Ethereum is without a doubt the second most popular and valuable cryptocurrency on the market. After Bitcoin, it has the largest market capitalization. As a consequence, many people regard it as a good financial tool. In addition, several new technologies, like NFT, dApps, and others, are being created around Ethereum. However, how does Ethereum gain its intrinsic value?
Let’s begin with the most fundamental question: What is Ethereum?
Ethereum is a blockchain network that is decentralized. It uses a peer-to-peer network to securely run and verify application code. Smart contracts are the name for this type of application code.
Smart contracts allow you to transact with other users without the need for a central trust authority such as a bank or a court. Furthermore, the transaction records are unchangeable and provable. Furthermore, these transaction records are dispersed across the network. As a consequence, you’ll have complete control over and visibility over transaction data.
These transactions are transmitted and received using ethereum accounts, which you must create first. You must also sign the transaction and pay a processing fee in ether or ETH currency.
How does Ethereum get its intrinsic value?
The gas fee is one of the key reasons behind Ethereum’s intrinsic value. When you transmit ETH to someone, you must pay a transaction fee for a particular quantity of currency. This is referred to as a gas charge.
You will have to pay gas fees while sending ERC-20 tokens. When sending an ERC-20 token, however, the sender must also have ETH in the same wallet to complete the transaction. Furthermore, when trading on DEXs, you will be required to pay gas costs.
As a result, many people believe that storing ETH tokens for gas costs is a good idea. And it is because of this that the coin has a base-level demand in the cryptocurrency market.
According to the statistics, Ethereum’s network witnessed a lot of traffic during the DeFi surge in 2020. As a result, the Ethereum network was able to generate a sizable gas fee.
4 reasons why Ethereum has intrinsic value
- Smart contracts capability
Ethereum was established as a platform for programmatically running smart contracts and apps using its own currency, ether.
The Ethereum blockchain can run smart contracts that allow decentralized apps (DApps) like decentralized finance (DeFi) or nonfungible currencies, resulting in real-world use cases that are currently gaining traction and retaining value (NFTs).
- A new kind of connectivity
Ethereum is a type of architecture that has the potential to revolutionize both finance and technology.
DeFi has the potential to profoundly transform the financial industry. Ethereum-based apps will have an influence on markets, governance, public services, and maybe even identity management. In the future, the Ethereum platform may be used to transform mortgage transfers, securities trading, and a range of other industries.
- A shift to the Proof-of-Stake model
Bitcoin and Ethereum, both employ the proof-of-work consensus at the moment. To verify and validate transactions, miners, who are paid for processing transactions and conducting smart contracts, must establish a network-wide consensus.
Ethereum is developing on a proof-of-stake architecture, termed Ethereum 2.0, that will change the rewards system dramatically.
If Ethereum 2.0 is a success, the blockchain will be able to handle a greater number of transactions. This scalability is required if Ethereum is to play a substantial role in the global financial system while simultaneously being more environmentally sustainable than proof-of-work alternatives like bitcoin.
- Scalability and speed
According to two fundamental parameters, Ethereum is quite different from bitcoin. Ethereum block times are now between 10 and 15 seconds, relative to 10 minutes for bitcoin; also, each ether transaction takes about five minutes to process, but bitcoin transactions take around 40 minutes.
The proposed Ethereum 2.0 upgrade will allow for faster transactions, among other things. The Beacon chain, which is part of that update, uses shard chains, which are smaller groupings of nodes that process their own sections of transactions in parallel without needing to establish a network-wide agreement. This is intended to greatly enhance Ethereum’s scalability and throughput rate.
The Ethereum 2.0 throughput rate is predicted to exceed 15,000 transactions per second, allowing Ethereum to match the transaction processing speed of any centralized payment system.
Final thoughts on Ether futures
In February 2021, CME Group, a renowned cryptocurrency futures exchange, added Ether futures to its range of cryptocurrency products.
Since the beginning, about 320,000 Ether futures contracts have been traded. The contract is being used by market participants to get access to the token and hedge ether’s price risk, leading in significant organizational adoption and larger trading volume than Bitcoin futures.
It’s the type of market activity to keep an eye on as players gain a deeper understanding of all the applications and use cases for this ground-breaking digital currency.
Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn’t represent any investment advice or WazirX’s official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.