Why Ethereum is the top cryptocurrency investment of 2021

Ethereum has the potential to revolutionize the growing digital economy.

| More on:
woman examining ethereum price

Image source: Getty Images

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Ethereum (CRYPTO: ETH) has a lot going for it -- it's made some investors a bundle and it's an innovative utility coin. Investors who put money into Ethereum when it was introduced six years ago could be sitting on more than $1 million worth of profits today from an initial $1,000 investment. The coin also is the first programmable money in the world, storing instructions on the blockchain that self-execute when certain conditions are met, also known as smart contracts.

Ethereum is a major step forward from cryptocurrencies such as Bitcoin (CRYPTO: BTC), which only allow users to send money to one another. But more importantly, innovations are coming for Ethereum. Let's look at how this revolutionary coin might make a worthy addition to investors' portfolios. 

A big step forward

Ethereum is about to undergo a significant transformation that fixes a mounting challenge for cryptocurrencies like Bitcoin -- environmental sustainability. By the end of 2022, the Ethereum network will transition into one based on proof of stake (PoS) instead of proof of work (PoW). This means the network will no longer need miners using ever-more computing power to solve sophisticated, algorithmic puzzles to validate transactions on the blockchain ledger and create new coins. To put that into context, the global Bitcoin network now consumes as much energy as 23 coal-fired power plants -- and is growing day by day.

In theory, under the PoS regime, anyone will be able to validate transactions based on how many Ethereum -- their stake -- they own. The minimum requirement for staking is 32 ETH, or about $80,000. Under this setup, validators collect a network fee for their efforts, which is kind of like interest -- say 6% a year in the form of new tokens. In addition, the network also has the potential to expand to a delegated PoS network, where those who do not meet the minimum staking threshold can "delegate" their ETH to a staking pool for a fee to take part in validations. This move toward an eco-friendly model is a major bullish catalyst for Ethereum.

Growing recognition 

Some of the biggest companies in the world are using Ethereum. For example, ING Group, a Dutch multinational bank with more than $1.1 trillion in assets, uses Ethereum to settle payments, bilateral lines of credit, and trading documents. In addition, TD Ameritrade, part of discount broker Charles Schwab Corp., is using Ethereum to facilitate smart contract future trades. 

In another case, French video game titan Ubisoft Entertainment SA is using Ethereum as the basis for in-game purchases. Finally, JPMorgan Chase & Co. is looking to integrate its own digital coin (the JPM coin) with smart contracts via Ethereum.

The next revolution 

It may not be obvious at first, but programmable money like Ethereum has the potential to revolutionize the way we conduct financial transactions. Right now, smart contracts are limited to the internal data on a blockchain, or the shared ledger of all transactions in a network. However, the rise of so-called oracle tokens like ChainLink is a major game-changer. ChainLink allows smart contracts to execute based on real-world API, or the link between computer programs and computers. This will free parties from the confines of the blockchain, letting them use just about anything -- futures data, stock prices, weather events, breaking news, economic indicators or video game achievements -- as reference points to settle Ethereum transactions.  

The only problem with Ethereum is that, unlike Bitcoin, the coin does not have a supply ceiling. There now are more than 116.9 million ETH in circulation, with an annual rate of increase of about 4% a year as the supply of tokens rises. On Aug. 4, Ethereum developers unveiled five Ethereum Improvement Proposals (EIPs) -- one of which was to reduce the mining reward so the rate of increase falls to about 3% a year. Because of its widespread adoption and revolutionary potential, capital inflows into Ethereum should surpass the lowered benchmark for the supply increase.

This development, along with the move to an environmentally sustainable model helps make Ethereum the leading cryptocurrencies to invest in for the long term. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of January 12th 2022

Zhiyuan Sun has no position in any of the stocks mentioned. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Bitcoin and Ethereum. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

A grey-haired mature-aged man with glasses stands in front of a blackboard filled with mathematical workings as he holds a pad of paper in one hand and a pen in the other and stands smiling at the camera.
International Stock News

The single greatest investing lesson I ever learned

A helpful piece of advice for enduring the 2022 bear market.

Read more »

a woman sits next to her computer screen with her head in her hands with the screens slowing graphs on downward trajectories.
International Stock News

Thinking about selling all your stocks? Here are 2 big risks you’ll face

Exiting the stock market might not be as safe of an idea as it seems.

Read more »

Rising rocket with dollar signs.
International Stock News

2 cryptocurrencies that could dwarf Shiba Inu

One is a market leader. The other is an up-and-coming player.

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
International Stock News

Investing can be brutal at times, but don’t give up now

Missing out on the market's best days can be costly.

Read more »

a happy-faced dog stands on a garden path with an alert look and a curly tai.
International Stock News

Shiba Inu is down 85%, but here’s how it could recover

There's one simple way to boost the price of Shiba Inu tokens.

Read more »

berkshire hathaway owner warren buffett
International Stock News

3 Stocks Warren Buffett Is Betting on Big Time Right Now

Here's what the Oracle of Omaha likes about these stocks.

Read more »

A woman in colourful outfit holds up a phone to take a selfie.
International Stock News

Will Microsoft and Apple shares finally give way in the stock market’s downturn?

Markets moved lower Thursday, and these two giants were a big part of it.

Read more »

Man sitting at a desk facing his computer screen and holding a coin representing discussion by the RBA Governor about cryptocurrency and digital tokens
International Stock News

Days after TerraUSD’s shocking fall, Rival Tether is suddenly teetering

The Tether team has a powerful option to avoid a total collapse like TerraUSD.

Read more »