Fun Facts

What is Ethereum and why has the price gone parabolic?

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Various cryptocurrencies have erupted in recent years while the main focus of this trend in the media has been Bitcoin. But not only has Bitcoin skyrocketed in value, reaching over $60,000 in 2021, so have other cryptocurrencies. Here’s a look at why Ethereum’s price has seen incredible action recently and how it has become the second biggest cryptocurrency.

Rise of Ethereum

Bitcoin was invented in 2008 and began to make financial news by 2012 as it surged in value. Ethereum was first released in July 2015 as another decentralized open-source blockchain, authored by programmers Vitalik Buterin and Gavin Wood. The developers raised money through crowdfunding to get the cryptocurrency off the ground. Several large corporations have since experimented with Ethereum-based software, including Microsoft, IBM, JPMorgan Chase, Amazon and Visa.

The price history of Ethereum has encompassed two distinct runs leading up to 2021. The first explosive rally lasted from 2017 through 2018, then the price pulled back through early 2020 before advancing on its second big run-up. The cryptocurrency then encountered volatility in April 2021, pulling back from his historic high of over $2,500 per coin with a market cap of well over $200 billion.

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Why investors like Ethereum

Many new investors, particularly millennials, have entered the market in recent years with an interest in tech, renewable energy and cryptocurrency. Electric vehicle maker Tesla has been a target of this group, as it has announced it will accept cryptocurrency for payment of its EVs. These new investors view cryptocurrency as an inevitable alternative to conventional transactions due to the robust and secure nature of its underlying technology, blockchain.

Not just young people, but a wide cross-section of the population believes in cryptocurrency as a solution to making private transactions on a public ledger without the help of a bank. At the same time, governments around the world have been hinting for awhile they want cryptocurrency to be regulated. Nevertheless, Canada has recently approved three Ethereum ETFs through the Toronto Stock Exchange: Purpose Investments, Evolve ETFs and CI Global Asset Management.

Part of the attraction to Ethereum is it facilitates smart contracts between businesses, which is useful for executing terms electronically through blockchain technology. A smart contract automatically executes when certain conditions are met, such as reimbursing a traveler when their airline flight is delayed. People can now use these autonomous smart contracts as vehicles to borrow, trade, lend and invest.

Another reason why so many investors are flocking to Ethereum is the emerging perception that cryptocurrency is a safe haven for holding value, like what gold has been traditionally. Although gold has advanced during the pandemic, it’s only been incremental compared with Bitcoin or Ethereum, which have both experienced exponential growth over the past year.

Looking ahead to Ethereum 2.0

Ethereum is currently going through an upgrade so that it can become more efficient, agile and secure. While elements of this upgrade are included in The Beacon Chain, released in December 2020, more innovations are on the way in the near future. Developers aim to make the software more scalable and sustainable, which are broader transformation themes spreading around the world.

In order for Ethereum to be more productive than traditional transaction methods, it needs to be capable of producing 1,000 transactions per second. But the more widespread it becomes, the more it will be targeted by hackers, so security must improve as well. As far as improving sustainability, developers need to reduce the amount of computing power required to produce the cryptocurrency.

Like with Bitcoin and other cryptocurrencies, Ether tokens are produced from solving math equations, which requires enormous processing power in which electricity typically comes from utilities powered by fossil fuels. These generated tokens can be used to buy and sell goods online. Reducing greenhouse gases is now a common goal across all industries, as Ethernet developers join the quest to clean the environment.

The future of Ethereum appears to be bright, as enthusiasm builds for cryptocurrency in the investment community. The main risks investors should take into account are price volatility and potential regulation.

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