. However, there are places in the world where the court system is not as sophisticated. That means that companies are better able to get away with getting out of their contracts. As a result, people don’t trust them.
This means that there are parts of the world where contracts simply don’t exist in the same way that we are used to. As a result, certain financial products don’t exist in those parts of the world. For example, many farmers rely on crop insurance. When they have a challenging year, they receive money from insurance companies that they maintain contracts with. But that kind of insurance is not available in parts of the world where such arrangements are not trustworthy. This is where smart contracts can change the world. Smart contracts execute themselves without requiring the input of responsible individuals. That means that financial tools like crop insurance can now be provided to everyone on the planet.
What Will Ethereum Do Next?
So, now we understand why Ethereum became so valuable by offering smart contracts. Some of the other best cryptocurrencies are now trying to provide the same functionality. The best chance for Ethereum to win the game is to make sure that it lowers its fees.
Fortunately, Ethereum is in the process of doing that right now. As a result, the Ethereum price prediction depends on a software update designed to let Ethereum provide its services at much lower prices. If it succeeds, then there is a good chance that it will hang onto its high value in the crypto-currency market for the foreseeable future.
At the same time, the exact date of this software update keeps being delayed. Ethereum is still the second most valuable cryptocurrency globally because people expect the software update to happen eventually. But if it takes too long, people might start to look for other coins that offer similar functionality, like ADA.
Be Prepared for the Next Ethereum Price Increase.
The cryptocurrency market has made many people millions and billions of dollars. The more you understand about the most significant coins, like Ethereum, the better you appreciate this incredible market. Some believe that a price point of $10,000 can be achieved by the end of 2021. We’ll have to wait to see.