Missed Bitcoin? My best cryptocurrency to buy now and keep

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Bitcoin was the first widely adopted cryptocurrency, a type of digital asset built on blockchain technology and secured by cryptography. These qualities underpin a whole new financial system, in which electronic transactions can take place without the oversight of banks, card networks or payment processors.

Bitcoin hit a price of $ 1.00 in 2011 and has since climbed over 5,380,000%. After this run, its market value stands at $ 1 trillion, which means Bitcoin is still worth more than any altcoin. That being said, it lacks utility compared to some of the newer cryptocurrencies, especially those that support decentralized applications (dApps) and decentralized finance products (DeFi).

Building on this idea, a recent report from Fidelity named Ethereum (CRYPTO: ETH) as the second most popular digital asset among institutional investors (behind Bitcoin). This quality, along with Ethereum’s support for DeFi products, could make it a very rewarding long-term investment. Here’s what you need to know.

Image source: Getty Images.

A programmable blockchain

Unlike Bitcoin, the Ethereum blockchain is programmable, which means that it is possible to create self-executing computer programs (i.e. smart contracts) on the platform. In turn, this technology forms the basis of dApps and DeFi applications – products that by definition exist outside of the control of a single entity.

In the context of DeFi, this means that you can borrow, lend, save, and earn interest on cryptocurrency without involving a bank. Fund manager Cathie Wood recently noted that DeFi “lowers the cost of financial services infrastructure.” This disruptive quality is a key part of the investment thesis here, and this thesis should become even more compelling as Ethereum – the most popular DeFi platform – becomes more scalable.

A more scalable solution

The Ethereum blockchain is currently upgraded to Ethereum 2.0; and as part of this initiative, the network is moving from proof of work consensus to proof of stake (PoS), a mechanism that distributes mining power based on ownership. Doing this has two advantages: First, PoS is more environmentally friendly than PoW, which means that its carbon footprint is much more sustainable. Second, the PoS offers stronger support for fragment chains, which will make the network even faster.

To make sense of this last point, let’s go back for a minute. Many blockchains have a serious scalability problem. For example, Ethereum can process around 30 transactions per second (TPS) in its current form. That figure is six times the throughput of Bitcoin, but it is well below the 1,700 TPS that Visa regularly manages. As a result, increased traffic on the Ethereum network has already resulted in slower transaction speeds and higher transaction fees – and if the scalability issue is not resolved, Ethereum will not be able to take supports the widespread adoption of dApps and DeFi products.

To resolve this issue, upgrading from Ethereum 2.0 will swap the consensus mechanism from PoW to PoS and then add 64 fragment chains (i.e. side chains) to the main blockchain, thus distributing the load. network more efficiently. In turn, this will increase Ethereum’s throughput to 3,000 TPS, and that number could reach 100,000 TPS with a few more tweaks.

A decentralized financial system

Since January 2021, the collective amount of cryptocurrency invested in DeFi products has grown from $ 21 billion to $ 258 billion. That’s a twelve-fold increase in less than a year. And the Ethereum blockchain accounts for 65% of that total, or $ 170 billion, making it by far the largest DeFi platform. This gives Ethereum an advantage.

Of course, dApps and DeFi products are not free. Miners are incentivized to maintain the blockchain with transaction fees (i.e. gas), which are paid by users in the form of native cryptocurrency. In other words, as more and more dApps and DeFi products on the Ethereum blockchain are adopted, the price of cryptocurrency is expected to rise. And given DeFi’s rapid growth so far this year, I’d say this scenario is likely.

In addition, Ethereum is the second most owned digital asset among institutional investors, who have more than $ 100,000 billion, according to Bloomberg. And as more institutions branch out into cryptocurrency (and even DeFi products), the popularity of Ethereum is expected to attract more money into its ecosystem, driving up its price.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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