Three months ago I bought 100 USD worth of Bitcoin to use in an anonymous transaction. After it was all said and done, I had $5 left. Then I checked my wallet a couple of days ago and noticed I had $15!
Bitcoin had soared up from $1000 to nearly $3000 quickly. Even more astonishing was the change in value of ether (ETH), the token used for Ethereum. It had blown up from a mere $20 to a whopping $300, more than tenfold. If someone had bought a Lamborghini’s worth, now they had fifteen.
Although there are many cryptocurrencies like Bitshares or the interesting Dogecoin, only Bitcoin and Ethereum have popped up next to each other on several index charts. Ethereum also correlates strongly with the rise or fall in bitcoin, so it prompted me to inquire if Ethereum is worth my investment.
Why is Ethereum useful?
Ethereum is a platform that uses a blockchain to keep track of its transactions conducted by its participants.
A platform is a place, real-world or virtual, where people congregate, or gather. More importantly, though, is its use of a blockchain: a list of records. These records contain specific types of data, depending on the nature of the transaction.
This is what distinguishes Ethereum from other blockchain-based platforms like Bitcoin. A Bitcoin block – a record of a Bitcoin transaction – describes the amount of bitcoin transferred between two participants. With Ethereum, the block contains the amount of work performed (gas spent) on constructing a contract.
Here, a contract refers to a self-executing computer program better known as a smart contract. But there’s no cost to execute it: only to build and publish it.
If you wanted to rent a house, all you have to do is make the appropriate deposits into an Ethereum wallet and the house unlocks itself. This could also make for the implementation of safer and more secure magnetic doors.
Some homeowners have a garage door that only close when the button inside the garage is pressed. When they go out, they have to get out of the car and re-enter the garage to press the button, so the door closes. This is annoying. With Ethereum, just create some code at a small cost, tell homeowners about your app, and suddenly you have lots of ether to play with.
Someday you may happen to be out of toilet paper and can’t be asked to leave the house, but luckily you have your phone around. Deliver a small payment to a particular Ethereum wallet, and ta-da! A drone will send a pack of Charmin to your second-floor window. Modern Warfare players will recognize this as a care package.
What Gives Ether Its Value?
Blockchains are decentralized, meaning any participants in the network are synced to the blockchain. This makes it easy to detect any act of fraud. When a transaction is complete, it’s synchronized into the computers of the participants. If someone tries to write off a transaction as never happening, there’s thousands of other users that will claim otherwise. The blockchain is like writing that cannot be erased. In fact, here is an Ethereum blockchain explorer that acts as the paper.
This decentralization is also what makes ether a preferred alternative to fiat (paper) money. The dollar is a type of fiat money which the banks generally hold; it’s centralized, with the banks at the center. Instead, you are your own bank with cryptocurrency. If someone gives you ether, it’s generally deposited into your wallet that you have complete control over. And you can convert it to Bitcoins (BTC), or back to the dollar.
It also makes it impossible to commit fraud, unless the majority of the network democratically decides on changing the data. Then the whole network commits fraud, like in the infamous DAO incident on June 2016. Skip to the “DAO Hack” section for further reading on that incident.
Why Has the Ether Recently Shot up in Price?
Large tech companies see potential in the Ethereum platform for reasons mentioned above, and invested in it. The SEC, after rejecting the Bitcoin ETF in early March, takes a second look after an appeal by the Bats BZX to list it on its exchange. Based on the investment by those large companies, the SEC also considered an Ethereum ETF.
Even though the Bitcoin ETF proposal was rejected in early March, value increased. That’s because of Japan’s official decision to accept bitcoin as a local currency, like the yen. Though traders hold on to bitcoin for its ability to rise steadily in price, the result of Japan’s new policy is more trading, and therefore more activity in the market.
Basically, Bitcoin is making monster moves, and helping Ethereum (indirectly) along the way.
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