Let's take a quick look at Ethereum (CRYPTO:ETH). The second-largest and second-oldest cryptocurrency is going through a bunch of fundamental changes these days, and its price chart looks like a heart-pounding roller coaster. But is the digital token a buy or a sell right now, all things considered?
To find out, it's time to get down and dirty with some fresh research. I won't ask you to do much math, and if there's a quiz at the end, you can complete it in crayon. It's pretty basic stuff.
Read on to see my findings in a few handy Ethereum charts. You know what they say about pictures telling tales, so I hope you're ready for about 3,000 words' worth of eloquent Ethereum diagrams.
Ethereum is closing the gap with Bitcoin
This digital currency has always played second fiddle to Bitcoin and its dominant market position. However, that relationship is not written in stone. Ethereum is gaining ground on Bitcoin's market cap, and the rally isn't subtle:
Bitcoin Market Cap data by YCharts
By the end of 2018, Bitcoin's total market value was five times as large as Ethereum's. Today, the gap is a more modest ratio of 2.5x -- or half of what it was four years ago. So yes, Bitcoin still rules the roost but the formerly massive lead over Ethereum is melting away.
In contrast to Bitcoin, Ethereum's value proposition lies in its ability to execute smart contracts that power decentralized applications and enable real-world usage. This way, the slightly smaller and younger token's prices are poised to rise as demand for these applications grows.
Ethereum's move from inflation to deflation
Ethereum started life as a proof-of-work (PoW) network. In due time, its users and developers realized that a less power-hungry solution with faster transaction processing would be better. In a multiyear process, completed in March 2023, Ethereum transitioned to a proof-of-stake (PoS) system instead.
First, the long-awaited "Merge" shifted Ethereum's validation process over to a PoS blockchain, bringing several benefits at once and preparing the cryptocurrency for further improvements. The network stopped mining new tokens, halting the growth of Ethereum's token supply and slashing the electric power it consumes by 99%. See if you can spot that event on the next chart (hint: it was the summer of 2022).
Ethereum Supply data by YCharts
The recent Shanghai upgrade was the final step in this transition, turning Ethereum's inflationary trend into a deflationary one. The supply of tokens has decreased to 118.4 million, potentially increasing its value as a scarce asset. Yep, that's another obvious change in Ethereum's token supply.
Curiously, Ethereum stole a page from Bitcoin's value-creation playbook by halting and then reversing the number of available tokens. And it did so while moving away from the PoW validation structure that is the very soul of Bitcoin. The more things change, the more they stay the same.
Transaction fees go down, then back up
Ethereum's transaction fees have been fluctuating recently due to the popularity of Ethereum-based meme tokens. Generally speaking, the price shifts are good for developers and users, since the average fees have largely trended downward over the last two years.
However, it's not all digital wine and encrypted roses. Ethereum's technical platform isn't complete yet, and the blockchain network can still throw an expensive fit when Ethereum's network activity jumps for some reason. For example, transaction fees more than tripled over the last month, bouncing up from all-time lows due to the launch of several popular meme tokens. This episode carries echoes of Ethereum's PoW network getting overwhelmed by non-fungible tokens (NFTs) and early decentralized finance apps in 2020 and 2021 -- but the fee spikes are much milder this time:
Ethereum Average Transaction Fee data by YCharts
There's plenty of work left to do. The next game-changing upgrade will be a stepwise introduction of sharding, which spreads the workload of processing transactions across a larger network of Ethereum nodes. This way, transactions will be handled much faster and with lower processing fees attached.
Is Ethereum a buy or sell?
Ethereum's technology upgrades have positioned it for future success. For example, the transition from PoW to PoS has made the network more energy-efficient and scalable. The future roadmap includes exciting improvements, such as cheaper transactions, extra security, and better user experience.
Overall, Ethereum seems like a solid buy right now. Its value-building story is gaining traction, and its technology upgrades are setting it up for future success. There are no guarantees in investing, particularly not in the ultra-volatile cryptocurrency market. Still, Ethereum looks about as robust as wealth-building ideas can in today's digital asset space.
