The 1 cryptocurrency I could buy in 2022
I have been on the sidelines watching cryptocurrencies for the past few years. One of the big downsides to me is that many cryptocurrencies seem to derive their value from hype instead of genuine utility.
However, the more I learn about the sector, the more my perspective changes. This is mainly due to my growing understanding of Ethereum (CRYPTO:ETH). Here’s why it’s the only cryptocurrency I could buy in 2022.
Ethereum is more than one type of cryptocurrency. It’s a blockchain technology platform for digital currency, payments and decentralized applications. Individual units, called ether, are the second largest cryptocurrency by market value behind Bitcoin (CRYPTO: BTC).
Vitalik Buterin, then a 19-year-old developer, came up with the idea of Ethereum in 2013. He suggested extending the blockchain technology behind Bitcoin to more uses than just transactions. The platform was launched two years later.
Since then, Ethereum has become one of the dominant blockchain platforms due to its wide range of functions. These include:
- Currency: Using a blockchain wallet, you can send and receive ether to pay for goods and services.
- Smart contracts: Digital contracts stored on the blockchain that execute automatically respecting the predetermined terms and conditions.
- Digital Apps (dApps): The Ethereum platform helps power applications that allow users to play games, invest, send money, and more.
- Non-fungible tokens (NFT): Many NFTs use Ethereum technology to enable creators to buy and sell these digital assets.
- Decentralized finance (DeFi): Ethereum eliminates the need for government-controlled central banks to regulate the currency.
The advantages and disadvantages of Ethereum
I think Ethereum has several major competitive advantages over other cryptocurrencies. First, its range of uses. It’s not just another coin; it’s an entire platform. As a result, it has become increasingly important in digital transactions. This allows him to derive some value more than ether supply and demand.
Another important advantage is its size and scale. It seems like new cryptocurrencies are hitting the market all the time to serve a variety of purposes, including as a joke. However, as the second largest cryptocurrency behind Bitcoin, Ethereum’s size and scale have given it credibility in the market.
However, there are some downsides to Ethereum. One of the most important is volatility. Its price has rebounded significantly, in part thanks to momentum trading:
This volatility makes it difficult to use ether as a currency. You could sell an item for 1 ETH, thinking it’s worth $4,000 only to have that value drop by $1,000 within a few weeks.
Another issue with Ethereum is the cost. Transaction costs, known as gas fees, can be very high due to network congestion resulting from its popularity. These fees also make it more difficult to use ether as a currency, as they make transactions more expensive.
Ethereum also uses a lot of computing power, which makes it consume a lot of energy. Since carbon-emitting fossil fuels generate most of the world’s electricity, they contribute to climate change.
However, the platform is working to fix these issues by moving to a new validation system. This update, Ethereum 2.0, is expected to happen later this year. It promises to reduce Ethereum’s power consumption by 99.98% and increase its transaction processing capacity from 30 per second to 100,000 per second. It could also make smart contracts even more sophisticated.
Ethereum stands out in the cryptocurrency market
I’m still on the verge of getting into cryptocurrencies. There’s a lot of hype and volatility, which doesn’t fit my style of investing.
However, there is also a lot of promise, especially for the Ethereum platform. That’s why it’s the one I could buy this year. I’m not ready yet; there are still many things about it that I want to learn. And I would like to see the launch of version 2.0 before buying, because it would solve some of the major problems with the platform.
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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool owns and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.