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1) Smart Contract Capability
Ethereum was built as a platform to run programmatic smart contracts and applications via its own currency – ether.
Real-world use cases are already beginning to emerge and sustain value, as the Ethereum blockchain can execute smart contracts that power decentralized applications (DApps) like decentralized finance (DeFi) or nonfungible tokens (NFTs).
DeFi is an extremely bullish catalyst for Ethereum. In fact, Ethereum is practically synonymous with DeFi because it powers many cryptocurrencies in the decentralized finance sector. Ethereum hosts more than 200,000 ERC tokens, some of which are part of the top 100 largest cryptocurrencies.
2) Growing Network
We can think of Ethereum as an infrastructure, one with the potential to revolutionize both finance and technology.
Ethereum already has an active developer community and user base. It is one of the most popular digital currency networks across all metrics for Github activity, including number of commits, total contributors, total project watchers, and total stars. All of this points to an expanding and diversifying Ethereum ecosystem. For a blockchain, that’s the best story you can tell: a growing network, and key for the value of ether.
3) Proof-of-Stake Model
Both bitcoin and Ethereum currently operate using the proof-of-work consensus. The verification and confirmation of transactions requires a network-wide consensus by miners, who are rewarded for processing transactions and executing smart contracts.
Ethereum is currently working towards changing to a proof-of-stake model, also tagged as Ethereum 2.0, which dramatically changes the rewards system. The current proof-of-work model does not encourage collaboration, nor does it provide any consequence for malicious behavior. In contrast, under the proof-of-stake model, transaction validators will replace miners. There will no longer be cryptographic challenges to solve. Validators will be required to own ether, and in order to validate a block, they will be required to put their ether stake on the line to certify that a block is valid. This way, if there is malicious behavior, their stake is at risk. If Ethereum 2.0 succeeds, the blockchain will have significantly more transaction-processing capability.
4) Speed and Scalability
The upcoming Ethereum 2.0 upgrade will provide for faster transactions. Part of that upgrade, called the Beacon chain, employs shardchains, which are smaller groups of nodes that process their own portions of transactions in parallel, without needing to achieve a consensus across the entire network. This is meant to improve Ethereum’s scalability and vastly increase its throughput rate. It is expected that the Ethereum 2.0 throughput rate will be able to reach 15,000 transactions per second, allowing Ethereum to match any centralized payment system in transaction processing speed.
5) Disinflationary Supply
Bitcoin has a finite supply of 21 million coins, which is why it is often regarded as a store of value and an investment against inflation. Contrary to bitcoin, Ethereum offers an unlimited number of ether but does cap the amount released each year via the mining process. This removes the perceived scarcity that may be a factor in bitcoin’s higher valuation. Ether’s supply increases according to a disinflationary mechanism that will continue to be adjusted as the network matures.
With Ethereum’s new model, there is a fundamental change in how blocks are created. Instead of rewarding miners for creating blocks, validators will earn a transaction fee for each transaction and smart contract they validate. The more ether that is staked the higher the value because there is fewer ether in circulation. In addition, proof of stake removes the costs associated with mining such as electricity and hardware costs, meaning that fewer ether will be sold by miners and potentially be staked, so the deflationary aspect might come into play in ways it hasn’t previously.
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