Ethereum (ETH -1.31%) is the backbone of a whole world of decentralized applications, or dApps. Whether it's decentralized finance (DeFi), gaming, non-fungible tokens (NFTs), or governance applications, the lion's share of them are built on Ethereum's ecosystem. That includes stablecoins, today's blockchain superstar.
Analysts at Standard Chartered predict that the stablecoin market could grow from around $230 billion today to $2 trillion in just three years. Whatever shape that takes, Ethereum is likely to benefit. After all, it's currently home to more than half the current stablecoin market, per DefiLlama.
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Blockchain's biggest building site
Adding Ethereum to your portfolio is about more than benefiting from a potential surge in stablecoins. Ethereum is where huge amounts of cryptocurrency development take place.
That's because Ethereum was the first cryptocurrency to introduce smart contracts, small pieces of self-executing code that make blockchains programmable. First-mover advantage is a powerful thing, and Ethereum's strong community continues to dominate. Electric Capital's 2024 developer report shows that Ethereum is the top ecosystem for developer activity around the world.
Another exciting aspect of Ethereum is that it continues to improve itself. It's successfully carried out regular upgrades, including transitioning from proof-of-work validation to the less energy-intensive proof-of-stake system. That's a bit like changing the engine on a car while speeding along the highway.
Growing competition from newer players
All cryptocurrencies carry risk, which is why it's important that they only make up a small part of a diversified portfolio. One of the biggest risks for Ethereum is that newer blockchains could take market share.
Several newer cryptocurrencies can process transactions faster and at a lower cost. For example, Solana (CRYPTO: SOL) processes around 3,000 to 4,000 transactions per second (TPS). Ethereum handles around 15 to 30 TPS. That's led to the development of Layer 2 solutions that sit on top of Ethereum and improve its performance.
Ethereum is no longer the only smart-contract cryptocurrency on the block. But speed is not everything. Security and dependability matter too, particularly in finance. And after a decade with zero downtime, it remains one of the most dependable.
