October 29, 2016
A little over a week ago, we decided to put a good sum of money into Ethereum. The likelihood is that you already know something about blockchain or Bitcoin and found your way here. If not, have a read of our quick guide to the basics and you can check back later. Otherwise, read on!
If Bitcoin is MySpace, Ethereum is Facebook
What excited us about Ethereum is that it extends the concept of blockchain beyond cryptocurrency. Bitcoin is famous for being first off the block and it is no mean feat for it to have achieved somewhat of a reserve status. But its strength is also its weakness. At its core, it is just a very good payment system.
Ethereum goes much further. It adds the capability to write contracts into the blockchain that are automatically executed when specific pre-defined conditions are met. Not only is the scope of transactions expanded, but the conditions in which those transactions are made have also been extended and can be determined upfront. It’s all automated and seamless. Plus, you don’t need a middle-man to charge you an exorbitant fee to set it up for you.
The use for these so-called ‘smart contracts’ is tangible and closer than you think. Don’t take our word for it. China is already proposing to apply smart contracts to social security payments and Australia is considering ways smart contracts can be used to facilitate secure online voting. Among the big banks, J.P. Morgan, Bank of America and UBS are some of the names quietly building their own blockchains on the Ethereum network.
So what does this mean in terms of investing?
In order to participate in Ethereum blockchains and write smart contracts, you will need Ether. Think of Ether as the crypto-fuel of the Ethereum network. As the technology grows and the number of Ethereum contracts increases, the more transactions will occur and the more Ether will be required to facilitate these transactions. Given that Ether is not limited to being a cryptocurrency for financial transactions like Bitcoin, the scope of its use and exchange are much broader.
Ethereum today is where Bitcoin was in 2010. It is currently the second most popular cryptocurrency behind Bitcoin but the fastest-growing. While Bitcoin is infamous, Ethereum is the underdog that has been talked up as a potential successor to Bitcoin. Fair play, but there is no reason why there is not enough room for two. Over the course of a year, its market cap has risen to $1bn compared to Bitcoin’s current $10bn. With much more room to grow and a wider community of developers utilising the Ethereum network, the market value of Ether is set to continue rising.
What was our game plan?
First, buy early and buy while the price is still low. We bought in at $12 with the intention of buying and holding. (Imagine if we had bought in a year ago at 50c!) With blockchain a reality and Bitcoin a success, Ethereum tells a good story of realising blockchain’s fullest potential. In this way, we are investors but there is also room for speculation and there shouldn’t be anything wrong with that as long as you consider the implications.
Second, buy in with the understanding that volatility can be your friend. A small market cap means that it is easier to influence the price. The price of Ether spiked over 1,000% in a few months, driving on-exchange trading volumes over that of Bitcoin for a short time. A sign of times to come. Bitcoin illustrated that for any coin to be successful, speculators must be attracted first by high volatility. It is no secret that Ether may be illiquid, but that is exactly what produces the wild price swings that will keep traders captivated. We would be lying if we said we weren’t considering what our profit would look like during the next spike!
Third, one thing you should never do is make the mistake of sitting on the fence and missing out again and again. Now Empty Bucket consists of some pretty cautious members who have invested regularly in much more vanilla instruments like the S&P 500. Another story for another day, no doubt, yet Ether still managed to pass our test.
Be at peace with the idea that you don’t need to have a detailed knowledge of the technology in order to profit from it. You can drive a car without knowing how its engine works, so why miss out on the roadtrip? Ether is the perfect crypto-fuel for a chance of exponential wealth, and boy will we be going on a roadtrip when that happens.