Much ado has been made about Bitcoin, largely due to its soaring valuation that now out rivals gold’s value.
While much attention has been showered on this cryptocurrency, there is another type that has many attributes that make it equally attractive as an investment option.
We’re speaking of Ethereum. Like Bitcoin, Ethereum’s attractiveness comes with many unfavorable attributes. These include a myriad of factors that range from its volatility to its relatively newness in the currency space.
These issues are aggravated by Ethereum not being regulated by any government authority, which means consumers lack protection from losses.
Still, those who believe these cryptocurrencies have staying power see investing in the space as a worthy consideration. Other factors many see as attractive for Ethereum’s worthiness as an investment are the companies that are showing interest in using it.
The fact that many on Main Street are warming to the use of digital currencies bodes well for the space. Investors looking for hefty returns see this growing way to buy and sell things as the currency world’s next best thing.
In this piece, we will discuss the nuances of investing in Ethereum, complete with reasons as to why you may want to think again.
Ethereum, also known as Ether, is Bitcoin’s top rivalry. It is a decentralized platform that runs smart contracts with the use of blockchain.
Ethereum’s platform allows developers to create markets, store debt data for registries, transfer funds, and complete other tasks without the need for a middle man or counterparty, according to Blockchain Tech News.
While Bitcoin was created as a currency, Ethereum was created to help software processing efforts by using Ether. As Ether’s popularity has increased, so has its value, making it a more attractive investment.
Crypto without the bad rep
One of the reasons people find it difficult to invest in Bitcoin is due to its unfavorable reputation.
Often, the use of Bitcoin is associated with some type of unsavory buy, or fraudulent financial scheme. For example, a recent ransomware attack on businesses around the world got attention in the cryptocurrency world because the attackers demanded to be paid in Bitcoin.
While unscrupulous use of Ethereum is not unique to Bitcoin, Ethereum seems to have dodged the bad reputation label. This explains why it is catching on in the mainstream.
This acceptance marks a key difference between it and Ethereum. As Bitcoin has received a bad reputation because of some of the unsavory characters who use it, Ethereum is striking a positive cord with many, including reputable corporations.
Reflective of this is the Ethereum Enterprise Alliance, which was formed with the help of banking giant JP Morgan and technology giant Intel and Microsoft. Being a payment of choice by big corporations lays the groundwork for Ethereum to gain a positive reputation.
Weighing the risks
As attractive as the thought is to be privy to the returns gained by early investors in cryptocurrencies, the risks must be weighed. These kinds of gains come with significant risks, so a considerable amount of self-reflection should be done before making the leap into cryptocurrency investing. That includes Ethereum.
For example, in June 2017, the cryptocurrency space endured major declines. Ethereum’s market cap fell by roughly $8 billion to $22 billion.
A main trait that Ethereum shares with its cousin Bitcoin is volatility. Declines of 10%, 20%, or more in a day for it are just as common as they are for Bitcoin. So are the reasons for its declines.
One of Ethereum’s value plummets was the result of a flash crash. During the week that happened, Ethereum also traded lower on a false rumor that its founder had died.
This shows just how sensitive the market is when it comes to cryptocurrencies like Ethereum.
So why would you invest in something so uncertain as these different cryptocurrencies? The answer is the same as why you invest in anything – the chance to grow your dollars. Also, like other investments, you should also examine your risk tolerance before jumping into a cryptocurrency investment.
If the thought of seeing a 20% drop, or more, in a single day in your investment makes you ill, you should probably steer clear of this space. The chances of it losing its value, wiping out any gains that you may have made, are very real.
Ready to invest?
If your risk tolerance, and wallet, can stand such losses from investing in cryptocurrencies, there are some steps to take.
First you need to get a digital wallet because Ethereum doesn’t trade on any major stock exchange. To buy Ethereum, you must use an online broker, and then convert the Ethereum into your wallet.
Understand when you invest in Ethereum, you are not buying shares of Ether, as you would buy shares of stocks, notes The College Investor. On the site, it is also noted that:
“…you are exchanging your dollars for Ether tokens. There are no dividends, no payouts. Your only hope is that in the future, other people on the Internet will pay you more for your tokens than you bought them for.”