Learning the Basics of Ethereum Before Investing in It in 2024

Source: businessinsider.com

The years 2020 and 2021 experienced skyrocketing growth in the cryptocurrency market, reflecting the myriad of advantages and opportunities that digital currency can bring before 2022 turned out to be a game-changer for the industry. The year’s most staggering events brought to light the need to address the flaws of digital coins, some of which may have passed under the radar. While cryptocurrencies faced their fair share of problems, they also weathered inevitable bear phases, with Bitcoin and Ethereum being the perfect examples.

It’s normal for a market not to go up in a straight line and to experience ups and downs. Does it seem like crypto winter is taking unusually long? Well, this is nothing out of the norm for an industry that is in its infancy and has yet to mature. The way to look at this bear market is by rejoicing over the discounted prices of valuable assets. Cryptocurrencies today are affordable as ever, and it only takes registering on a well-established and reliable exchange like Binance to buy Ethereum.

Before rushing to make financial investments, it’s crucial to have a thorough understanding of your chosen asset. Let’s learn the basics of Ethereum and create a solid knowledge of crypto base.

Source: bankier.pl

What exactly is Ethereum

First, making the difference between Ethereum and Ether (or ETH) is important. Ethereum is a decentralised computing network created on blockchain technology or a platform for peer-to-peer transactions, app building, and global payments. On the other hand, Ether or ETH is the native token of the platform and is used as virtual currency for investment.

Ethereum is unique in that it succeeded in removing the third party from peer-to-peer transactions and aimed to have more use cases than the first cryptocurrency in the world, Bitcoin. You can use Ether like Bitcoin: to buy and sell goods. However, what’s revolutionary about this token is that you can develop decentralised applications (dApps), create smart contracts, and so on, just like software “runs on a computer”, owing to the smart technology beyond this network.

Ethereum vs Bitcoin

Bitcoin is the first cryptocurrency in existence, created by an individual or group of developers known as Satoshi Nakamoto, and it saw the light of day in January 2009. Today, it is the most well-known and traded digital coin, with only Ethereum following in its footsteps. There were several attempts to create a decentralised digital currency that allows users to buy and sell goods without the involvement of a third party. However, they didn’t succeed, but they laid the groundwork for what had to be the revolutionary project that Bitcoin is today.

After sweeping many countries and turning small investments into considerable profits in November 2021, when it reached its all-time high of over 65,000 USD, it started to depreciate. If this cryptocurrency will ever touch that peak again remains to be seen. However, 2024 started on a positive note for the cryptocurrency market, with a stronger bullish sentiment.

Bitcoin’s primary use is as a store of value and digital currency, just like Ethereum. However, compared to Bitcoin, the Ethereum network processes transactions more quickly and enables the running of apps, smart contracts, and other transactions. While Ethereum allows payments using its internal ETH currency, its reach is – by design – far more significant than Bitcoin’s.

Ethereum’s advantages that make it a reliable project include the following:

  • This network has gone through years of testing and updates and billions of value trading hands, with upgrades continuing at the moment of writing.
  • Ethereum boasts the largest ecosystem in blockchain, as well as a vast and devoted worldwide community
  • There’s continuous innovation, and developers keep seeking new ways of improving the network and creating applications
  • Ethereum’s decentralised network enables users to write and interpret contracts without the implication of a third-party intermediary.

As every asset has its pluses, it also has downsides that should be acknowledged. Since it’s a platform for smart contracts, a ledger, and so on, it leaves room for malfunctions, errors, and other issues. Additionally, if you were to look for safer investment tools like stocks, Ethereum’s volatility can be a dealbreaker. However, cryptocurrencies are volatile by nature, which is also the catalyst for profits and why many investors find Ethereum and other digital coins appealing.

Source: investopedia.com

How to approach Ethereum in 2024

While the bear market may appear unappealing, looking at things from a long-term perspective is important. There are many ways to analyse the value of Ethereum or other cryptocurrencies, and different valuations depend on the model used. An incorrect analysis can lead to erroneous conclusions, meaning that even if a price generates positive buy signals, it doesn’t necessarily mean that the upward trend will continue or that the bearish period is approaching.

It’s crucial to learn to anticipate seasonality and treat it accordingly. There are periods when Ethereum performs well, followed by downturns. This is why dollar-cost-averaging is a popular cryptocurrency trading method. It means that you invest smaller amounts at specific times to smooth out the volatility of the market. You can, for instance, invest a specific amount at the start of each month. This way, you make sure you experience every price swing. This is a recommended way to enter the market, as you won’t need any technical expertise or learn statistical models.

Source: cnbc.com

Other things to keep in mind

Ethereum’s long-awaited Shanghai upgrade is expected to occur in April of this year. It will allow Ethereum stakers to withdraw their staked ETH, valued at over $20 billion as of January. However, if investors will capitalise on the opportunity remains to be seen. Taking advantage of this opportunity would be bearish, whereas continuing to hold Ethereum can be bullish.

Ethereum’s Merge update in 2022 reduced energy usage by 99.9%, but the event didn’t impact the price. However, on a longer time horizon, these updates are helpful indicators that the advantages brought by digital currency keep being explored and taken advantage of.