Similar to other cryptocurrencies, Ethereum is an extremely volatile asset, and profits or losses can reach double digits in a matter of minutes. Ethereum (ETH) is not a good short-term investment in 2023 but a good long-term investment.
Despite being a large-cap crypto, Ethereum has enough going for it that it may still rebound from its current pricing. This makes it an excellent option for new crypto investors seeking a balance between growth and stability. Before we jump into the pros and cons of buying Ethereum, here is a summary of what Ethereum is all about.
What is Ethereum?
Ethereum is a high-volatility cryptocurrency that ranks second in terms of market capitalization. In order to even think about investing in it, you need to have a high-risk tolerance, solid financial resources, and the ability to absorb a complete loss of your capital.
Some optimistic investors point to Ethereum’s potential as a platform for complementary technology and services. Unlike Bitcoin, Ethereum significantly impacts decentralized apps, decentralized finance, and the generation of new cryptocurrencies through its position in NFTs.
Thanks to its smart contract ecosystem, it supports a large marketplace for decentralized apps (dApps). Smart contracts allow users to construct a legally binding digital contract that is both self-executing and accessible to all parties whenever predetermined conditions are satisfied.
These decentralized applications (dApps) make it possible for Ethereum holders to use and manage their holdings like fiat currency holders do within a banking system. Thanks to decentralized applications (DApps), crypto is more than a novelty online currency. With the help of Ethereum’s dApps and smart contracts, cryptocurrencies may be used in various contexts and scenarios.
Ethereum’s influential co-founder Vitalik Buterin and others have referred to their platform as a “distributed computer” rather than a “distributed ledger.” This phrase is most frequently used to refer to Bitcoin. In addition, Ethereum holders can stake their coins to potentially earn more of the cryptocurrency.
The dangers related to cryptocurrencies should also be taken into account by investors. In general, the value of a cryptocurrency can fluctuate wildly. The price of Ethereum has experienced both large increases and large decreases.
In November 2022, its price was less than a fourth of what it had been the previous year. Additionally, Ethereum’s multi-year upgrade is now underway. In September 2021, it successfully completed the transition from the inefficient proof-of-work protocol to the more sustainable proof-of-stake protocol, an event known as “the merge.” However, the future of this and other changes remains uncertain.
Pros of Buying Ethereum
Here are the pros of buying Ethereum in 2023:
Already an Established Cryptocurrency
The technical specifications of Ethereum were initially published in a whitepaper in 2013, and the first sale of Ether occurred in 2014. Within a year, its entire circulating supply’s worth had propelled it into the top five cryptos, and it has been up there ever since early 2016.
Staking to Earn Passive Income
After the Ethereum network merges, a consensus technique known as proof-of-stake will be used to validate transaction blocks. A user can stake the Ethereum they currently own in exchange for the opportunity to validate a fresh block of transactions. They may gain a payout for successful validation but lose their investment if they fail to do so.
While this is neither an interest rate nor a dividend from a firm, it does allow Ethereum holders to generate passive income over the long term.
More Than Just Crypto
Bitcoin, in the words of Bitcoin.org, “is essentially simply to cash for the Internet,” whereas Ethereum aspires further. The white paper on Ethereum, published in 2014, claims that the platform “moves far beyond just currency.” It will serve as “a foundational layer for a very large number of both financial and non-financial protocols” in the future.
This paves the way for the creation of apps by programmers and the creation of smart contracts on the Ethereum network by anyone. A number of programs possess their own cryptocurrencies. If Ethereum suddenly vanished, a substantially greater portion of the cryptocurrency market would also end.
Lots of Technological Updates
Ethereum’s history of regular technological advancements is another point in its favour. It keeps a step ahead of rival cryptocurrencies with each update.
For instance, Ethereum’s The Merge in 2017 captured investors’ attention as it made the long-awaited switch from a proof-of-work blockchain to a proof-of-stake blockchain. Some have compared the technological feat to the difficulties of switching out an airplane’s engine while in flight.
Ethereum is not slowing down on these kinds of technological enhancements to its core blockchain technology. After implementing the Shapella update, Ethereum became a far more appealing platform for crypto staking. Dencun (a hybrid of “Cancun” and “Deneb”), the next significant improvement, is expected in the fourth quarter of 2023.
With this update, Ethereum’s storage space, scalability, and efficiency will all be enhanced even more. The Ethereum blockchain has set a new target of 100,000 transactions per second, far higher than its main competitors’ transaction rates.
Vitalik Buterin, co-creator of Ethereum, has announced many updates and changes intended to usher in the platform’s next iteration, dubbed “Ethereum 2.0.” While many of these changes are quite complex from a technical standpoint, they are all made with the intention of making Ethereum more appealing to users. The fact that Ethereum has laid out such a comprehensive plan for future growth gives users hope that the company is not only reacting impulsively to short-term fluctuations in the cryptocurrency market.
The main factor that determines the worth of any asset is unavailability. When the demand for a good or service exceeds the supply, the price of that good or service skyrockets.
This is why Bitcoin has become so valuable so quickly: there just aren’t enough of them to go around. Using this justification, Ethereum is also a promising investment. The deflationary feature of Ethereum, along with its rapid adoption, notably in the DeFi sector, should maintain upward pressure throughout the year.
Ethereum’s prominence as the second-largest cryptocurrency has ensured its continued popularity with investors. Institutional investors have joined the ranks of those flocking to Ethereum over the past two years. Even the largest investment firms now provide Ethereum trading desks and other products designed specifically for the Ethereum network.
As a greater number of banking functions are moved to the distributed ledger, its acceptance is only anticipated to increase. The price can grow as a result of rising demand.
Access to dApps Economy
Ethereum has the largest decentralized application (dApp) ecosystem among cryptocurrencies. It’s not just the largest blockchain network; it’s also the primary token and digital asset issuance platform.
Cons of Buying Ethereum
Despite Ethereum’s success, there are certain concerns that might prevent you from jumping in right now. You should think twice before making such a commitment in light of the $55 million lost by investors in the infamous DAO breach in 2016 and the fact that the price might decrease in an instant.
There is always the potential for loss associated with any investment, with the exception of purchasing government-backed paper. Since Ethereum is a cryptocurrency that trades in a highly volatile market, the stakes are considerably higher. Here are a few drawbacks of Ethereum investment to aid in your decision-making.
Ethereum is extremely volatile, much like any other cryptocurrency. As a result, you may anticipate sudden, double-digit price changes. Ethereum’s price has increased exponentially but has also experienced frequent drops of 50% or more.
The price fluctuation of Ethereum from November 2021 to the end of July 2022 clearly illustrates its volatility. Ethereum dropped from a November 2021 price of $4800 to a July 2022 price of $1500.
You must therefore seek advice from experts and do extensive study before making any financial decisions. It can be used to soften the impact of such extreme oscillations.
Ethereum’s network fees are determined by market forces: high demand means higher prices. Furthermore, the network can only support a maximum of a few hundred transactions per second.
Over the course of history, this has caused periods of exorbitantly high costs, even reaching $190 at one point. There are proposals to increase transaction throughput in order to indirectly reduce prices; however, doing so will involve the use of untested technology that is not yet accessible.
Risk of Crypto Platform Crashing and Hacking
There have been a number of hacks and crashes at cryptocurrency exchanges recently. This often leaves users unable to access their Ethereum and other cryptocurrency holdings.
In addition, in 2022, BlockFi, FTX, and FTX.US all declared bankruptcy. Despite the fact that it provides extra security against things like computer failure and hacking, you can still lose your valuables if you misplace your hardware wallet.
The absence of regulations can have positive and negative effects. Asset prices benefit from the absence of these constraints since they encourage innovation. On the flip side, this is a thriving criminal community where there are no checks to stop fraudulent activity.
Competition From Other Crypto
Ethereum is still the most popular Dapps platform, but there are always more options to choose from. The newest ones, in particular, are excelling in important areas like security and decentralization.
There is a potential that this will lead to a decrease in Ethereum’s share of the market. The pricing may reflect this as well, with ETH potentially lagging the market. Every potential Ethereum investor has to be aware of this danger.
Many people have complained that Ethereum’s sluggish transaction times are a big drawback. Users have noted that transaction times increase when the network is very busy. Some users have also pointed out that Ethereum is sometimes slower than alternatives like Tron and EOS, even when the network conditions are optimal.
Too Complex for Beginners
It has been observed by a number of users that getting started with Ethereum may be difficult. Some users have complained that there is not enough information on how to mine cash or execute smart contracts.
Before you Invest in Ethereum: Things You Should Know
Before buying Ethereum, keep in mind the following advice:
1. Where to Buy Ethereum
Ethereum (ETH) and other cryptocurrencies may only be acquired through the use of a cryptocurrency exchange. An online marketplace whereby individuals can exchange different cryptocurrencies for fiat money or other cryptocurrencies is known as a cryptocurrency exchange. There are several services to choose from, including Coinbase, Binance.com, and eToro, each with its own pricing schedule.
2. Dollar-Cost Averaging
Cryptocurrencies are known for their huge price swings. Using dollar-cost averaging is one strategy for dealing with the uncertainty.
Dollar-cost averaging is a method of investing in which the desired investment amount is spread out among many purchases of an asset over time. What this means is that your monthly or quarterly investment amount would remain constant, independent of market fluctuations.
3. Diversify Your Portfolio
Due to the ever-changing and complex nature of the cryptocurrency market, effective portfolio risk management is essential. As with any other investment, that entails carefully considering your stake size and diversifying your holdings.
Despite the volatility, Ethereum is one of the most secure long-term investments for investors wishing to diversify their portfolio with cryptocurrency. Those who can stay the course through its inevitable ups and downs are the ones who stand the best chance of profiting from the bear market. Returns on investment are difficult to predict, especially in today’s economy.
In addition, you need to know your long-term goals and risk tolerance intimately before investing in Ethereum. The latter may be determined by thinking about your typical actions and how you would react if the value of your asset suddenly dropped.
Ethereum has had a successful year thus far, but the future is uncertain. When investing in cryptocurrencies, it is important to do so with caution and only with money you can afford to lose.