What Is Ethereum and Why is it Performing So Well?

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If you are at all interested in cryptocurrencies, you have likely heard of Ethereum. It is the second most popular form of crypto, behind only bitcoin. Like bitcoin, it is a community run technology that uses the blockchain to accomplish some very amazing things. Also, like bitcoin, it has gone up in value by huge amounts recently. It was first released in 2015 and had a value of under $1. As of the writing of this article (August 20, 2021), it is selling at over $3,263. Needless to say, anyone who is interested in investing in crypto will want to learn more about this great coin.

What Exactly is Ethereum?

Ethereum was developed by a programmer named Vitalik Buterin. It is an open-sourced blockchain technology that is fully decentralized, which are also aspects of bitcoin. Unlike bitcoin, however, Ethereum has the ability to run smart contracts, which is the innovation that really helped it to become popular.

One important thing to note about this subject is that Ethereum is the whole system together, but the actual cryptocurrency that people buy and sell is actually called ether, or ETH. Despite this fact, however, most people use the term Ethereum to mean both the technology and the coin.

Understanding Smart Contracts

A smart contract is a program that is stored on the blockchain. Anyone who knows how to create a smart contract can set it up so that the program will run whenever specific predetermined conditions are met. This allows people to create incredible systems and services on the blockchain without needing to run their own servers or other tools. Since it is run on Ethereum’s blockchain, it is distributed around the world, making it very accessible.

There are many different kinds of smart contracts that run on Ethereum, and new ones are being developed all of the time. The following are just some examples of smart contracts to give you an idea of what they are and how they work.

  • Other Cryptocurrencies – Many other cryptocurrencies are actually just smart contracts on the Ethereum blockchain. The developers create the program needed for their own cryptocurrency and it then operates on the blockchain.
  • Decentralized Finance (DeFi) – Decentralized finance applications are becoming very popular. These systems allow people to give or take loans, earn or pay interest, and much more without the need of a centralized bank to get involved.
  • Non-Fungible Tokens (NFTs) – NFTs have exploded in popularity in 2021, and that is likely to continue. This registers a digital (or physical) asset on the blockchain, making it unique. This can help to track its use, determine its value, and much more. NFTs are being used for things like digital art, unique concert tickets, in-game items, and much more.

There are many other things that can be done on a smart contract. There are very few real limits regarding what can be done using the smart contracts on the Ethereum blockchain. There are other blockchains that support smart contracts, and many are getting quite popular. As of now, however, Ethereum is still by far the biggest, most valuable, and most frequently used option.

What is Driving the Rise in Price for Ethereum?

While the technology behind Ethereum is incredible and is helping to drive the entire blockchain industry forward, most people are far more interested in the price. The coin started at around $.70 each, and went up to nearly $20 within the first two years. From there, it shot up to several hundred dollars per coin in early 2017 before the major bull run that took place in late 2017 and early 2018. During that time, Ether rose in price to around $1300 each.

As with all cryptocurrency, the value dropped significantly in 2018 and 2018, when it got as low as $86. Late in 2020, the overall crypto market dramatically improved, and another bull run began for the entire industry. The price of Ether peaked at over $4000 in May, before dipping back down under $2000.

The London Update

The price of Ethereum has quickly rebounded, largely starting around August 5th. This is the date that Ethereum miners put what is called the London update into place. This was a significant change to the way Ethereum works. While the update did many things to improve the Ethereum system, the one that is most credited for pushing the price up is the fact that all transactions on the Ethereum blockchain now result in a small amount of Ether being ‘burned.’ This means it is removed from the overall ecosystem, never to be available again.

Transactions are normally processed by the Ethereum miners, who receive a fee for their services, which is how they make money. This fee is, of course, paid out in Ether. Prior to the London update, the miners kept the full fee as well as any new Ether that were mined in the process. Today, however, there is actually more Ether being burned than there is new Ether being generated from mining, which means the supply of Ether is dropping! According to the laws of supply and demand, this helps to push the price upward.

This leaves many people wondering whether Ether will continue to go up in value, breaking its recent all time high, or if the price will taper off and begin to fall once again. While it is impossible to predict the price of any asset, especially in crypto, there is an exciting event that is slated to happen in 2022 that many people believe will boost the price up rapidly.

Ethereum 2.0

The next major change to Ethereum is will likely take place sometime in 2022, though some aspects of it are already happening. Ethereum 2.0 will dramatically change many aspects of how this system works. The most significant change will be a move from Proof of Work (PoW) to Proof of Stake (PoS) for mining. Proof of Stake requires far less energy, which makes it much more environmentally friendly.

Once fully implemented, Ethereum will not only be less energy intensive, but it will also be able to process far more transactions per second. This will translate to lower transaction fees, which will encourage more people to trade it and to use it for their smart contract systems. Many people believe that this change will help to keep Ethereum competitive compared to other smart contract systems. If this results in Ethereum taking significant market share from other platforms, it could easily drive the price up rapidly.

While there is no doubt that the future of Ethereum is looking bright, there is always going to be debate about exactly how this will impact the price. Many people think that the current price of Ether is excessive and that it will likely fall in the coming months and years. A more popular opinion, however, is that the growing use of the Ethereum blockchain and the exciting updates that are being worked on will only push the price higher and higher over time. For those who are of this opinion, buying at today’s prices seems to be a great opportunity.

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