Bitcoin holds the leading position as the world’s first and largest cryptocurrency. Currency has value based on its position as a store of value that can transmit value globally and is relatively easier than other similar assets such as gold. Ethereum’s assets, Ether (ETH), have a different supply value, undoubtedly of value for a number of reasons.
Ethereum’s value is determined by a number of different factors, including gas fees, its use as collateral, its ability to borrow and borrow, its use as a medium of exchange for trading and the NFT [non-exchangeable tokens], and the fact that it is said by Scott Milker, cryptocurrency trader and podcast host. Wolf Of All Streets, For Cointelegraph, “It can be bet for interest,” adding, “It also has speculative value and is attracting increased interest from institutional investors.”
Prerequisites for creating Ethereum
Ethereum is the network that the ETH traded currency is running on. Ethereum was launched in 2015 based on a programmed concept called Vitalik Buterin about two years ago. In short, Ethereum acts as a platform through which developers can create projects or solutions.
The Ethereum network has become a staple of the crypto space over the years, and many projects rely on it. A large number of initial coin offerings used Ethereum in 2017 as a financing tool. The crypto assets based on the Ethereum blockchain are called ERC-20 tokens, although ERC-721 tokens also exist as non-exchangeable tokens created on the network.
When the project relies on Ethereum, it can provide a resource for use in this ecosystem. This asset is likely to be an ERC-20 token. However, it is not uncommon for projects to turn to their main blockchain network after the initial launch on the Ethereum blockchain.
Much of the decentralized cryptocurrency financial sector also started with Ethereum, with decentralized, trading-based exchanges hosting the Ethereum blockchain for many niche tokens. DeFi, among other features, allows members to borrow and lend cryptocurrencies. As Melker points out, ETH could play a role in this ecosystem.
Ethereum transaction cost, called gas fees
A portion of the ETH cost relates to gas fees. Every time someone sends ETH, they have to pay a certain amount of currency to pay for the transaction – the concept is similar to the commission that users pay when sending Bitcoins (BTC).
However, one of the main differences from ETH is that there is a gas fee for sending ERC-20 tokens. To send an ERC-20 token, the transaction must also store ETH in the same wallet to pay for the transaction. Trading the DEX also requires a gas fee. Some might buy and hold ETH to pay the gas tax, providing the primary demand for the currency in the market.
During the 2020 DeFi boom, the Ethereum network saw high traffic and gas fees to exorbitant levels. The higher transaction fees continued into 2021. According to YCharts, the average value of ETH transactions in February 2021 was $ 39.49, which is significantly higher than levels recorded in previous years. Commission from 1 to 2 dollars is considered normal. YCharts states on its website that “Average Ethereum Transaction Fee measures the average fee in US dollars when an Ethereum transaction is processed by a miner and verified”.
Potential speculative asset value
Speculation can play a role in the value of ETH as an asset. Investors can buy ETH tokens as a bet on the potential future success of the Ethereum network and its penetration into the mainstream world. The ETH premium can also represent a guess about the success or failure of a part of the crypto industry, given the number of projects built on the network.
Tyler Winklevoss, co-founder and CEO of cryptocurrency exchange Gemini, articulated this thought process in an interview with Casey Adams, entrepreneur and podcast publisher, in December 2020. Winklevoss compared crypto industry innovation to the internet, despite having invested a small amount. Much of the internet is in the early years, except for solutions that would have been challenging.
The ETH purchase will undoubtedly involve a partial investment in the wider development sector. Winklevoss explained by comparing such a purchase to a hypothetical fractional ownership that would benefit more from performance rather than individual results.
“Ether is the same indexing part of the Ethereum network, and it is […] a global, decentralized computer,” he said. “A lot of people equate ether with digital oil,” he added.