The biggest news over the past month has been about Bitcoin and crypto as a whole. Yes, Bitcoin and crypto were already doing quite well in 2020, but that’s nothing compared to what 2021 ushered in. So should I buy Ethereum in 2021? The price of Bitcoin is now flirting closely to $50,000 USE. Concurrently with this rise, Ether or Ethereum, the second-largest cryptocurrency, has also risen. But does this mean you should buy Ethereum? Well, keep reading; we’ll attempt to demystify Ethereum and the science behind blockchain technology. And buying it, or at least looking into it is a great idea.
Bitcoin mining was a big deal a few years ago. Everyone was looking into it; if not doing it. Ethereum has taken off in 2021 along with /BTC. As a result, miners have been keeping an eye on this. And it has become more profitable to mine in 2021. So if you’re into mining blockchains, then add Ethereum to the list of blockchain mining.
Let’s quickly review how a blockchain works in general. So a blockchain is a distributed ledger or database on the internet. That just means it’s a database that stores information like any other database.
It’s not maintained by one company or one server but instead maintained by a bunch of different computers or servers around the world connected by the internet.
Remember this if you’re thinking about whether or not to buy Ethereum in 2021. In fact, keep it in mind if you’re considering mining as well.
Each server or computer that helps maintain the network is also called a node. When a new record’s created, it’s broadcasted over the internet to all the nodes or computers maintaining the network.
Each node on the network has its own database record, also called a blockchain.
When a transaction is made and broadcasted over the system, special nodes called miners must confirm the transaction.
To confirm this transaction, miners need to compete against each other using computational power to solve the complicated mathematical puzzle. The miner that solves the puzzle first gets a reward. So, in Bitcoin’s case, they get a Bitcoin reward.
Furthermore, each transaction submitted to the network includes a miner fee by the sender, so the miners earn that as well. The miner that solves the computational puzzle first and verifies the transaction earns the miner fee and the blockchain award for that block.
That block of transactions is added to the blockchain and confirmed, and then the miners start working to solve for the next blockchain. I liken it to a rinse and repeat process. If you want to buy Ethereum in 2021 you can mine it as well.
Ultimately this rinse and repeat process is the general incentive for the nodes and miners to maintain the network and its security. By using its computational power to mine the network, they’re maintaining the network and securely confirming transactions in exchange to earn rewards for each block that is mined.
The whole system of solving computational puzzles to verify and confirm transactions is called “proof of work.” In the case of Bitcoin, the entire proof of work process used to maintain the database is just keeping track of bitcoin, the cryptocurrency.
At this point, you can somewhat see that the whole point of the Bitcoin network is to be a cryptocurrency. It basically exists just to keep track of the virtual currency. If you’re going to buy Ethereum in 2021 you want this.
Ethereum is a little different based on the general blockchain technology. Instead of using a shared, decentralized database to maintain only a virtual currency, Ethereum uses its distributed database to record smart contracts.
Without diving too deeply into smart contracts, their simply if, then and that statements that Ethereum programmers can program and customize to make conditional outcomes. As an example, if you like my blog, then my program will pay you one Ether. Now, that smart contract doesn’t exist, although I wish it did.
Now, this gets somewhat complicated. Similar to Bitcoins, every node in the Ethereum blockchain stores a record. These are records of all the smart contracts and transactions that ever happened on the Ethereum network. In addition to storing all this data, they also run in sync and run the Ethereum virtual machine.
And so they run this virtual machine in sync together to execute all the smart contracts securely. I know we’re getting way out there but stick with me if you want to buy Ethereum in 2021.
Put simply, the Ethereum network is running a decentralized virtual machine. Correspondingly, it allows developers to build these programs on top of a decentralized network. Likewise, it’s supposed to be super secure because it’s run in a decentralized manner on a blockchain.
Based off the forecast and price prediction for Ethereum, it’s a great investment in 2021 and beyond. The price prediction only sees it rising as the years go by. Of course, anything can happen. Don’t forget the few years that bitcoin bottomed out. If you’d gotten in at the top then. i.e. $20,000, you would have been sick for a long time before it recovered. So if you’re going to buy Ethereum in 2021, make sure you’re buying at support and not resistance.
Ether is the Ethereum Currency. To run and use these apps stored and run by the Ethereum network, users have to pay Ether, Ethereum’s native currency. So that’s what your actually buying when you’re buying Ether or ETH, is the currency to run programs on the Ethereum network.
Okay, here’s a good example to help you understand the difference. Let’s say you want to bet money on a sports game on the Draftkings app. You have to rely 100% on Draftkings as a company, its app and its servers. So basically, you’re trusting Draftkings to record your bet, execute the winnings and store all of that information correctly without getting hacked.
Conceptually, Draftkings database can make a mistake, get hacked or lose your money. Or, they could freeze your funds if they want to. But instead, if you bet on that sports game on a decentralized app built on Ethereum, you don’t have this risk. One example of a decentralized app, or Dapp, is Auger.
When you make a bet and win or lose, it’s all executed and recorded by a decentralized virtual machine. So if you go back here, this app is being hosted and executed by many, many computers worldwide. And there’s no one individual or one company that can mess with your bet and winnings. Quite frankly, this is the exact reason why we’re moving towards decentralized smart contract platforms.
The whole goal is to try to build web 3.0, which is the decentralized web. Some of the Dapps catching on and being built on the platform have to do with decentralized finance. So instead of banking with Bank of America, I might go with decentralized services. Because do you really 100% trust a bank and their servers to provide accurate chequing, savings, recording and storage without getting hacked?
All of this leads me to my next question…
When you’re buying Ethereum, just remember that you’re actually buying Ether or ETH. Ether is the currency that allows apps to run on the Ethereum virtual machine. I would think of Ether as the oil the Ethereum virtual machine runs on.
Like with oil, the more automobiles and machines that are using oil compared to its supply, the more valuable oil becomes. Similarly, the more applications that are running on the Ethereum network, the more valuable Ether becomes.
So the thesis here is that you should invest in Ethereum if you think that decentralized Web 3.0 will happen and become popular. Do you think more and more apps will be made and used on a decentralized Web 3.0? Do you feel more apps like Uniswap, Darkforce, and all these other ones already on the market like Auger will become more popular? If so, the price of oil for the system or Ether should go up.
One more risk here is that Ethereum, although it’s the dominant smart contract platform with by far the most decentralized apps being built on it, there are other competing smart contract platforms like Cardano and EOS being built.
Also, structurally for Ethereum to do really well, you need to believe that Bitcoin will do really well. Capital generally tends to flow into the crypto world first by buying Bitcoin and then possibly transferring into other alternative coins like Ether.
So, to believe in Ether and Ethereum, you need to one believe crypto will continue to do well and take market share from the standard financial world. Two, you need to believe that Web 3.0, decentralized smart contracts and decentralized apps will become more and more popular.
And thirdly, you have to believe that Ethereum is the network that wins. Because generally on the internet, as these things mature, it’s typically one protocol that takes all market. And this is a dynamic we’ve seen over and over again on the internet. Keep that in mind if you want to buy Ehtereum in 2021.
Should you buy Ethereum in 2021? I think the upside to Ethereum could be much higher than Bitcoin because it’s such a nascent technology. I also think there’s a technical dynamic where Ethereum will rally really hard after the Bitcoin rally starts to fade. If people get more and more bullish about the Ethereum network and the usage of decentralized applications on the Ethereum network, Ethereum’s price will boost.
In fact, during the 2017 crypto bubble, Ethereum was close to taking the number one top spot in terms of market cap over Bitcoin. Something that was called the “flippening.” Now, how do you buy Ether if this all sounds great to you and you believe in the story?
These days, Ethereum has solidified its spot as the number two crypto and can be bought for USD or normal currency on many exchanges. In the US, consider checking out Coinbase Pro because there are lower fees.
Or Gemini is a good one as well. If you’re outside the US, Binance is reputable and is the largest exchange by volume. I haven’t used Kraken but there pretty respectable as well. Anyway, I covered a lot, and I hope this was helpful if you’re thinking of dipping your toes in the crypto world. Happy trading!