Ethereum’s Popularity
Ether (ETH) is a digital currency known as a cryptocurrency. It’s completely decentralized and relies on the Ethereum network to verify each transaction.
The Ethereum network is essentially a decentralized economy where Ether is the currency and the network is a platform for decentralized businesses or other applications.
So why is it so popular?
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Ethereum has become a phenomenally popular peer-to-peer network because of its lack of an intermediary for facilitating a transaction. It’s also incredibly secure which allows for a more private use case.
Although, most of the time when you hear about the Ethereum network, it’s most often referencing the digital currency Ether, which has immense price volatility. This is because cryptocurrency is still a relatively new industry that has had its many ups and downs.
The project Ethereum is becoming more recognized around the world just like Bitcoin because of its many use cases in decentralized finance (DeFi) that is powered by smart contracts.
Network Updates
Recently, the Ethereum network issued an upgrade called Ethereum Improvement Protocol (EIP 1559) that has changed how fees are structured on the network based on traffic on the blockchain.
The blocks on the blockchain are what stores the data for a transaction, so by expanding and contracting the block size to meet the traffic requirements, users save on fees.
Before the EIP 1559 update, transaction fees on the network used an auction mechanism where bids were placed with a transaction. The bid price influenced how long your transaction would take to verify. This caused a variety of problems, such as pointless delays for users because the blockchain was overflowed with transactions waiting to be verified.
Unlike Bitcoin, there is no max supply with Ether. However, EIP 1559 will allow the burning of fees which will lower the inflation rate of Ether. It could potentially at some point become deflationary if there are more fees burned than newly minted coins.
This update is going to be extremely beneficial for the holders of the coin and the network as a whole.
Ether’s Price Action
At the time of writing, Ether has soared past $3,000 once again after a huge rally following the news of EIP 1559. This brings Ether’s total market cap to over $350 billion. Less than a month ago, Ether and other cryptocurrencies were facing backlash as the price fell dramatically from all-time highs.
This should illustrate how the sentiment for a cryptocurrency can change dramatically when the price falls. This is primarily because a lot of fear is poured into the market during these times of uncertainty.
Cryptocurrencies are still extremely volatile. This is why caution is needed if you do intend to gain exposure to this asset class. These coins can rise just as easily as they can drop which makes them unfit for many until the prices stabilize. However, if you have a long-term outlook and are familiar with volatility, you might not mind it.
So what can we take away from all of this?
The Takeaway
Overall, the Ethereum network has major changes being put into place which will improve the overall system for a more consistent flow of transactions. The burning of fees will also reduce the effects of inflation on its coin supply.
If you’re looking for a cryptocurrency to watch next, this may be a great candidate as there is an incredible amount of developments underway as the Ethereum network gains traction worldwide.
EIP 1559 is just a single update in the roadmap, you can only imagine what’s still to come for Ethereum as more advanced ideas and roadmaps are discussed.
Closing Thoughts
This is not intended to be investment advice. As always do your own due diligence and invest based upon your own risk appetite and consult your own financial advisor for the right investment strategy for your specific needs.
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A lot of opportunity exists with Ethereum’s network and currency. Cryptocurrency as an asset class is fairly new and very volatile. Investors should always be aware of their risk tolerance when putting their capital to work in the crypto space.
It’s at this point I usually emphasize the importance of having a budget. Budgeting for your investment journey can also help minimize the risk to your portfolio. I always set aside a portion of my income to be invested then I take a percentage of that amount and its strictly for speculative investments. This way I am not manipulated by FOMO (Fear Of Missing Out), and I can swing for the fence with some investments without putting my whole entire future at risk on a single play or a handful of plays. Please read that again.
Budgeting gives you control over your finances and puts you in a better position to make informed decisions based on your risk tolerance, investment goals, and access to capital.
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