The recent surge in popular cryptocurrency Bitcoin (CCC:BTC-USD) has sparked an increase in other cryptocurrencies’ prices. Right now, Ethereum’s (CCC:ETH-USD) Ether is the second most valuable altcoin and is up roughly 100% in the past month.
As such, institutional investors should start looking at Ethereum with similar engrossment as they do Bitcoin — the cryptocurrency should grow substantially following a constriction in supply as well as with the release of its new and improved platform.
While Bitcoin is just digital money, Ethereum is essentially a programmable “smart contract” platform. The Bitcoin blockchain facilitates the storage, validation and replication of transactional data. But the Ethereum platform is unique as it allows its users to run computer code, termed as smart contracts. These contracts are useful for more or less any financial transaction. Hence, ETH eliminates the need for a middleman or intermediary in financial transactions, potentially disrupting several industries.
That’s why an increasing amount of Ether — Ethereum’s digital currency — is being locked up. Savvy investors should be interested. That supply reduction will push up its value soon.
Etherium’s Supply and Demand
Future growth in the value of Ether currency is a simple matter of supply and demand. A set amount of the coin is put in each year with no hard cap on its issuance. The currency’s growth rate is therefore virtually at 0%. In the next few years, the issuance rate is likely to be even lower than Bitcoin.
There are two main factors for the constriction in supply. Firstly, the popularity of decentralized financial apps is rising. Therefore, more Ether is getting locked up for smart contract usage. The new Ethereum platform called “Ethereum 2.0 ” will require its users to lock-up a certain amount of Ether as collateral.
Another element of the Ethereum 2.0 implementation is that it will lead to an increase in the platform’s network value. The new platform will have fewer scalability troubles, a more extensive feature set and will abandon the need for proof of work. Staking will also allow users to earn returns from holding coins, similar to bank deposits. Moreover, it also enables the currency to become a carry asset, supporting its function as a value store.
What does that mean? Well, institutional investors would be more interested in holding a fair bit of their portfolios in Ether. The cryptocurrency will also complement cash and securities for investors.
Smart Contract Platform
However, one of the biggest edges that Ethereum has over its competitors is its agreement network that has become a hit in the decentralized finance industry. There are already major brands developing their projects on the Ethereum platform and more companies should follow suit, starting their blockchain efforts on 2.0.
Ethereum has undergone a few minor upgrades in the past few years. But, now it’s undergoing its most significant upgrade yet. Ethereum 2.0 is based on a proof of stake system and relies on users posting collateral rather than performing complex calculations. It is also more secure and decentralized. And perhaps most crucially, its scalable.
Bottom Line on Ethereum
So, Ethereum is a unique and powerful platform that is tailormade for a variety of financial projects. What’s more, the rollout of its latest update will offer greater flexibility, scalability and a more comprehensive range of options to its users.
As such, the value of Ether cryptocurrency will continue to rise due to the constriction in supply from staking and the expected increase in demand. Therefore, investors should stop with the Bitcoin fixation and look at Ethereum. It is an incredibly viable alternative.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.