Cryptocurrencies have been on a massive winning streak in recent months. Bitcoin (CCC:BTC) has soared from $10,000 to $40,000 since September 2020. Altcoins are joining in on the fun as well. For example, Litecoin (CCC:LTC) is up from $50 to $160. And Ethereum (CCC:ETH) has surged from $350 to $1,300 over the same time period.
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It’d be easy to say Ethereum’s rise is simply due to riding on Bitcoin’s coattails. But that explanation may not give Ethereum enough credit. The cryptocurrency is really coming into its own right now, and has the potential to dethrone Bitcoin someday and become crypto’s leading asset.
More Powerful Than Bitcoin
Bitcoin is the king of the crypto world, and with good reason. First-mover advantage is a real thing, and it’s paid off in spades for Bitcoin. The brand is great, and Bitcoin has now started to earn adoption from institutional money. That’s vital.
However, on an actual technological specifications basis, there’s a lot to like about Ethereum. It has a reputation for slow transactions and limited capacity – like with Bitcoin. However, Ethereum 2.0 is on the way. The project’s developers expect the upgraded ether network to be able to handle 100,000 transactions per second. That’s light years ahead of the 30 transactions per second that it used to be able to process.
This should solve key issues of congestion, delayed transactions and high fees. That, in turn, will allow Ethereum’s cool capabilities, such as smart contracts, to really take off.
Bitcoin has had tremendous success in becoming a store of value. It’s now effectively digital gold. However, its usage for payments and digital transactions lagged well short of what backers hoped for. Bitcoin is slow and clunky, and thus it hasn’t made much of a mark in the real world yet. Ethereum, with its upgraded network and versatility for many uses, could be the crypto that finally disrupts traditional finance.
Smart Contracts
One of my issues with the crypto space is that it hasn’t had a great deal of impact on banks or payments companies. Crypto is working as a trading and investment vehicle. As a tool for facilitating financial transactions, however, there are fewer tangible results.
That said, Ethereum’s smart contracts could finally change this. As Ethereum’s backers describe it, a smart contract is like a digital vending machine. You can program the smart contracts to resolve in a certain way based on what information comes in. This allows you to process many types of legal questions without a human. On its website, Ethereum states that:
“Like a vending machine removes the need for a vendor employee, smart contracts can replace intermediaries in many industries.”
One user explains how this can be used to replace lawyers in many situations. Possible use cases include in supply chain management, voting systems, securities purchases, tourism and more. For example, you could have a smart contract that has an if-then function. Say you rent a house from someone. If a digital entry key is sent, the smart contract then sends the renters’ money to the landlord. If there’s no key, then the contract won’t complete and thus the rent payment won’t be released.
Since it’s on a public blockchain, you have hundreds of computers verifying the integrity of the transaction. The potential uses for this sort of automated contract execution should be plentiful.
Ethereum Verdict
I don’t own any cryptocurrencies at the moment. That said, if I were to make a purchase, I’d buy either Bitcoin or Ethereum. The case for Bitcoin is simple: If you’re bullish on a sector, it’s usually sensible to buy the biggest market capitalization entity within said sector.
After Bitcoin, however, Ethereum would be my next choice. It can do a lot of things that Bitcoin simply can’t. And it has developed a significant number of uses that ensure the ecosystem will remain active and well-supported. There’s a lot of crypto projects that have great potential. Far fewer have developed significant real world usage and adoption. However, Ethereum is one of the standout success stories. And if a few things go right, particularly in the smart contract realm, Ethereum could be a massive winner going forward.
I’d be cautious about buying any cryptos right now. They just had a massive rip and thus are vulnerable to a correction. When said correction comes, however, Ethereum could be a solid choice.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.