Ethereum (CCC:ETH-USD) is the second-largest cryptocurrency behind Bitcoin (CCC:BTC-USD). That’s pretty impressive when you consider there are thousands of cryptocurrencies out there. While both cryptocurrencies are volatile, Ethereum is significantly cheaper than Bitcoin, currently trading around $3,400 while Bitcoin is trading above $45,000.
The big debate out there is whether Bitcoin or Ethereum is the better buy.
This debate may seem a bit odd when you consider the use cases for Ethereum are far different from Bitcoin, which was created as an alternative to national currencies. Ethereum is a ledger technology. Although intended to complement Bitcoin, its native currency ETH (also called Ether), has become a rival for Bitcoin on cryptocurrency exchanges.
Ethereum has become a serious contender in the crypto world, and recent upgrades have generated even more interest in the cryptocurrency.
The next major target for Ethereum is the $4,000 level. However, considering its bullish momentum, several analysts predict the ETH will reach $5,000 per token, possibly by year-end
Although there is no firm date at the moment, we are expected to see new updates at the end of the year. Investors interested in Ethereum should get in before that happens.
Recent Changes Driving Renewed Interest in Ethereum
The “London upgrade” was a major overhaul of Ethereum’s network that went live last month. It addressed several long-standing issues and is part of the reason the altcoin has done so well recently.
One of the upgrade’s features was the reduction of the total number of Ether coins in circulation through the “burning” of a part of every transaction fee. Limiting supply will help Ether become a deflationary cryptocurrency, addressing one of the main complaints against the token.
Bitcoin is capped at 21 million coins. Once they are gone, you cannot mine anymore. This is why some investors use Bitcoin as a hedge against inflation. The decision to remove some Ether from circulation is likely to help build its value.
Another big change in the move to Ethereum 2.0 is the shift from proof-of-work to proof-of-stake. Bitcoin still uses a proof-of-work mechanism and gets a lot of criticism because of the environmental costs associated with operating the system.
One of the biggest crypto bulls out there, Elon Musk, has voiced concern over the environmental impact of Bitcoin mining, even reversing his decision to accept Bitcoin as payment for Tesla (NASDAQ:TSLA) vehicles until sustainability issues were addressed. In addition, there are steep costs for operating proof-of-work versus proof-of-stake, not to mention the security risks.
Other benefits of the London upgrade include superior transaction fees, improved scalability and greater functionality in the decentralized finance (DeFi) market.
NFTs and Their Impact on Ethereum Prices
Non-fungible tokens (NFTs) are among the most interesting investment trends to emerge in the past year. An NFT is a digital asset, which can represent items like digital artwork, GIFs, collectibles, videos and sports highlights. The distinction between non-fungible tokens and “fungible” cryptocurrencies is important to note here.
While you can exchange, buy, trade and sell cryptocurrencies like Bitcoin and Ethereum, you cannot do the same with NFTs, since they are not equal in value. For example, you cannot exchange an NBA Top Shot clip for a music video. Hence, NFTs function much like physical collector’s items; the only difference is that they are digital.
NFTs are usually held on the Ethereum blockchain. This is another key reason why ETH has been doing so well lately. OpenSea, the largest marketplace for non-fungible tokens, saw transaction volume of $3.4 billion in August, 10 times more than in July. Although many speculate the NFT craze is a bubble that will pop eventually,
Ethereum is likely to continue gaining ground in the near term due to the excitement surrounding NFTs.
March On, and Fear Not the Thorns
Ethereum still has quite a way to go before hitting analysts’ $5,000 price target. But the world’s` second most popular cryptocurrency is more scalable and offers superior blockchain technology compared to Bitcoin. With the recent upgrades, the price of ETH has shot up and shows few signs of slowing down anytime soon.
Ethereum is likely to trade even higher as more planned updates go live, possibly late this year and in 2022, making it the ideal time to load up on this cryptocurrency.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.