As digital, decentralized currencies go, bitcoin has done more bouncing around than a Superball. But just when it appeared it couldn’t go any higher, it soared just days ago to an overnight trading high that flirted with the $4,500 mark. To put that in perspective, bitcoin traded at about $570 a year ago.
And so while some scream ” bubble” (including that infamous gold champion Peter Schiff), and others bemoan the high cost of entry, now comes the option of another cryptocurrency that’s still relatively affordable: ethereum.
As of Friday, ethereum traded at roughly $300, which is not bad at all considering that on New Year’s Day, you could get in at $10.28. Yet just as bitcoin did in its young days, ethereum lost half its value between mid-June and mid-July — which brings us back to the present, and countless hopefuls who let visions of crypto coins dance in their heads.
Never mind that its inventor has more pimples than years of investment experience, or that the currency was supposedly named after a mysterious, pseudo-magic substance that kept a city afloat in the air in the animated Japanese film “Castle In the Sky.” For now, ethereum has some observers giddy with high-flying expectations — while others suggest that it’s about time speculators planted their feet on financial terra firma.
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“I would wait to see if ethereum gets its legs,” says Evan Tarver, investments analyst at FitSmallBusiness.com in New York City.
He points to the future possibility of hedge funds or exchange-traded funds as potentially safer plays, since these would in theory track cryptocurrency movements over a broad spectrum.
To say it’s exactly like bitcoin would be misleading. Ethereum focuses on what are called “smart contracts” — that is, digitized protocols used to facilitate, verify or enforce contracts.
“The benefit of ethereum is that it rewards its users with ether coins whenever they help facilitate a transaction on the blockchain, which isn’t always a monetary transaction like bitcoin,” Tarver says.
The contract-like function of bitcoin has been particularly useful in creating what are called initial coin offerings, or ICOs. Just like the IPO, an ICO gives investors a chance to get in on the latest cryptocurrency.
“Ethereum has been the platform of choice to write the smart contracts that facilitate and dictate the rules of these capital raises; and ether has been the primary source of money used to purchase many of these new coins,” says Ryan Radloff, head of investor relations at Global Advisors, which created the world’s first regulated bitcoin investment fund.
Here is Radloff’s take on ethereum itself as an investment phenom: “It is a younger, less proven cryptocurrency than bitcoin. This means less of a track record to evaluate. It also shares a different governance model, a different supply model and a different code-base than bitcoin. All of these make the risks very different between the two.”
If the way ethereum works sounds a little like a board game, that might not be a coincidence. While many investment gurus have spent a lifetime trying to think of new ways to make money, it took a teenager to make up his own money.
Ethereum is the brainchild of Vitalik Buterin, who transformed his fascination with bitcoin into the magazine Bitcoin News, which he co-founded in 2011. He was 17.
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Born in Russia, raised in Canada and currently living in Switzerland, Buterin is a gifted child who was just as crazy about the “World of Warcraft” video game as cryptocurrency. He wrote a white paper in 2013 that laid the basis for ethereum at the ripe old age of 19. For this, and in addition to any lucre he gained as the guy who started ethereum, Buterin was named a 2014 Theil fellow and given $100,000.
Keep in in mind, though, that Buterin considers himself a developer first and foremost.
“Ethereum has captured the hearts of the developer community,” says Zach Hamilton, managing partner of General Crypto in Palm Harbor, Florida. “Much in the same way that Stripe entered the credit card processing market, ethereum is built for developers by developers. It is a platform to do almost anything you want to do as a blockchain or smart contract developer.”
While its rise to critical mass might make the seasoned investor in us all green with ethereum envy, some point to its nascent status as ideal for investing whatever money you can safely afford to lose.
“This comes down to a person’s risk tolerance,” says Matthew Gertler, senior analyst and counsel at Digital Asset Research. “If we are looking ahead five, 10 years down the road and ethereum is still the platform to run decentralized applications, I would expect the price of ether to be much higher than it is now.”
But he also cautions thus: “If something made ethereum obsolete, the valuation could be heavily penalized.” And as for the number of cryptocurrencies available, “more than 800 tokens exist today and many more are on the way.”
“At this point, all cryptocurrencies are volatile and speculative,” says Julie Smith, the director of research at Medici Ventures and based in Salt Lake City. “However, there’s a clear long-term trend toward the adoption of the distributed technologies on which these currencies are built. The efficiency gains and process improvements that distributed technologies can address are too powerful to ignore.”
So what next for ethereum? It’s entirely possible that it will enjoy a smoother ride than bitcoin on its way to mass acceptance as a digital platform and currency.
And yet, fiction gives investors the proverbial cautionary tale. In the Hayao Miyazki film, the ethereum crystal shatters and sends the utopian sky castle crashing to the ground — largely because ethereum becomes an object of greed and power mongering.
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Whether life will imitate art at some point is another animated story.
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Ethereum’s Cryptocurrency Lure originally appeared on usnews.com
