Ethereum as an investment

Ethereum is one of the most important cryptocurrencies in the cryptocurrency market. During the last few years, Ethereum has grown in popularity among investors. This article describes Ethereum as an investment target and discusses the factors behind Ethereum’s growing popularity.

              
What is Ethereum?
Ethereum is one of the most important cryptocurrencies in the cryptocurrency market. However, Ethereum cannot be directly compared to another popular cryptocurrency, bitcoin, because its operating principle is fundamentally different. Bitcoin can best be described as a digital medium of exchange and a store of value. At the same time, Ethereum can be seen as a complete ecosystem that allows the creation of various decentralized applications.
Ethereum has always been the most widespread ecosystem utilizing blockchain technology from the perspective of developers. Most of the cryptocurrencies currently on the market are built on Ethereum. Ethereum is also a key platform in the cryptocurrency market, on which most of the hottest DeFi services in the market, NFTs, and digital worlds (Metaverse) are also built.
When looking at Ethereum as an investment, it should be remembered that Ethereum refers to the ecosystem of Ethereum as a whole. Investing in Ethereum, on the other hand, is about buying the cryptocurrency ether (ETH). The primary purpose of ether is to act as a virtual fuel for Ethereum’s platform. Thus, using the blockchain of Ethereum costs ether. Ether acts as a payment method for transactions made on Ethereum’s network and for the use of smart contracts created in the network. Thus, the growing popularity of Ethereum’s ecosystem naturally also affects the value of ether.
Ethereum 2.0
The popularity of the Ethereum blockchain has grown tremendously over the past few years. Ethereum 2.0 was the long-awaited update of Ethereum, which saw the light of day in 2022. Ethereum 2.0 significantly increased the capacity of the Ethereum network from before, while allowing Ethereum to be used more widely than before.
Ethereum 2.0 also changed Ethereum's basic way of working, eliminating the work of maintaining the blockchain according to the Proof of Work mechanism that had been in use since Ethereum's inception. With Ethereum 2.0, the maintenance work of Ethereum's blockchain has been carried out by locking Ethereum's own currency, ether, instead of the mining equipment familiar from Bitcoin mining, i.e. powerful computers. With this, Ethereum turned into an environmentally friendly investment target according to ESG standards, and the talk about high electricity consumption has been forgotten.
The blockchain maintenance work according to the Proof of Stake algorithm, which enables staking, has already led to a situation where large amounts of ether have left the market when investors want to earn them the passive income enabled by staking. The possibility of earning passive income is a completely new use for ether, and it can be seen as increasing the demand for ether.
The launch of Ethereum 2.0 required the implementation of numerous smaller partial updates. In 2021, the Ethereum blockchain underwent an update called EIP-1559. With this update, transaction payments made on the Ethereum network started to be burned. In this case, the burning of transaction fees means that the ether used in transaction fees was taken out of circulation. This has resulted in days when more ether has left the market than has been added. With Ethereum 2.0, the deflationary nature of Ethereum has increased even more. With the growing use of Ethereum, we have been in a situation where significantly more ether is being removed from the market than it is being added with the staking. The decrease in the total number of ethers in circulation is naturally a positive thing when considering the future price development.
Ethereum can be considered the largest ecosystem in the cryptocurrency world by all standards, and with Ethereum 2.0, its position has become even stronger. With Ethereum 2.0, the opportunities offered by Ethereum to developers and the usability of decentralized applications built on top of the Ethereum blockchain have improved. These things make Ethereum an even more attractive investment target from an investor's point of view.
The key factors influencing Ethereum’s popularity and ether’s price development
In the future, Ethereum’s price development will strongly depend on the direction of the entire cryptocurrency market. Most of the cryptocurrencies currently on the market are built on Ethereum's blockchain, so Ethereum can be seen as the most important ecosystem in the cryptocurrency market. In addition, Ethereum is also the leading enabler in the most significant market segments. DeFi, NFTs, and various virtual worlds (Metaverse) are currently built primarily on Ethereum. Thus, the increase in the popularity of these is also directly reflected in the increased popularity of Ethereum, which naturally increases the price of ether.
It is good for the investor to note that most cryptocurrencies today still follow the exchange rate movements of the largest cryptocurrency on the market, bitcoin. The growing popularity of bitcoin is also reflected in the price of Ether, and in turn, if the price of bitcoin falls, it will also directly affect the price of ether. In the future, the correlation between the price development of Bitcoin and other cryptocurrencies will certainly decrease, but at the moment, it is still solid.
Although Ethereum is by far the largest and most popular ecosystem in the cryptocurrency market, it has gained several competitors in recent years. However, Ethereum has a huge advantage over its competitors. Like Bitcoin, Ethereum was the first on the market, so over time, it has managed to attract the most skilled developers and most promising projects in the industry. Indeed, during its operation, Ethereum has become a kind of standard that defines the direction of the entire cryptocurrency industry.
Currently, all the most significant innovations utilizing blockchain technology are built on the Ethereum blockchain. Ethereum is also constantly developing, and with the most significant update in Ethereum's history, Ethereum 2.0, Ethereum appears to investors as a more attractive investment target than before. If various decentralized applications using blockchain technology grow in popularity in the future, Ethereum will be a key part of this development. Ethereum can be considered one of the most promising investment targets in the cryptocurrency market at the moment.

Mikko Soon
Head of Private Banking