Ethereum crossed $4,000, should you buy? Probably not.
Real world adoption of Ethereum is skyrocketing, but I don't think most people should be buying random coins from random apps.
Ethereum crossed $4,000 today. It’s going to make a lot of news. But the vast majority of people should not be blind-buying random coins from random apps.
That’s how we get DOGE nonsense and the many, many, many scams on Binance Smart Chain.
Why is Ethereum valuable?
It’s the far and away the #1 blockchain in terms of development community and audited, secure, scaled financial protocols. Over 90% of the top 1,000 crypto assets tracked by CoinGecko are Ethereum native. And it’s currency Ether (ETH) is the oil of the system. To do anything on Ethereum costs Ether:
Send money to a friend
Take out a collateralized loan
Send your money to a smart contract that regulates it being lent to others
Generate a self-funded annuity
Provide liquidity to a pair of protocol tokens to generate swap fees
Buy that Kings of Leon NFT album
Many other use cases.
Why is it’s pricing going up so fast?
Currently, Ethereum only handles about 15 transactions per second. New upgrades in the works (EIP 1559 & ETH 2.0 with Proof of Stake) are scheduled to be implemented by November 2021. The plan is to significantly reduce transaction costs and scale to near VISA levels of transactions per second (VISA averages 2,000/second but has capacity for up to 65,000 per second; ETH 2.0 is estimated around 3,000 TPS but can go as high as 100,000 TPS leveraging other solutions like Layer 2 protocols, sharding, and roll-ups).
Institutions are recognizing the upgrade to proof of stake reduces 99.99%+ of Ethereum energy costs. Making the business opportunity to run validator nodes (and get paid in Ether for securing the network and confirming transactions) hard to deny and much more amenable to Environmental and Social Corporate Governance (ESG) concerns. Let’s be honest, Bitcoin sounds great until you learn it uses 3% of China’s annual energy expenditure. Companies can’t buy Bitcoin and say they are responsible climate change cognizant companies. This concern disappears with Ethereum 2.0.
So this is great, but notice how I didn’t make a price target? That’s because I don’t think it’s appropriate for random people to blind-buy into random coins based on a nUmBeR gO uP philosophy.
It’s entirely possible that efficiency gains from the network actually reduce price. Right now people are spending an arm and a leg to do even simple transactions. When the network is more efficient the vast majority of people won’t need to buy so much Ether to do simple things. There is no guarantee on its price moving any specific direction.
I buy Ethereum because I use the network, but if you’re not going to use it- are you sure “Number go up” is the kind of investing framework you want to use?
This is why I avoid giving financial advice. This stuff is complicated.
If you’re interested in learning more about Ethereum and even consider using it or participating, I encourage you to check out my link to 24 use cases for Ethereum and book: Blockchain Thoughts & DeFi Economics.
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