In the cryptocurrency world, Bitcoin is probably the only currency most people would be able to name. Rallying since the beginning of the year, Bitcoin has more than doubled its value to reach record highs in recent months. However, Bitcoin isn’t the only cryptocurrency, as another up and coming currency has recently stolen much of its spotlight.
Also rallying since the beginning of the year, Ether is a slightly younger alternative to Bitcoin that has since gained an incredible 4,500%.
As of Monday, Ether has reached about 82% of the value of Bitcoin in terms of market cap, with all outstanding units valued at a total of $34 billion. To put into perspective, Ether traded at just 5% of Bitcoin’s value before its rally.
Of course, the sudden surge in value is evidence of the volatility involved with cryptocurrencies, where lines generated on a computer screen can generate such mass wealth for investors in mere months.
Although Bitcoin was the first breakout digital currency and has been a lucrative investment for many, the community has since run into issues not only technical in nature, but with the core development team as well. On top of management uncertainty, negative association with online drug trafficking, gambling, and cyber crimes has really tarnished Bitcoin’s legacy, putting its future persistence into question.
Stealing the limelight during this down time for Bitcoin is Ether. Built on the Ethereum network, the two-year old system has received support from cryptocurrency enthusiasts and even large corporate backing from the likes of Microsoft (NASDAQ:$MSFT) and JPMorgan Chase (NYSE:$JPM). Not only enticed by Ethereum’s goal of providing digital currency, these large firms are particularly enticed by Ethereum’s goal of creating a new global computing network. Of course, the network will generally require Ether in order to use.
1,100 cryptocurrency users were recently surveyed by CoinDesk, inquiring about their sentiment on both Bitcoin and Ethereum. While only 49% of users were positive about Bitcoin’s persistence in the future, a staggering 94% had a positive outlook on Ethereum.
William Mougayar, founder of Virtual Capital Venture, a firm that invests in start-ups and various cryptocurrencies sheds some light: “The momentum has shifted to Ethereum — there is no doubt about that… There is almost nothing you can do with Bitcoin that you can’t do with Ethereum.”
Although individual investors make up the greatest majority of Ether and Bitcoin traders, there has been so much activity that the two cryptocurrencies have propelled in value to the lucrative and hyped investment we know today. Now with a larger market value than PayPal (NASDAQ:$PYPL), the combined value of Ether and Bitcoin is approaching the size of Goldman Sachs (NYSE:$GS).
Investors in Ether are essentially gambling that people will want to use Ethereum’s computing capabilities, which will require Ether for its use. However, that is far from a sure thing, as real-world applications of the network are still limited.
Bitcoin, however, has successfully penetrated the market as value for trade. With various companies like Overstock (NASDAQ:$OSTK) and Expedia (NASDAQ:$EXPE) accepting purchases by Bitcoins, local restaurants have also hopped on the train, while black-market users and cyber criminals demand payment in the untraceable currency.
For this reason, investors are skeptical of Ethereum’s value (lack of real-world applications) and has analysts convinced that Ethereum will experience similar crashes that many other cryptocurrencies have after they surge in value. However, Ether has been able to hold the majority of its value during recent pullbacks and even gained relatively to Bitcoin.
Born in Russia and raised in Canada, Vitalik Buterin is the 21-year-old college dropout responsible for Ethereum’s launch in 2015. His personal holdings of Ether have since made him a multi-millionaire.
Having worked on Bitcoin, Vitalik Buterin’s Ethereum was built with many of the same qualities in mind. Both currencies are hosted and maintained on the computers of volunteers around the world, awarding them with the limited Ether that comes to market every day.
Because the cryptocurrencies are tracked and maintained by a network of volunteer computers, there is no company or government that dictates the currency’s direction. As a result, the value of virtual currencies such as Bitcoin or Ether are determined by the supply and demand established on private exchanges where people can trade the currency they want at market value.
However, as referenced earlier, Ethereum was never intended to be used purely as a medium of exchange. The computers linked up into Ethereum network have the processing power to do computational work, essentially meaning that it’s capable of harnessing enough power to run decentralized programs and applications called Dapps. This capability has led to a rush of programmers to working on the Ethereum network.
An application that was one of the first to take off on the Ethereum network was known as the Decentralized Autonomous Organization. However, the project crashed and burned after raising over $150 million in funding. With this critical failure, many expected Ethereum to go down with it.
However, Mr. Buterin and other developers dealt with problems in a very sophisticated manner, winning over the respect of many in the corporate scene.
Returning any hacked Ether to their respective users, Eric Piscini, the lead of virtual currency technology at Deloitte Consulting commented, “It was good to see that there is governance on Ethereum and that they can fix issues in a timely manner if they have to.”
Additionally, applications that are being built on Ethereum are raising financing in the form of Ether in what are known as ICO’s or, “Initial Coin Offerings”, which is their play on initial public offerings by typical companies.
Start-ups that have gone down this route of financing have generally exchanged their own specialized currency with Ether invested. This will leave the investors with tokens that represent “shares” of the start-up and will provide start-ups with the necessary Ether (converted to dollars) to fund operations.
It is the projects and coin offerings that are the source of demand increase for Ether. For example, Bancor is a startup that wants to streamline the process of launching virtual currencies and has managed to raise $150 million worth of Ether in funding. With such large transactions upholding the value of Ether, if Bancor were to encounter issues, the value of Ether would also likely be affected.
Although mostly in trial runs, financial institution JP Morgan, and mining company BHP Billiton are experimenting with Ethereum’s data-processing capabilities. JP Morgan is attempting to develop a platform to monitor trading, while BHP Billiton has built a program to track its raw materials data.
Additionally, Enterprise Ethereum Alliance is an initiative that was formed by a coalition of over 100 companies. Over the past few months, names like Toyota, Merck, and Samsung have joined the alliance in order to build tools and platforms that will make Ethereum useful in corporate environments.
However, there are other companies that are already creating private versions of the software on the Ethereum network. Although this allows the advantage of not needing to use Ether as currency, speculators are convinced that these companies will eventually link their software with the rest of the Ethereum network.
Of course, however, the price of Ether stands to slide significantly if none of the projects amount to anything. Thus, the hype about Ethereum can quickly fizzle out, as has been observed with Bitcoin after significant price surges.
“I hope this is the year where we start to close the gap between the speculative value and the actual value,” as Mr. Mougayar continues. “There is a lot at stake right now.”
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