Why ethereum interests long-term investors more than bitcoin

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May 31 2021
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While the price of bitcoin continues to attract the most headlines, it’s the second most popular cryptocurrency that many investors are betting will have the bigger impact over the long run.

Where bitcoin was originally envisioned as a decentralised alternative to digital cash (and ended up co-opted into becoming a speculative asset), ethereum was designed for much more.

Specifically, ethereum was intended to showcase how a blockchain network could be used in other contexts and provide a platform through which developers could easily deploy decentralised apps.

The main way that ethereum does this is through smart contracts, which are essentially contracts written in computer code. Unlike real-world contracts, smart contracts are self-executing. When their criteria is met, the blockchain fulfils them to the letter. There’s no room for deferrals or modifications, even if you’re the creator of the contract.

The scripting language used to create smart contracts – called Solidity – can also be used to create more complex applications. However, running these kinds of apps on the ethereum blockchain requires a sort of fuel called ether.

Like bitcoin, ether can be mined. However, buying, selling and holding ether isn’t the only use case for it. Ether is also required to operate applications on the ethereum blockchain. The imbalance between the supply and demand of this resource is where the market value of ether comes from.

As put by RMIT’s Dr Angel Zhong, “Ethereum has expanded functionality compared to bitcoins. And different from bitcoins, people can further expand on ethereum to build other applications.”

“In the long run, it will gain more attention and demand.”

While there are other blockchain networks that work similarly, ethereum has a number of advantages for decentralised app developers, such as scale and a maturing ecosystem.

The flexibility of the ethereum blockchain is such that its purpose is not just to host its own cryptocurrency, but also hundreds of others via the token system. Almost half of the top 100 cryptocurrencies run on the ethereum network.

It’s also the foundation for the growing world of decentralised finance, which allows crypto to be staked in exchange for rewards in a way that’s akin to keeping your money in a savings account so that interest occurs.

According to Jayson Derrick from Invezz.com, the growth of decentralised finance apps on the ethereum network is a big part of the crypto’s appeal to wealthier investors.

“By 2030, the world of finance will likely not at all resemble what it looks like today, and this is apparent to anyone paying even minimal attention. The extent that ethereum will play in terms of financial transactions and smart contracts will be exponentially higher over the coming years.”

While Derrick noted that “ether exploded in value over the past year and likely generated life-changing returns for early investors who truly understood the concept from day one”, he insists that the era of cryptocurrencies is still in a very early stage.

“Buying ethereum at current levels, even close to the all-time high of $4,000, makes sense for investors with a long-term time frame.”

“A reasonable amount of exposure to ethereum as part of a well-diversified portfolio across multiple asset classes is certainly a logical investment strategy and one that would be hard to argue against,” Mr Derrick said.

About the author

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

About the author

Fergus is a journalist for Momentum Media's nestegg and Smart Property Investment. He likes to write about money, markets, how innovation is changing the financial landscape and how younger consumers can achieve their goals in unpredictable times.

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