Should I invest in Ethereum?

The beginning of your success or failure in crypto investing starts from whether you do a proper research or not from day one. If you are looking to invest in Ethereum, this guide should help you make a better decision.

The truth is, Ethereum itself is not a cryptocurrency. 

It is a database-like blockchain technology that stores transactions in blocks and connects these blocks to previously existing blocks via a chain. 

The token exchanged in this transaction is called Ether (ETH). Ether is the coin.

To understand this concept, there has to be knowledge of how database and blockchain technology works.

Let’s get into it …

Database and Blockchain Technology

A database is a collection of information stored in a table format electronically on a computer system. 

Unlike a spreadsheet which stores a limited amount of information and is accessible only to a single individual or a small group of people, a database stores a larger amount of information and can be accessed by multiple users at once.

The information on a database is stored on servers that are created by a large network of computers (usually hundreds to thousands of computers). These computers are housed in one place and managed by an appointed individual which has control over how it works and the data stored in it.

Blockchain technology uses this database technique. The information to be stored is filled into blocks. When a block is full, it is closed and chained to the previously filled block. 

The network is controlled by anyone, it’s a decentralized ledger. There is no edit or delete. You update the database like you would in a conventional database.

Hence, it is believed that blockchain technology is a decentralised technology. This does not imply that centralised blockchain technology does not exist.

What really is Ethereum?

Ethereum is the most actively used blockchain. According to Camilla Russo, former Bloomberg journalist in her 2020 book ‘’The Infinite Machine’’ Vitalik Buterin looked to science fiction for inspiration when he wrote the Ethereum whitepaper in 2013. 

Buterin was scrolling through Wikipedia when he came across the word ‘Ether’ and remembered the name from a science book he read as a child. Ether is a subtle material that is transparent, weightless, frictionless, and carries all light waves.

Buterin wanted his platform to be an underlying and imperceptible medium for every application. He used the word ‘Ethereum’ to describe a decentralized technology. 

Ether is the cryptocurrency used in Ethereum blockchain.

Founders/Team

The idea of Ethereum was initially stated as a whitepaper written and published by Vitalik Buterin, a programmer and co-founder of Bitcoin Magazine. In his whitepaper, he argued that Bitcoin’s structural restrictions can be maneuvered and that real-world assets can be attached to blockchain technology. To do this, he suggested that a new scripting language was required. 

After failing to gain agreement on how this should proceed, Buterin proposed the development of a new blockchain with a more general scripting language; this new blockchain is Ethereum.

Ethereum has eight founding members; five who initially bought the idea in December 2013 and three others who joined in early 2014.

Apart from Vitalik Buterin who conceived the idea and wrote the first whitepaper, here are seven others forming the founding team.

The Initial Five:

Mihali Alisie: He helped set the legal framework for the pre-sale of Ether and later emerged as the vice president of the Ethereum foundation.

Anthony Di Lorio: He was one of the financial sponsors but took a passive role on the team after they decided to adopt a non-profit model.

Amir Chetrit: He was asked by Buterin to join the team in December 2013. When his input was questioned by other members in 2014, he took a passive role but regained his position as co-founder.

Charles Houskinson: He was appointed as the CEO of the Ethereum startup in December 2013 but pulled out in 2014 after the team decided to adopt a non-profit structure. 

Three other co-founders of Ethereum

Gavin Wood: A core contributor to the development of Ethereum. He earned his position as a co-founder as a result of his programming contributions. He made the first Ethereum testnet and published the project’s yellow paper.

Jeffery Wilcke: Like Wood, he became a co-founder solely due to his programming contribution.

Joseph Lubin: He helped the company in gaining high-profile partnerships which Ethereum has developed over the years.

Investment

Ethereum was funded by an online public crowd sale which ran from July to August 2014. The concept of the sale was to get future users and investors to exchange Ether for Bitcoin. The Ethereum Team then traded these Bitcoin for fiat currency.

11.9 million Ether was sold at this crowd sale, raising about 18.4 million USD.

What Problem is Ethereum Solving

The Crypto World Before Ethereum

When Bitcoin was launched in 2009, the eyes of the world were opened to a decentralized digital financial asset that was built on autonomy and security. The focus at that time was on how Bitcoin would evolve the financial industry. As time went by and more people started understanding the workings of Bitcoin, the full capacity of what the blockchain technology could birth was acknowledged. 

The limiting structure of Bitcoin was that it didn’t have a complete turning programming language, every attempt in modifying this blockchain met a dead end. This was what Buterin found out; the only way to bypass Bitcoin’s restrictions was to change its scripting language.

To do this, a new platform with a more general scripting language (Solidity) had to be built. This new platform is Ethereum.

Ethereum allows developers to create, publish and use applications on the platform while securing transactions through a smart contract. These applications are called Dapps — Decentralized Applications.

Some hackers have been able to use this blockchain technology for the storage of private information in the  healthcare industry, electronic  voting systems, and a lot more use cases. 

This makes Ethereum a marketplace for financial services, games, and apps; all of which are paid for by its cryptocurrency Ether.

In 2016, $50 million worth of ETH was stolen from a decentralized autonomous organization called The DAO, by an unknown hacker. The money was raised via crowd sale for a project, secured by smart contract and developed on the Ethereum platform. 

To reverse this theft, the Ethereum community had to execute an operation called the ‘hard fork’. This meant that the community split the network into two separate blockchains: Ethereum (ETH) with the theft reversed and Ethereum Classic (ETC) which continued with the original blockchain. Ethereum Classic has since undergone upgrades but many investors still consider Ethereum (ETH) more secure.

After the first hard fork, Ethereum subsequently forked twice in the fourth quarter of 2016 to deal with other attacks.

Ethereum 2.0

To combat attempts to hack the Ethereum system, to improve scalability and to reduce ethereum’s network fee, the Ethereum project is undergoing a progressive launch of  the new Ethereum blockchain called Ethereum 2.0 ( phase 0 of this upgrade was released in December 2020 while phase 1 and 2 are in waiting, hoping to be completed by the end of 2021 or early 2022). 

The goal is to split the workload into many blockchains running parallel to each other (referred to as shards) and having them share a common consensus proof-of-stake blockchain. Hence, any tamper on a single shard would affect the other shards costing the attacker more than they could gain from the attack. 

Ethereum 2.0 is set to raise the current transaction rate from 15 transactions per second to tens of thousands of transactions per second.

Is Ethereum Truly Decentralized

Decentralization in crypto refers to the transfer of control from a centralized entity (which could be a nice individual, organization, or government) to a distributed network formed by hundreds of thousands of computers at different geographical locations. 

Ethereum offers decentralized finance on Dapps validating its stance on being a decentralized technology.

Decentralized finance (DeFi) is blockchain-based finance that is not controlled by third-party outlets like banks or exchanges. It is powered by a smart contract system of blockchain technology like Ethereum. 

DeFi allows its users to borrow, lend, save, and even receive interest on cryptocurrencies. With Decentralized Finance, the amount of Ether in circulation is not regulated by a single individual or government. The concept of DeFi is applied by decentralized applications (Dapps).

Decentralized applications (Dapps) are applications that are under nobody’s control. Once the developer launches the application on Ethereum, it cannot be retracted. It is not subject to a sudden shutdown because the server housing its information is supplied by hundreds of thousands of computers at different locations, even if there is suddenly shutdown of some, others working helps to keep the platform stable. Dapps are immutable and offer frictionless modes of payment.

How and Where to Buy Ethereum

1). Identify a platform

Choosing a platform to use depends on your country and their laws. Some countries have restricted the purchase of Crypto with banks which opens the doors for peer-peer trading. So, you’ll have to choose a platform based on your country and the coin you want to buy. However, the top exchanges include Binance, Kucoin, Kraken, Coinbase, Poloniex and CEX, make sure you do your research.

If you are considering storing ETH for the long term, then you should look at a paper wallet or any offline open source decentralised wallet. 

2). Create an account

After choosing a platform, the next step is to create an account by providing some personal information. Verifying your account and setting up 2 factor authentication can help create tighter security for your account and allow you transact with more coins and increase your withdrawal limits

3). Deposit Currency and Buy ETH

For countries where buying crypto with the nation’s currency is restricted, platforms like Binance has enabled a peer-2-peer buying option where users can post trade advertisements to buy and sell crypto and then pay or receive cash for those transactions offline in person.

Where is it listed

Ether is listed on crypto exchanges with the ticker ETH. Listing in crypto shows that currency has passed the exchange market requirement, is trusted, and is ready to be traded on.

In trades, Ether is commonly listed in exchanges with fiat or cryptocurrency trading pairs like Bitcoin.  For example, ETH/BTC or ETH/USDT. Fiats are currencies that a government has declared to be legal tender, it can be in the form of digital assets as in the crypto market or paper form.

How To Store Ethereum

Ether is stored in E-wallet which is like the traditional bank account which stores currencies and shows your available balance. 

When choosing a wallet to store your Ethereum, there are various factors to consider: 

Do you want a wallet that makes it easy for you to access your crypto at any location on any device? Or do you want one that serves more on security than accessibility? 

There are different types of wallets available: paper wallet, web wallet, mobile wallet, desktop wallet, and hardware wallet. To better understand the best wallet options for you, it is important to get the concept of the private key and public key.

When you say you have a cryptocurrency, what you are saying is that you have a private key that proves you are the owner of that cryptocurrency. Private keys let you sign off transactions and receive crypto into your wallet. 

As its name implies, private keys should be kept private. If anyone gets access to those keys, they would have access to every cryptocurrency attached to it. Private keys can be in the form of; 64 digit hexadecimal code, QR code, 256 characters long binary code, or a Mnemonic phase.

A public key on the other hand is like an address you can send to others that lets them send cryptocurrencies to you. The private key would have to sign off this transaction before the cryptocurrency can enter your wallet.

The private key and public key work together to form a kind of digital signature.

Custodial Wallet Vs Non-Custodial Wallet

A custodial wallet is a type of digital wallet which keeps users private keys and creates backup services. What this means is that the users are not in total control of their cryptocurrency and if for any reason they forget their private key, the custodial wallet would be able to retrieve it from their server. 

Transaction fees are lesser and in some platforms like Freewallet, the fees are free. Examples of Custodial wallets are Binance, Coinbase, BitMEX, and free wallet. 

In a non-custodial wallet, the user owns their private key and is fully responsible for their cryptocurrency. While it is harder for hackers to get access to the wallet because it is not saved online, it also makes it impossible to retrieve private keys. Examples of non-custodial walkers are Trustwallet, Electrum, Exodus, and Ledger Nano X.

Web wallets are cloud storage and faster than other types of wallets. The private keys of a web wallet are stored online.

Desktop wallets run on computers and laptops as software. It can only be accessed from the computer where it was downloaded. Examples are Exodus, Metamask, Mist, and Atomic.

Mobile wallets are accessed in mobile phones and are referred to as light clients because they do not require the entire blockchain to operate. Examples include Jaxx, Coinomi, Lumi wallet, and Atomic.

Hardware wallets are portable hard disks that need to be plugged into a computer to make a transaction. They are secure because the key is generated offline making them immune to online hackers. Most of them, such as Ledger Nano S, and Trezor provide backup options. 

Paper wallets are the safest wallet option. It is a piece of paper with a code (your private key) written on it. This code could be in the form of QR codes that require you to scan. This wallet is also immune to hacks. 

How To Stake ETH

With the Ethereum 2.0 model, the Ethereum community is shifting from a proof-of-work (POW) structure to a proof-of-stake (POS) structure. 

Initially, to validate transactions in a block, close it and earn the right to open a new block, crypto miners had to compete to solve complex mathematical puzzles. The first miner to successfully solve this puzzle opens a new block and is rewarded with a newly minted coin. 

One problem with the proof-of-work structure is its accessibility and scalability; to become a miner and make any money from it, you’ll need to build a powerful computer and have a substantial amount of consistent power supply  mining..

With the proof-of-stake (POS) structure, new blocks can be opened by staking coins (locking them up in Defi platforms) and earning rewards as new blocks are opened. These staked coins are used to validate transactions. The POS structure reduces the entry problem by making it easier for more people to participate in the opening of new blocks with simple systems like laptops. More validators equals increased transaction rate which equals better security for the system.

Staking ETH depends on how much you are willing to lock up. To become a full validator, you would have to stake 32 ETH. It is also possible to stake less. 

On platforms like Trustwallet, you can stake your coins directly from your wallet.

Price Predictions For The Next 2-4 years

According to Prime XBT, ETH is expected to reach a potential high of $14,000 ETH by the end of 2021. It would go bearish between 2022-2023 before following a bullish cycle in 2024-2025.

Economic Forecast Agency predicts that ETH would reach $4,922 at the end of December 2022, soar higher to $5,732 by the end of 2023, and make a steep fall in 2024 to $1,588.

According to Cryptoground, Eth will reach $3,319 in 2022, and hit $5,353 in five years.

Conclusion

Ethereum is a solid project. It has taken the blockchain ecosystem by storm. It’s bringing enormous value to the blockchain as it powers some of the world’s top decentralised platforms. While this is not financial advice, I believe Ethereum is bullish for me and I will invest as much as I can afford to lose.