I bought Ethereum (ETH 0.75%) a few months ago as a way to dip a toe into the cryptocurrency world. As of today, I've made about $1,000. Right now, I could easily take the money and run, especially after the recent declines in this coin and other crypto players.
Investors are worried about potential taxes on crypto profits in the U.S. and China's crackdown on the industry. Those news items and the strengthening of the U.S. dollar are weighing on cryptocurrencies.
But instead of locking in my profit, I've decided to hold -- for three good reasons.
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1. Ethereum has proven itself
Ethereum is the second-biggest cryptocurrency by market value. But it isn't just a currency -- it's also a blockchain platform for smart contracts. Smart contracts are automated contracts that self-execute if certain conditions are met.
This sets the stage for many uses, including the exchange of the actual currency, Ether, but also the development of decentralized applications. These are applications built across a network on Ethereum instead of on a centralized server with one authority.
Ethereum is the place for decentralized finance -- you can do anything from sending money to borrowing funds to buying insurance. Ethereum also is the place for leisure and investment -- for instance, gaming and buying collectibles through non-fungible tokens (NFTs). NFTs are your ticket to owning various original pieces of art.
Ethereum is the all-time leader in NFT sales volume, according to CryptoSlam. And it doesn't look like that's about to change. It remains in the leading spot even in recent times, like over the past seven days.
2. There's a lot more to come
One concern about Ethereum has been transaction speed. The platform only can process about 20 transactions per second. That compares to more than 1,000 transactions for younger rival Cardano. But something big is on the horizon for Ethereum -- a major upgrade that aims to lift transactions to 100,000 per second.
How is Ethereum doing this? The platform is moving from a proof-of-work method of validating transactions to a proof-of-stake model.
In proof of work, miners must solve complex mathematical puzzles to validate a transaction. This is slow and uses a vast amount of energy. Proof of stake solves those problems. It gives the opportunity to validate to miners, according to the number of coins they hold. So it's based on their investment in the network.
As we've seen, Ethereum already is a major cryptocurrency player. With the upgrade, which is slated for next year, the network's growth could reach new heights.
3. My overall strategy
Whether I buy a stock or invest in cryptocurrency, my overall strategy is to invest for the long term. Of course, I could sell a stock sooner than planned if a company's CEO changes direction. Or I could sell a cryptocurrency if something arises that threatens the platform's future.
Otherwise, I'll hold on, even if times are tough, as long as I still believe in the company's strategy or the crypto's future. It's important to remember that Bitcoin sank 69% between December 2017 and December 2018 before going on to gain more than 1,300% from that point. There's no guarantee Ethereum will follow Bitcoin's lead, but Bitcoin is a good example of how an asset can stagnate or fall for quite a while -- and then soar.
I'm optimistic about Ethereum's future in spite of the recent bumps along the way. That's why I'm sticking around for the upcoming chapters in this exciting story.
