The cryptocurrency Ethereum (ETH) experienced a historic week. On December 19, its price reached an all-time high of about $860 on the exchange Coinbase. In subsequent days the price fell in line with a correction in the broader cryptocurrency markets, but it has since bounced back up to around $750. Ethereum investors and traders can look forward to good news.
Ethereum's creation has changed the world of technology and finance. Conceived as a project by cryptocurrency enthusiast Vitalik Buterin in 2013, Ethereum has become "Bitcoin (BTC) 2.0" and reached a market capitalization of over $72 billion, second highest of all cryptocurrencies. Ethereum is a second-generation blockchain that attempts to enable decentralized applications (Dapps) and digital decentralized autonomous organizations (DAOs). a platform and ecosystem where it is possible to build Dapps for messaging, smart contracts, property and financial management, social networking, online voting, and distributed governance. The cryptocurrency ether is merely a value token that can be transferred through the blockchain. Buterin and fellow cofounders saw what Bitcoin can do, but sought a system that is faster, more secure, and scales better. They have a grander vision than simply creating enormous wealth; they want to shape the future.
Ethereum has caught the attention of many investors. Since its summer 2015 inception, the price of ETH has skyrocketed from under $1 to current prices, which have multiplied the return 1,000 times. Early investors included not only Bitcoin and crypto enthusiasts and programmers, but also Wall Street figures like hedge fund manager Mike Novogratz. Under Bitcoin's shadow, Ethereum still has a long way to go to enter the mainstream. A recent survey suggests that fewer people have heard of Ethereum than Bitcoin. And because the majority of the world does not own cryptocurrencies, when Ethereum, positioned as a better alternative to Bitcoin, reaches a similar amount of people, its price will probably explode.
Fundamentally, Ethereum is performing better than its main competitor. While there are over 224,000 unconfirmed transactions waiting in the Bitcoin blockchain, there are only fewer than 2,600 pending transactions for Ethereum. As a result, Ethereum is both faster and cheaper to use than Bitcoin. Due to lower transaction fees, Ethereum is cheaper to spend. Due to faster confirmation times, Ethereum is more efficient to receive. Since the original vision of cryptocurrency was to be a new money, Ethereum seems to do well in that function. Finally, a major update of the Ethereum blockchain, Constantinople, is slated for 2018. Constantinople will continue the blockchain's transition from proof-of-work to proof-of-stake. The proof-of-stake consensus mechanism aims to devolve validation and decision-making power from miners to owners, who are rewarded with dividends for holding ETH. The change will likely keep energy costs of validation in check and therefore reduce downward pressure on ETH price.
Technically, Ethereum is also fine. It has strong support at the $500 level. It has bounced back higher than Bitcoin from Friday's low. With daily Money Flow Index (MFI) under 40, it appears not to be overbought. It is possible Ethereum's historic week indicates a good new year.
The author does not hold a position in ETH.