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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

sdf

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.

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 woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
International Stock News

Google is spending billions to plug into this underrated power source

Google requires a substantial amount of power to support its cloud and artificial intelligence (AI) operations.

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
International Stock News

Where will Nvidia stock be in 5 years?

Nvidia's shares have climbed back to all-time highs as investors regain optimism in its AI infrastructure business.

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
International Stock News

Could buying Nvidia today set you up for life?

The leading AI stock skyrocketed 1,500% over the past five years alone.

Read more »

Legendary share market investing expert and owner of Berkshire Hathaway, Warren Buffett.
International Stock News

Warren Buffett is invested in these three magnificent quantum computing stocks. Here's the best of the bunch.

Buffett isn't known as a technology investor, but his portfolio still includes some exposure to the quantum computing movement.

Read more »

AI written in blue on a digital chip.
International Stock News

Nvidia's stock looks set to soar on resumption of H20 AI chip sales to China

This is great news for investors and should help propel Nvidia stock higher.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
International Stock News

Microsoft: Next stop $600 or has the growth stock run up too far, too fast?

Here's what differentiates Microsoft from other investment opportunities.

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
International Stock News

Which Magnificent 7 company I expect to suprise the market this earnings season

I can't wait to see what this stock has to say next week.

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
International Stock News

Could buying Amazon stock today set you up for life?

Amazon has several growth drivers, with AI being an incredible opportunity.

Read more »