What Is Ethereum, the Value, Price of Ethereum & Future Predictions

Ethereum is the most well-known altcoin in the cryptocurrency market. Financial analysts predict that the altcoin's value could reach a whopping 400 percent increase in 2022. Since its debut in 2015, Ethereum's native coin, Ether (ETH), has grown exponentially in value. When Ether was launched by computer programmer Vitalik Buterin in 2015, it was priced at $0.311. Late last year, the token reached its highest price of $4,800. As with any type of digital currency, Ether has its fair share of volatility.

Ether offers investors a lifetime return on investment (ROI) of over 700,000 percent at the time of writing. Unlike Bitcoin and other cryptocurrencies, Ethereum features a software network that allows developers to create and power new technologies, apps, and NFTs. Ethereum's blockchain has several uses and applications in the tech world, including gaming, music, entertainment, and decentralized finance (Defi). The altcoin's annualized rate results in an ROI of nearly 300 percent.

Early investors have nearly quadrupled their initial investments year over year since the coin launched. Given the volatility of crypto prices, it's important for investors to consider their risk tolerance and how much they can afford to lose. The value of Ether has been volatile in recent months; however, industry experts project the price to climb high. Take a look below at the factors that contribute to Ethereum's volatility and future price projections.

The Basics of Cryptocurrency

Cryptocurrency is an alternative financial system that's not governed by a central monetary authority such as a financial institution or government. This digital asset is created using cryptographic techniques that allow crypto users to buy, sell, or trade their crypto tokens securely. Major cryptocurrencies, including Bitcoin, are supported by blockchain technology. It keeps a digital record of all transactions and tracks which traders own what. Best of all, a distributed ledger is tamper-resistant, meaning it can never be altered. This crypto technology solves the key problem of digital currencies, which is preventing users from making copies of their holdings and trying to spend them twice.

Depending on how they're used, individual units of cryptocurrency are called coins. Some currencies are used as units of exchange for goods and services, while others are stores of value. Some currencies are designed to run computer networks that perform complex financial transactions. Despite the massive number of digital currencies available in the crypto market, each with its unique traits, all of them function similarly.

All digital currencies utilize blockchain technology. Copies of the blocks are stored and maintained by computers around the world. Any time there is a purchase, sale, or trade, the blockchain documents where the coins come from and where they go. Each transaction is turned into a block that's then chained to the ledger. Once this block is added to the ledger, it can never be reversed or altered. Certain decentralized money, like Ethereum, has blockchain technology. Others are built on existing crypto technology, rather than starting from scratch.

One of the biggest appeals of blockchain technology is the fact that it's decentralized. Unlike fiat currencies such as the U.S. dollar, digital currencies aren't issued or backed by a government. No one person, company, or government can control a blockchain. Rather, it's run by a decentralized network of computers around the world. This lack of a central authority results in more secure transactions. A lack of a central point of failure makes cryptocurrency hack-proof.

Even though blockchains are public ledgers, transactions are pseudonymous. Investors are issued a private key that allows them to initiate transactions and a public key that identifies them in the crypto market. All blockchain transactions are linked to a crypto wallet's public key, however, it's not known who controls the wallet. As such, crypto is considered pseudonymous because the public key is the investor's pseudonym.

An important detail for the crypto-curious to bear in mind is how this alternative financial system is taxed and what can be purchased with it. Cryptocurrency differs from traditional fiat currencies in that there's no requirement for vendors of goods and services to accept it as legal tender. Traditional currencies must be accepted for all public and private debts. Different countries have different approaches to cryptocurrency. Some countries have adopted it as legal tender while other countries, like the U.S., leave the acceptance of decentralized money as legal tender up to the seller. Cryptocurrencies are taxed in the U.S. as property as opposed to currency. Coin holders pay capital gains taxes, or the difference between the purchase price and the sale when selling assets. When receiving decentralized money as a form of payment, the transaction will be taxed on the value at the time of transfer.

There are many investment options with this type of alternative finance system, but not all options are right for everyone. Before making your first investment transaction, it's important to determine your investment goals. Whether you hope the value will increase, you want to make financial transactions, or you're interested in accessing the underlying technology through decentralized apps, outlining your goals will help you make the best investment decision for you.

There's a vast number of digital assets in circulation, from the largest cryptocurrency, Bitcoin, to alternatives. Bitcoin is the first and most valuable currency to enter the market. Ethereum is typically used to initiate more complex financial transactions than Bitcoin can support. Cardano and Solana are competitors of Ethereum and emphasize speed and cost-effectiveness. Dogecoin has quickly risen through the market to become one of the most valuable currencies. Stablecoins have values that are designed to maintain stability relative to real-world assets like the U.S. dollar.

Any type of investment comes with a degree of risk, but digital assets come with high volatility. It's a good rule of thumb to differentiate your investment portfolio with a minimal amount of high-risk investments. Financial experts recommend investing no more than 10 percent of your money into high-risk investments. A smart way to manage risk within your digital assets is to diversify the range of currencies that you invest in. Such assets can significantly increase or decrease over different periods. Investing in multiple products offers some degree of protection from losses should one of your holdings suffer a slump.

Always do your homework before investing. Alternative currencies are linked to specific technological products that are either being developed or already in use. Stocks, for example, are linked to a specific company that's subject to financial reporting requirements, which offers a clear view of performance and prospects. Alternative currencies are loosely regulated, which can make determining which investments are viable a challenge.

First-time investors would do well to explore how widely used an alternative currency is. Reputable currencies have publicly accessible metrics that provide insights about performance, such as the number of transactions carried out on their platforms. The soaring popularity of a coin can signify that it's establishing a strong footing in the market. Investors can also read over white papers released by coins that explain how they function and how coins will be distributed.

A Look at the Investment Potential of Ethereum

Ethereum's blockchain requires you to hold ETH to pay a transaction fee when sending ETH as a payment method or using an application that is powered by Ethereum. The Ethereum blockchain is relatively young and allows holders to run decentralized applications, or dapps. These cut out industry middlemen and rely on smart contracts that run on Ethereum. Decentralized apps require you to use ETH to pay for the cost of the computing power necessary to run the application. This cost is called gas.

Several types of dapps are powered by Ethereum. Examples include direct peer lending that earns interest, insurance without an insurance company, payments without a payment processing company, music streaming that pays artists directly, art auctions without an auctioneer, nonfungible tokens (NFTs), online gaming, and code collaboration without a central server.

The main thing to understand about investing in Ethereum is that investors are betting that people will continue to adopt and use Ethereum-based technologies. The greater the demand for this altcoin, the higher its market value will be.

How to Buy Ethereum

Purchasing Ethereum is a fairly simple process. First, choose the right exchange platform. Next, decide how to pay for the transaction, and finally, store the Ethereum. This altcoin is one of the most widely circulated coins, which means there are several places to buy it. The exchange you use to purchase ETH impacts the available payment and storage options, which is important to put into consideration. There are several types of exchanges and marketplaces to choose from.

One of the easiest ways to buy decentralized money is from an online stockbroker, however, there are often drawbacks to this method. Online brokers make it easy and affordable to turn fiat into coins and vice versa. It's imperative to read the fine print to determine whether or not the brokerage allows for the movement of decentralized money in and out of the account. Not all brokers allow this, and for many investors, this nullifies the purpose of owning the alternative currency.

Another common exchange option is to buy on a centralized exchange. Centralized exchanges, such as Coinbase, serve as middlemen in the buying and selling process. They typically have larger coin selections than those platforms that deal in traditional assets like stocks. Buying ETH on a centralized exchange is a good idea for traders who are familiar with how coins work but are seeking a user-friendly experience.

A great place to buy ETH is through decentralized exchanges, or DEXs. This is the purest way for traders to invest in digital coins because there are no third parties or middlemen involved. Centralized exchanges require traders to deposit the desired coins or fiat currency to trade on the crypto market into a trading account. DEXs allow traders to retain full control over the funds and make direct trades with buyers or sellers. DEXs are primarily used to trade one currency for another, as opposed to buying ETH with cash. This type of exchange can be tricky to navigate and is better suited for more experienced traders.

The next step in buying ETH is to decide how to pay for it. Whether an investor already owns coins or wishes to sell or trade them, the transaction can be paid with either U.S. dollars or another type of decentralized money. Digital coins can be bought with traditional fiat currency such as the U.S. dollar. This is the only option on some exchanges, and when buying coins for the first time, cash will be necessary. Using a centralized exchange typically requires a bank transfer, credit card, or debit card to fund the account, and these transactions may incur fees depending on the platform.

Some marketplaces allow for crypto-to-crypto trading, which is advantageous when buying Ethereum without having to invest more money into the crypto market. This is a smart strategy when owning other digital assets that have increased in value, and your goal is to diversify your holdings. Do note that the relative values of digital assets are ever-changing. It's a good idea to review historic price trends to determine the best time to buy. Also, remember that decentralized money is a type of investment, and trading can create a complex tax situation.

How to Store Ethereum

Ethereum needs to be securely stored. The most common way to store digital assets is in a digital wallet that stores the private key that you need to access or spend your digital currencies. Some platforms sell Ethereum and hold it for you. When deciding on which exchange platform to use, it's imperative to understand how it handles storage. Some exchanges allow you to use your preferred digital wallet to move currency to and from the platform. Other exchanges are more limited with this.

With on-platform storage, there's no need to worry about losing the private key to your wallet or forgetting a password (losing either can cost you all of your holdings). When a broker or exchange hosts the wallet, they also store your private key and password. While it's advantageous to know that a platform securely holds your funds, you won't be able to reap the full benefits of digital assets. This includes not being able to use decentralized applications or retain complete control over your digital wallet and the assets it contains.

A more advanced storage option with some added benefits is a non-custodial wallet. This is not a great choice for holding large sums of assets for long periods on an exchange, given how prone exchanges have been over the years to cybersecurity threats. There are numerous non-custodial wallets to choose from. Two of the most common wallets are online "hot" wallets and physical, off-line "cold" wallets. The best way to find the right wallet for your preferences is to use the Find a Wallet feature on Ethereum.org.

Deciding on the best way to buy and hold ETH boils down to your experience, comfort, investment goals, and how much you want to buy or hold. You can use a combination of on-platform storage and a non-custodial wallet, for example, with one platform to conveniently trade and another for long-term holding. The newly crypto-curious are best off starting with a crypto brokerage or stockbroker before working their way up to decentralized platforms. How Ethereum is viewed, as either a long-term investment, a short-term buy, or a speculative bet on a high-risk asset, also influences how you buy and hold ETH.

Factors That Impact Ethereum's Price

Ethereum's blockchain is the first technology to use smart contracts. These are coded instructions within the blockchain that initiate financial transactions through algorithms. As new altcoin alternatives enter the crypto market with similar capabilities, the demand for ETH is changing both favorably and unfavorably. Several variables affect the price of Ethereum.

The supply and demand of a cryptocurrency play a big role in cryptocurrency prices. The relationship between the price and the supply and demand of an asset influences the relationship between buyers and sellers. When the demand for ETH falls, the price of ETH drops. When there's high demand or the stock market is soaring, ETH prices increase. This is known as the market facing a sell-off. There's also the instance of the supply-price relationship affecting the price of ETH. A short supply of ETH causes prices to increase and vice versa.

Market trends impact crypto prices. Depending on the shifts in global market capitalization and the trading volume across exchanges, the price of ETH will either soar or plummet. Ethereum's smart contract capability has contributed to its soaring popularity. Nearly 80 percent of the decentralized apps are found on the Ethereum network, which increases its net worth. The rise of Defi, NFTs, and metaverse platforms help boost the Ethereum price.

There are several use cases for cryptocurrencies such as security or utility tokens or a medium of exchange. Ether is a utility coin that drives the Ethereum blockchain supporting Defi platforms, dapps, and NFTs. The demand surge for NFTs directly affects Ethereum price projections.

Smart contracts allow artists and creators to make and sell digital artwork, known today as NFTs. Since these are made on Ethereum's blockchain, increased use quickly led to a bottleneck on the block. The growing number of users is leading to higher transaction fees, leading developers to create new upgrades to the infrastructure.

Media coverage is a very powerful and influential tool. Ethereum predictions are influenced by media coverage and awareness and understanding of new technologies. Regulatory uncertainties surrounding global cryptocurrency markets directly impact cryptocurrency prices. Restrictive and unfavorable views cause crypto prices to fall, while favorable views drive growth in cryptocurrency markets. Global events can also cause ETH prices to fall, such as crackdowns on cryptocurrency mining, regulation amendments, and pandemic fears causing cryptocurrency markets to crash.

Keep in mind when reviewing ETH coin price predictions that cryptocurrency markets are highly volatile. This makes arriving at an accurate price forecast challenging, and analysts and algorithm-based forecasters often miscalculate their predictions. It's always a smart idea to research the latest market trends, news, technical and fundamental analysis, and industry expert opinions before making an investment decision.

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Why Trade with FXCM?

At FXCM, we are a leading provider of online foreign exchange (FX) trading, CFD trading, spread betting, and related services. We strive to provide global traders access to the largest and most liquid global market by offering innovative trading tools, hiring trading educators, meeting strict financial standards, and creating the best online trading experience in the market. Our clients benefit from mobile trading, one-click order execution, and trading from real-time charts. We also offer clients educational courses on FX trading and provide useful trading tools, proprietary data, and premium resources. We're known for outstanding customer service and have received many regional and international awards. We have customizable account types and services for all trading levels, and you can feel comfortable knowing that we strive to meet strict regulatory and financial standards.

What we provide – Ethereum advice

Before dipping your toes into the crypto market, it's important to understand the volatility and high risk involved with this type of investment. The best way to build your knowledge and understanding of how to approach investing is to take advantage of the best available resources. At FXCM, we help the crypto-curious build their knowledge by giving them access to a library of in-depth trading, strategy, and instrument guides. Users can join daily live webinars, watch on-demand videos, and take advantage of education services. Our resources provide a great introduction to Forex and how to invest in it, teach the traits of successful traders, and provide the innovative tools and trading resources necessary to become a better trader.

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