For most people, Bitcoin should be first name to come to mind when cryptocurrencies are mentioned, assuming that said individuals recognize the concept of cryptocurrencies at all. In short, cryptocurrencies are digital currencies that use encryption measures to control both the creation of units of cryptocurrencies and the exchange of units of cryptocurrencies between consenting parties, thus eliminating the need for a central bank as well as other institutions to watch over its operations and step in when needed. This combination of characteristics provides cryptocurrencies with both pros and cons compared to their national counterparts, which is why they have managed to find a degree of success in the modern world.
Although Bitcoin is the most famous of the numerous cryptocurrencies that exist out there, it should be noted that it is neither the first nor the last. In fact, its success convinced other people of the potential of cryptocurrencies, which resulted in a host of new entrants within a short period of time with new features of their own. Most of these cryptocurrencies have fallen on their metaphorical faces, but a small number of them have managed to carve out niches for themselves, with one excellent example being Dogecoin with its rather charming sense of humor. Now, it seems that Ether will become the latest of the cryptocurrencies to make a place for itself.
What Is Ether?
Ether can be considered a product of the continuing search for Bitoin 2.0. However, while other Bitcoin 2.0 projects focused on making additions to the basic Bitcoin protocol, Ether was much more ambitious in that its creator, Vitalik Buterin, sought to create his own blockchain, which in turn, would enable the increased flexibility for the resulting product that it needed to compete. This along with other innovations such as the ability to write more sophisticated smart contracts that previously possible on its predecessor won Buterin widespread accolades including the World Technology Award in 2014, but it was not until a public crowdsale that he managed to raise 31,529 Bitcoins, which were exchanged for 60,102,216 Ether. Although he encountered some challenges following the crowdsale because of a plunge in Bitcoin’s value, he was nonetheless able to release the blockchain in 2015.
Why Is the Price of Ether Soaring?
Recently, the price of Ether has soared to around $15 in May of 2016, which is an enormous increase from around $0.9 in December of 2015. This is because Ether was the cryptocurrency chosen for use by the Decentralized Autonomous Organization, which tends to be shortened to DAO. Something that occurred because DAO is essentially an extremely sophisticated smart contract, meaning that it would not have been able to come into existence if it was not for Ether’s unique features.
Like its name suggests, DAO is a new way for interested individuals to allocate capital to deserving candidates. In short, would-be recipients can submit requests for funding to the platform, which in turn, will pass them on to its about 11,000 stakeholders, who will have an anonymous vote on whether they should be funded or not. Naturally, the stakeholders expect compensation from their funding, which will come in the form of dividends as well as increases in the number of their shares in DAO. In other words, DAO is remarkably similar to a fund, save that it is not run by a fund manager but by its own stakeholders.
When it sought crowdfunding, DAO managed to reap $150, which makes it the single biggest project to be funded through such methods so far. As a result, it is no coincidence that the price of Ether has soared in recent times, which has sometimes come at the expense of other cryptocurrencies. However, it is interesting to note that while there was an initial clause obliging the stakeholders to not exchange their tokens for Ether so that it can be resold to take advantage of its current prices, that clause is set to run out soon, which will have important consequences
Will the High Price of Ether Last?
It is clear that Ether’s current price cannot last. This is because some investors will choose to sell their Ether in order to make a profit on their investments, which in turn, will lead to an overreaction on the part of Ether users who are concerned about the potential for a drastic fall in the value of their holdings. Instead, what remains interesting is whether Ether will be able to weather this upcoming fall or not. It is possible for too big an overreaction to cause a catastrophic loss of value, which would gut the DAO before it had a chance to show its concept in action. However, it is also possible that the overreaction will be constrained to a manageable level, thus enabling the DAO to proceed in spite of the expected fall in its holdings.
Speaking bluntly, people need to exercise increased care and caution when handling cryptocurrencies such as Ether. This is because while cryptocurrencies have their uses, those uses come hand-in-hand with an enormous number of risks. For example, the same measures that have made Bitcoin transactions anonymous also makes it impossible for Bitcoin users to recover either lost or stolen funds, which is something that more than a few investors have found out to their sorrow in recent times. As a result, people who choose to invest in cryptocurrencies but fail to exercise increased care and caution can expect nothing but to become one of the numerous investors who have to lose so that a small number of them can win.
The DAO is an interesting idea, but now is not the time to invest in it. First, this is because it seems probable that the Ether will fall within a short period of time as Ether users seek to profit from the soar in its price, meaning that interested individuals should wait until that happens before making their move. Second, this is because a single success cannot serve as proof of a trend, meaning that Ether is reliant on an untested basis. Summed up, people should feel free to invest in Ether so long as they have an informed understanding of its pros and cons.