Ethereum is the leading smart contract-enabled blockchain and it has big plans for 2021.
Currently, Ethereum is a proof-of-work (PoW) cryptocurrency, meaning its network is secured by energy-intensive hashing algorithms. Other cryptocurrencies like Bitcoin, Litecoin and Dogecoin use PoW consensus, but this model drastically reduces the blockchain’s capacity.
ETH2 will be the most monumental upgrade to come to Ethereum’s blockchain. It will change the way Ethereum’s network is secured, allowing for a much higher transaction throughput as well as significantly reduced transaction costs.
What is Ethereum?
Ethereum is one of the largest cryptocurrencies by market capitalization, second only to Bitcoin. While both Bitcoin and Ethereum use blockchain technology to secure their networks, they aren’t direct competitors. Bitcoin aims to be a store of value –– you can think of Bitcoin as digital gold. Ethereum aims to be the settlement layer for the internet; you can think of Ethereum as the reserve currency for decentralized finance (DeFi).
The most notable advantage that Ethereum has over Bitcoin is its smart contract capability. Smart contracts are code that’s uploaded to the blockchain, making the code immutable and uncontrollable by a 3rd party. Smart contracts are currently being used for decentralized exchanges (DEXs), lending, insurance and many other financial functions.
If you’re active in the cryptocurrency space, you may have heard about Ethereum gas fees. Gas fees are needed to use Ethereum’s blockchain, and these fees are calculated based on the computational power needed to execute functions on the blockchain. For example, you’d need to pay a small amount of gas to send a transaction, but you’d need to pay higher gas fees for functions like swapping crypto, deploying code and providing liquidity.
What is DeFi?
DeFi is short for decentralized finance. It’s an innovative new field within blockchain technology and it allows users to conduct financial functions without using a centralized 3rd party like a bank or cryptocurrency exchange.
Most of DeFi is built on Ethereum — and is the largest blockchain network that supports smart contracts. While this is currently the case, competitors like Cardano (ADA) and Binance Smart Chain (BSC) are attracting many new users due to their low transaction costs compared to Ethereum.
The DeFi industry is growing fast, and many projects have gained significant attention due to their unique benefits over centralized financial services. Here’s a quick overview of some of the leading decentralized finance projects on the market today:
- Uniswap is the leading decentralized exchange on Ethereum. Users can anonymously trade cryptocurrency directly from their crypto wallet, so there’s no need to trust a centralized exchange to hold custody of their funds.
- Chainlink is also built on Ethereum, and it seeks to connect real world data with the blockchain. It does so through oracles, which you can learn more about on Chainlink’s website.
- Wrapped Bitcoin is essentially just Bitcoin on Ethereum’s blockchain. Being able to own Bitcoin on Ethereum allows you to interact with any DeFi programs on Ethereum, such as Uniswap, Aave and Compound.
- Aave is a decentralized lending platform on Ethereum. It allows users to take out collateralized loans without needing approval from a lending institution. Instead, you must collateralize its loan with cryptocurrency, which will be taken if you default on your loan.
- PancakeSwap is the leading DEX on BSC. Since BSC is already proof-of-stake, the network fees are significantly lower than Uniswap, which uses Ethereum’s network.
Proof-of-Work vs. Proof-of-Stake
The underlying upgrade on ETH2 is the shift from proof-of-work (PoW) to proof-of-stake (PoS). As mentioned previously, PoW involves cryptocurrency miners that use immense amounts of electricity to solve complicated problems in exchange for mining rewards. In contrast, PoS will secure Ethereum’s blockchain through validators that hold a financial stake in the network.
There are plenty of benefits that come with proof-of-stake consensus. Most notably, Ethereum will be able to scale much more effectively as a PoS coin. Transaction fees will be around 1% of what they are today, and Ethereum will be able to process many more transactions in the same amount of time.
Also, proof-of-stake will make Ethereum an eco-friendly blockchain. Proof-of-Work cryptocurrencies use a ton of electricity –– Bitcoin miners use more energy than most small countries, and the amount of energy is only growing.
One aspect where PoW beats PoS is security. Generally speaking, PoW coins are more secure than PoS coins, as it’s extremely hard to acquire 51% of a network’s computational power (needed for a 51% attack). Because of this, Ethereum developers are working hard to create a decentralized and secure PoS system on the ETH2 testnet before deploying the upgrade to the Ethereum mainnet.
Where to Buy Ethereum
Since Ethereum is such an established cryptocurrency, most dedicated cryptocurrency exchanges support the token. The best trading platform for you depends on your needs as an investor. If you’re simply looking for the lowest fees, Robinhood is your best option.
However, Robinhood doesn’t let you send or receive cryptocurrency from your account, so you won’t be able to interact with DeFi programs if you choose Robinhood. Some great options for beginners that allow you to send and receive Ether tokens include Coinbase, Gemini and eToro.
Coinbase is one of the Internet’s largest cryptocurrency trading platforms. From Bitcoin to Litecoin or Basic Attention Token to Chainlink, Coinbase makes it exceptionally simple to buy and sell major cryptocurrency pairs.
You can even earn cryptocurrency rewards through Coinbase’s unique Coinbase Earn feature. More advanced traders will love the Coinbase Pro platform, which offers more order types and enhanced functionality.
Though Coinbase doesn’t offer the most affordable pricing or the lowest fees, its simple platform is easy enough for complete beginners to master in as little as a single trade.
- New cryptocurrency traders
- Cryptocurrency traders interested in major pairs
- Cryptocurrency traders interested in a simple platform
- Simple platform is easy to operate
- Comprehensive mobile app mirrors desktop functionality
- Coinbase Earn feature rewards you with crypto for learning about available coins
- Higher fees than competitors
Gemini is a cryptocurrency exchange and custodian that offers investors access to 26 coins and tokens. Founded in the US, Gemini is expanding globally, in particular into Europe and Asia. Offerings include both major cryptocurrency projects like Bitcoin and Ethereum, and smaller altcoins like Orchid and 0x.
Gemini is 1 of the only brokers with multiple platform options based on skill level. New investors will love the streamlined interface of Gemini’s mobile and web apps, while advanced investors might appreciate all the tools that come with ActiveTrader.
In addition to a host of platform choices, Gemini users also have access to insured hot wallets to store tokens without worrying about digital asset theft. Learn more about what Gemini can do for you in our review.
- New investors looking for a simple mobile and web app
- Experienced investors who need a more advanced platform with more tools
- Users looking for a 1-stop-shop to buy, sell and store all of their coins
- Easy and quick signups — can get started in as little as a few minutes
- Multitude of platforms to accommodate traders of all skill levels
- Hot wallets include insurance to protect your from theft and hacking attempts
- Charges both a commission and a convenience fee for users buying and selling through the desktop or mobile app
Intermediate Traders and Investors
Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.
Webull is widely considered one of the best Robinhood alternatives.
- Active traders
- Intermediate traders
- Advanced traders
- Commission-free trading in over 5,000 different stocks and ETFs
- No account maintenance fees or software platform fees
- No charges to open and maintain an account
- Leverage of 4:1 on margin trades made the same day and leverage of 2:1 on trades held overnight
- Intuitive trading platform with technical and fundamental analysis tools
- Does not support trading in mutual funds, bonds or OTC stocks
How to Stake Ethereum for Interest
With proof-of-stake, you can stake your Ether tokens on Ethereum’s blockchain to become a validator. Investors are incentivized to do so, as they can earn interest on their cryptocurrency through staking Ether tokens on the network.
Staking allows you to earn between 6% to 8% annual interest on Ethereum. This interest is paid in Ether tokens, so you’ll be earning an effective interest rate higher than 8% if Ethereum appreciates. So, if Ether goes down in value, then the interest you earn will effectively be less. If you believe Ethereum will succeed over the long term, then staking is a great way to grow your crypto portfolio.
Coinbase has a waiting list for Ethereum staking which you can sign up for today. If you want to stake your ETH as soon as possible, then you can make an account with Gemini to begin staking your Ether tokens today.
When will ETH2 Release?
In short, ETH2 will be released when the developers are confident in the network’s security. The testnet is live, and billions of dollars in Ether tokens are already staked on the testnet. The upgrade has been in the works for years; the initial release was slated for November 2020.
The Ethereum foundation is taking its time to make sure the network is as secure as possible. Hopefully we’ll see a proof-of-stake Ethereum by the end of 2021, but the transition to ETH2 may not be available until 2022.
Is Ethereum a good investment?
Most cryptocurrency enthusiasts believe Ethereum is a good investment. Looking at the past price movements of ETH, the asset has outperformed Bitcoin, making it an extremely lucrative investment for any investors who’ve gotten into Ether before the beginning of the year. Ethereum’s network is far from its final form, and investing before ETH2 may turn out to be a great investment opportunity.
Gemini builds crypto products to help you buy, sell, and store your bitcoin and cryptocurrency. You can buy bitcoin and crypto instantly and access all the tools you need to understand the crypto market and start investing, all through one clear, attractive interface. Gemini Crypto Platform offers excellent account management options. You can manage your account at a glance, view your account balance 24-hour changes and percent changes. Get started with Gemini now.