Crypto can be a potentially lucrative investment, but with thousands of cryptocurrencies out there, it can be tough to determine which ones are the better buys.
Ethereum (ETH 0.34%) is the second most-popular cryptocurrency behind Bitcoin (BTC 0.01%), and it has been steadily gaining traction over the last couple of years.
Like any investment, though, it has its advantages and disadvantages. There are two big reasons it could be a smart buy right now, and one reason you might be better off waiting.
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Why consider investing now
1. Its upcoming update could be a game-changer
The Ethereum network is currently moving from a proof-of-work (PoW) mining protocol to a proof-of-stake (PoS) model. Essentially, this will make the blockchain faster and more energy-efficient, and it will also have lower transaction fees for users.
This update could be huge for Ethereum, as it will help it scale up faster and give it more competitive advantages. Not only could it potentially outpace Bitcoin (which still uses a PoW protocol), but it will also be easier for it to compete with up-and-coming cryptocurrencies like Cardano (ADA -0.13%) and Solana (SOL -0.58%) that already use PoS.
The update is currently in its second of three phases, and it's expected to be completed sometime next year. If this update ends up giving Ethereum a serious competitive edge, now could be a smart time to buy.
2. It could play a significant role in the metaverse
The metaverse is one of the hottest investing topics of the past year, and Ethereum could play a major role in it.
At its core, Ethereum is a smart-contract platform that allows developers to build everything from decentralized finance (DeFi) applications to non-fungible token (NFT) marketplaces. The metaverse relies heavily on these types of applications, and because the Ethereum network is one of the biggest players in this space, it could potentially become the backbone of the metaverse as a whole.
In fact, two of the leaders within the metaverse, Decentraland (MANA -1.14%) and The Sandbox (SAND -0.73%), are built on the Ethereum blockchain. If either of these virtual worlds continue gaining popularity, Ethereum will benefit from it.
Of course, the metaverse is still largely speculative at this point, and nobody knows for certain how popular it will be. But if it does succeed, Ethereum could play a major part in it.
Why you may want to wait
It has a lot of competition
Ethereum is a leader in the crypto space, but that doesn't necessarily mean you should rush to buy it. While it has come a long way in the past couple of years, it's not perfect, and it's up against some tough competition.
Ethereum's update will help it solve some of its most pressing problems (such as slow transaction times and high fees), but with the upgrade not expected to be completed until next year, that's a lot of time for competitors to gain traction. It has also been plagued by delays at each stage of its update, which means the final rollout could take even longer than expected.
So-called "Ethereum killers" like Solana and Cardano are already catching up. These cryptocurrencies were designed to excel in the areas where Ethereum falters, and the longer it takes to finish its update, the more time these competitors have to gain market share.
Should you invest in Ethereum?
If you're a risk-averse investor, Ethereum (and perhaps crypto as a whole) might not be the best fit. All cryptocurrencies are still speculative, and nobody knows where they'll be over the long term. If crypto fails, you could potentially lose your entire investment.
That said, Ethereum is one of the most popular cryptocurrencies for a reason, and it could have a bright future ahead of it. Consider your tolerance for risk and weigh its advantages and disadvantages before deciding whether it's the right investment for you.
