Ethereum (ETH 2.80%) went live in 2015, becoming the world's first cryptocurrency powered by a programmable blockchain. In simple terms, that means the platform is more than a decentralized payments system.
Ethereum's programmability makes it possible for developers to write code and build self-executing computer programs (smart contracts) on the platform. And those smart contracts form the core of decentralized applications (dApps), including decentralized finance (DeFi) products.
Why does that matter? Like all crypto transactions, DeFi products are secured by cryptography, meaning a network of decentralized miners (or validators) verify transactions, eliminating the need for central oversight. In turn, that makes it possible to lend, borrow, and earn on cryptocurrency without involving banks. And by eliminating those intermediaries, DeFi applications promise to improve access and reduce costs associated with financial services.
For instance, you could earn a 3.06% annual percentage yield (APY) by lending USD Coin to the Compound protocol right now. That's significantly higher than the interest rate you would earn in a traditional savings account. Powered by that value proposition, Ethereum's price has skyrocketed over 1,000,000% since hitting an all-time low in October 2015.
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Today, Ethereum is the most popular DeFi ecosystem by a wide margin, with $164 billion invested in products on the blockchain. To that end, it still looks like a smart long-term investment, but given Ethereum's current market value of $491 billion, it probably offers less upside than other cryptocurrencies. For instance, Avalanche (AVAX 0.73%) has a market value of just $22 billion. Here's why this cryptocurrency could make you richer in the long run.
Avalanche: Faster and cheaper
Similar to Ethereum, the Avalanche blockchain supports smart contracts. The key difference is the speed and scalability of the platform. Avalanche is powered by Snow consensus protocols, a type of proof of stake in which transactions are verified through random sampling, rather than by obtaining verification from every validator.
That technical detail makes Avalanche very fast. In fact, Avalanche brands itself as the fastest smart-contract platform in the blockchain industry, as measured by time to finality. For context, Ethereum can process 14 transactions per second (TPS), and each of those transactions are finalized in approximately six minutes (i.e. irreversibly added to the blockchain). But Avalanche can handle 4,500 TPS and it achieves finality in less than two seconds.
So what? Scalability is a significant problem for many blockchains. With a throughput of just 14 TPS, Ethereum is prone to bottlenecks, which result in slower transaction times and higher transaction fees, not to mention irritated users. Avalanche solves that problem, and that has made the platform popular with developers.
Case in point: Despite launching in September 2020, Avalanche is already the fifth-largest DeFi ecosystem, with $13.1 billion invested in products on its blockchain. Also noteworthy, Avalanche already supports 78 DeFi protocols (i.e. smart contracts) -- that's more than fourth-place Solana and third-place Terra combined. Looking ahead, Avalanche is well-positioned to maintain that momentum, simply because DeFi is becoming more popular. But there's still one more point worth discussing.
Developers can build smart contracts on the Avalanche blockchain using Solidity, the same programming language used to build smart contracts on Ethereum. That compatibility means Ethereum dApps and DeFi products can be deployed on Avalanche, which happens to offer faster speeds and lower fees. In fact, deploying a smart contract on Avalanche costs 90% less than it does on Ethereum. To that end, Avalanche has been called the "Ethereum killer."
Why invest?
DeFi products aren't free. In exchange for their services, miners and validators collect transaction fees from users, paid in the form of the blockchain's native cryptocurrency. In other words, as DeFi applications on the Avalanche blockchain become more popular, more investors will have to buy Avalanche cryptocurrency, sending its price higher. That's why this digital asset looks like a smart long-term investment.
