A Quick Refresher On Ethereum (And Why Now Is The Time To Buy…)
A few weeks ago, I told my premium readers it was time to dip our toes back into the cryptocurrency waters again.
As you may know, there have been several setbacks in this space over the last year or so, which is why I warned readers to stay on the sidelines.
But if you’ve been following along regularly, then you know I’ve been personally dabbling in this space for a few years now. But over at Capital Wealth Letter, we first ventured into this realm in 2021, when I made a prediction about crypto that gave readers a chance for a 400% gain.
Right now, I believe investors are getting a “second chance” at another cryptocurrency “boom”. And that’s why we’re some time talking about the basics and the latest developments in this space.
Today, I want to go back to the cryptocurrency that delivered that whopping 400% gain for readers back in 2021.
I’m talking about Ethereum.
Ethereum (ETH) 101
The first thing you should know about Ethereum is that it has real value. Each transaction that the Ethereum blockchain enables requires a transaction fee that users must pay with ETH. This is known in the crypto world as “gas prices.”
The next (and perhaps most important) thing you should know is that Ethereum is the platform of choice for many blockchain app developers. That’s partly because it has a first-mover advantage (founded in 2015), is decentralized enough compared to its competitors, and its implementation of smart contracts is considered best-in-class. This all points towards Ethereum continuing to grow and dominate.
Think of the Ethereum network like Apple’s operating system (“iOS”) and its app store. Developers build apps designed specifically to operate on Apple’s operating system because it’s much easier to do that than build an app AND build an operating system for it to work on.
For example, if you wanted to purchase or sell an NFT, you could go to the website OpenSea, which is a marketplace for crypto-collectibles and rare digital items. The OpenSea marketplace is built on the Ethereum network.
Not only does the Ethereum network have the largest base of developers pushing the envelope on innovation, but it has become the home of many major decentralized finance (“DeFi”) projects.
Last September, Ethereum completed the Merge. That was a transition from a proof-of-work model to proof-of-stake. If you need a refresher on the Merge, I wrote about it here.
Last month, Ethereum completed the Shanghai upgrade, which was a big milestone.
Why was this so important? The Shanghai upgrade enabled withdrawals of staked Ethereum for the first time since staking went live in December 2020.
Ethereum’s transition from a proof-of-work to proof-of-stake has been marked by two main events:
- December 2020: The launch of the proof-of-stake Beacon Chain and Ethereum staking.
- September 2022: “The Merge” of the old model to the new proof-of-stake model.
In short, back in December 2020, folks had to stake Ethereum (sort of like putting it up as collateral) so this transition could happen. They didn’t have access to their Ethereum until April 2023, after the Shanghai update. Don’t worry; they were rewarded for staking their Ethereum.
The bottom line is that the Shanghai upgrade was a major test for the new proof-of-stake concept. After all, if everyone pulled their Ethereum and no longer staked it, the whole proof-of-stake idea would have fallen flat on its face.
But that didn’t happen, and that’s great news for Ethereum. In fact, it should result in more Ethereum being staked since it worked so well. Why? Because there’s more confidence in the entire system. If you want to earn “interest” on your Ethereum, you now know you can stake it and will be able to withdraw if need be.
What’s more, Ethereum has about 15% of its supply staked. Most other protocols have staking rates in the 40% to 70% range. So, Ethereum’s 15% is low.
With withdrawals enabled, doubling this number to 30% is not farfetched. That would increase the dollar value of Ethereum being staked from around $30 billion to $60 billion, which would be a positive for the network.
Action To Take
This also provides a bullish catalyst for Ethereum. It’s also why I think it’s time for risk-tolerant investors to consider adding Ethereum to their portfolio as well.
In the big picture, I think ETH could turn out to be one of the most disruptive technologies in decades. But make no mistake that this is still a very speculative investment. As we’ve witnessed before, anything related to crypto can be a bit of a roller-coaster ride, with thrilling highs and some sobering lows.
Just make sure you size your position accordingly. Translation: don’t bet the farm on this one, folks.
That said, the potential upside here is too good to ignore. The returns could be spectacular.
This is why I just released a new briefing about how you can profit from the next cryptocurrency “boom”…
My team and I think cryptocurrencies will surge again in the coming months. That’s because three “blue chip” cryptocurrencies are getting major upgrades this year, and they could unleash a massive crypto boom…
This could easily be a once-in-a-lifetime chance to take a small amount and turn it into a life-changing gain. Get the details here…