Bitcoin is the world’s first and largest cryptocurrency. The currency has a value based on its position as a store of value that can handle global values and is comparatively simpler than other similar assets like gold. Ethereum’s asset, Ether (ETH), has another value proposition that may be valuable for a number of reasons.
“Ethereum derives its value from a number of different factors including gas prices, its use as collateral, its ability to borrow and borrow, its use as a medium of exchange for trading, and NFT. [tokens no fungibles]and the fact that you can bet on interest “, theyTO He said Scott Melker, a cryptocurrency trader and the host of the podcast The wolf of all streets, to Cointelegraph, adding: “It also has speculative value and is attracting more attention and interest from institutional investors.”
The story behind Ethereum
Ethereum is the network in which the tradable currency ETH runs. Ethereum was launched in 2015 based on a concept from a programmer named Vitalik Buterin about two years earlier. In short, Ethereum acts as a platform on which developers can create projects or solutions.
The Ethereum network has become an integral part of the cryptocurrency space over the years, upon which many projects were based. A large number of initial coin offers used Ethereum as a financing instrument in 2017. Crypto assets based on the Ethereum blockchain are known as ERC-20 tokens, although ERC-721 tokens are also present on the network as non-fungible tokens.
If a project is based on Ethereum, it can be delivered with an asset that can be used in that ecosystem. That asset would likely be an ERC-20 token. However, it is not uncommon for projects to switch to their own mainnet blockchain after initial launch on Ethereum.
Much of the DeFi (Cryptocurrency Decentralized Finance) sector also started with Ethereum. Decentralized exchanges (DEX) based on the Ethereum blockchain host trading in numerous tokens associated with the niche. With DeFi, participants can, among other things, borrow and borrow crypto assets. As Melker emphasized, ETH can play a role in this ecosystem.
Ethereum’s transaction costs are known as gas fees
Part of the value of ETH is related to gas prices. Every time a person sends ETH, they have to pay a certain amount of currency to pay for the transaction. This concept is similar to the fees users pay when sending Bitcoin (BTC).
A big difference to ETH, however, is that there are gas fees for sending ERC-20 tokens. To send an ERC-20 token, the person making the transaction must also have ETH in the same wallet in order to pay for the transaction. Trading in DEX also comes with gas fees. Someone could buy and hold ETH for gas prices, which gives the currency a basic demand in the market.
During the DeFi boom in 2020, the Ethereum network was heavily trafficked, which brought gas prices to exorbitant levels. The high transaction fees lasted until 2021. According to YCharts, an average ETH transaction cost USD 39.49 in February 2021, well above the values recorded in previous years. A charge of approximately USD 1 to USD 2 is considered normal. “Average Ethereum Transaction Fee measures the average fee in US dollars when an Ethereum transaction is processed and confirmed by a miner” Point to YCharts on your website.
The possible speculative value of the asset
Speculation can have its share in the value of ETH as an asset. Investors can buy ETH coins to bet on the possible future success of the Ethereum network and its acceptance in the mainstream world. The price of ETH, given the number of projects built on the network, could also represent speculation about the success or failure of part of the cryptocurrency industry.
Tyler Winklevoss, Co-Founder and CEO of Cryptocurrency Exchange Gemini, expressed this thought process in an interview with Casey Adams, Businessman and Podcaster, December 2020. Winklevoss compared the innovation of the cryptocurrency industry to that of the internet, although it would have been difficult to invest in a small part of the internet in the early years, if not by indirect methods.
Buying ETH may offer this type of fractional investment from a broader developing sector. Winklevoss explained this by comparing such a purchase to the hypothesis of partial ownership of the circuit, which would benefit more from the activity than from the results of individual races.
“Ether is the same for indexing part of the Ethereum network that is a […] decentralized global computer “, He said. “A lot of people equate ether with digital oil,” he added. “If you want to get into the crypto game, my suggestion is to own bitcoin, digital gold and some ether, digital oil, and that’ll cover most of your basics.”
Value in Ethereum 2.0
Ethereum’s scalability has been an issue, as evidenced by the CryptoKitties craze in 2017 and the DeFi craze in 2020. Ethereum 2.0 is aimed at a faster experience, but the update is a process and there are delays.
Eth2 involves the network’s transition to proof-of-stake consensus (PoS), which depends on ETH maintaining at least a certain level of value for money. According to Aditya Asgaonkar, a researcher at the Ethereum Foundation.
“Evidence of engagement assumes that the examiners will be punished if they do something wrong, if they try to attack the system or misbehave in any way.” he said during a panel at the LA Blockchain Summit. “These penalties apply to your use in the ETH currency. The ETH price must therefore be greater than zero so that the penalties have an incentive effect.” he added.
The validators therefore need a share of 32 ethers in order to be able to participate in securing the network. Validators who help run the blockchain in a PoS system are paid for the amount of contribution they provide to the network. The demand generated by validators accumulating ethers in lots of 32 and the desire to generate income from wagering create a market demand for the coin.
Competitors on the rise
Given the highly competitive cryptocurrency market The Binance Smart Chain (BSC) turned out to be one of the alternatives. The network behaves similarly to Ethereum, except that instead of ETH, the BSC uses Binance’s BNB currency for transaction costs. as explained by the Binance Academy on BSC.
Other competitors on the network are Cardano, Neo, and many others. Over the years, the prospect of usurping the Ethereum network has been a hotly debated topic. Given the widespread use of Ethereum, it would be significant to surpass the prevalence of Ethereum.
Due to the large number of applications, products and services based on Ethereum, it also benefits from the so-called network effect. “The network effect is a phenomenon in which a larger number of people or participants increases the value of a good or service,” explains Investopedia. and he adds, “The Internet is an example of the network effect. In the beginning there were few users on the Internet as it was of no great value to anyone but the military and some scientific researchers.”
“However, as more users accessed the Internet, they produced more content, information, and services. The development and improvement of websites attracted more users to connect and do business. As the Internet increased traffic recorded, it offered more value, which resulted in a network effect. “
Essentially, The more something is used and built, the more frequent it becomes, similar to a wave, and gains momentum in the process. In the case of Ethereum, the network effect means increased trust as the platform is known and known.
In the ever-changing world of cryptocurrencies, assets rise and fall in terms of popularity and price. Over the years, ETH has proven its price strength and its dominance as a platform on which developers can build. However, time will tell whether a faster and cheaper network will overtake Ethereum in the long run, or whether Ethereum 2.0 will scale the blockchain to meet market demand.