I’m not surprised that investors are interested in cryptocurrencies like Ethereum (CCC:ETH-USD). After all, this has been a period of accelerated innovation for financial technologies. And the crypto space is one area where we’ve seen extreme progress over just a few years. Cryptocurrencies have been tearing in recent years, with Bitcoin (CCC:BTC-USD) leading the charge.
Bitcoin was invented in 2009 by an unknown person or group of people going by Satoshi Nakamoto. When it was first introduced in 2009, you could purchase one Bitcoin for essentially nothing — but by November 2021, they were going for nearly $69,000.
While many people are familiar with Bitcoin’s meteoric rise, Ethereum has also experienced an epic bull run during this time frame. Ether’s success is nothing short of astonishing. The cryptocurrency launched in 2015, and by November 2021, it had hit a record high value of $4,891.
While both Bitcoin and Ethereum were created with the intention of being king of cryptocurrencies, they differ in many ways. They’ve been developed for very different purposes with internal dynamics that reflect this difference in meaning — Ethereum being significantly more decentralized than its counterparts while still maintaining some level of interference from designers who want to see it grow into a functioning economy. Meanwhile, Bitcoin is principally a store of value. It is the forerunner of all other cryptos. Therefore, you cannot ignore its movements.
But Ethereum is cause for more excitement. With the help of smart contracts, Ethereum has proved to be more than just a store of value. These self-executing agreements allow for transactions with absolutely no downtime or fraud risk, making it an attractive alternative in today’s world, where almost everything comes at a cost.
There are also significant near-term catalysts for Ethereum that make it an excellent buy this year.
Environmental Impact of Cryptocurrency
The international community has been cautious of Bitcoin due to its potential impact on national currencies and taxation systems. El Salvador was one nation that took a different approach, officially recognizing it as legal tender last year. In 2021, China banned cryptocurrency mining and all forms of crypto to move towards a digital version of their currency.
The electricity used to mine Bitcoin is incredibly wasteful. It takes up an incredible amount of energy. The process only worsens with time as more people continue using it, which could cause problems for our environment decades ahead if nothing changes soon enough. Bitcoin currently consumes about 0.5% of all electricity consumed globally — more than several countries.
Bitcoin uses a consensus protocol called proof of work (PoW). This system requires participants to solve complicated mathematical equations. Solving these problems proves that one has invested enough computing power.
The move to a new consensus mechanism, called proof of stake (PoS), has been long-awaited by many in the Ethereum community. The development team originally planned this transition as an important part of scaling up this blockchain with its upcoming Eth2 upgrades. And now we’re finally seeing some progress. With the switch over from PoW to PoS, we can finally expect faster speeds and cheaper transactions.
Ethereum will become cleaner and better for our planet as it transitions over from one version of the protocol into another. Consequently, adoption rates will improve for Ethereum versus Bitcoin.
Ethereum: Its Potential and Applications Could Be Limitless
Unlike Bitcoin, which is valuable only for storing wealth and as an investment vehicle, Ethereum offers endless possibilities. Ethereum is the go-to platform for nonfungible tokens (NFTs). It also introduced decentralized finance with versatile smart contract capabilities that make it possible to create contracts between parties without any third-party involvement.
The future of decentralized autonomous organizations (DAOs) might be in smart contracts. These virtual organizations could replace traditional corporations and function without any human or institutional intervention, engaging with economic transactions such as buying and selling goods, which will lead them towards becoming more profitable than before. The idea of a DAO is still in its infancy. But decentralized applications (Dapps) are currently being developed for Ethereum today.
These standalone apps utilize smart contracts and run on the Ethereum Virtual Machine (EVM). The potential for decentralized applications is huge. Gaming, shopping and banking could become trillion-dollar industries without relying on a central server to facilitate transactions between players or customers. That will continue to drive Ethereum’s value higher, moving forward.
The Shift to Ethereum 2.0
Ethereum plans to shift away from mining with a new proof-of-stake model in 2022. With this change, users will only be able validation transactions according to their coin holdings rather than using energy-intensive rigs like now. Although it cannot come sooner for investors, this is a huge shift. A series of upgrades are taking place that will eventually culminate in the summer.
The latest upgrade in a long series is called Arrow Glacier. The developers are planning to introduce a “difficulty bomb” to motivate people to transition from proof-of-work mining. The delay in transitioning to the new network is giving developers more time so they can continue working on the platform before shifting over. It represents a key part of the Ice Age upgrade. However, in the run-up to the transition, keep an eye out for more updates. They will have a substantial impact on ether’s price.
Ethereum Is the Clear Winner
It’s interesting to look at how BTC and ETH compare. While they both started as cryptocurrencies, one is considered more mainstream than the other (ETH). Additionally, Bitcoin has little utility and performs poorly compared to the major altcoins. Though there are many reasons why people might choose between these two coins, what matters most is which cryptocurrency you’re investing your money into — because if history repeats itself, then tomorrow may bring even greater prices for this asset class!
Why is ETH such a hot commodity among cryptocurrencies? The answer might lie with its ability to solve some major pain points in the cryptocurrency world. Ethereum is working to address its challenges regarding efficiency and costs while also beginning from a smaller base than BTC, which gives it more potential for growth. Its dominant position in DeFi and the fast-growing NFT space are icing on the cake. If you compare the two, Ethereum is what you need in your portfolio this year.
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. You can check out his analysis on InvestorPlace and TipRanks.