What is Ethereum?
Ethereum is a decentralized platform that runs smart contracts. These are applications that run exactly as programmed without any possibility of fraud or third-party interference. Ethereum provides a decentralized Turing-complete virtual machine, the Ethereum Virtual Machine (EVM), which can execute scripts using an international network of public nodes.
At the center of Ethereum is “Ether”, or ETH, the platform’s native cryptocurrency, which can be transferred between accounts and is used to compensate participant nodes for computations performed. “Gas”, an internal transaction pricing mechanism denominated in ETH, is used to mitigate spam and allocate resources on the network.
Ethereum was initially described in a white paper by Vitalik Buterin in 2013. He later founded the Ethereum Foundation with Dr. Gavin Wood and Joseph Lubin. Dr. Wood went on to form Polkadot, an interoperable, EVM-compatible smart contracting platform. In all, there are six co-founders behind the Ethereum network, including the founder of Cardano, Charles Hoskinson.
Presently, Ethereum is the second most valuable network by market cap. It hosts a variety of projects in DeFi, NFTs, Metaverse, Gaming, and more. Ethereum has attracted interest from both the general public and the technological community. The attention garnered is primarily because of ETH’s valuation and the network’s immense value to builders and projects across the globe.
Top Factors Affecting Ethereum (ETH) Price
Ethereum price is affected by various factors, including global economic conditions, innovation within the Ethereum network, and overall demand from buyers and sellers. Global economic conditions can impact the price of Ethereum by affecting the demand for cryptocurrency assets as an alternative investment or store of value. For example, if there is increased uncertainty in the traditional financial markets, investors may seek out Ethereum as a safe haven asset. Similarly, if there is a period of economic growth, investors may be more likely to put their money into Ethereum as a speculative investment. This cyclic nature of investor sentiment was observed in the boom of 2020 and 2021, with the crypto winter of 2022 massively impacting crypto valuations. Inflation worries saw capital being shifted to fiat and away from speculative, volatile digital assets, which ETH falls under.
Innovation within the Ethereum network can also affect the price of the cryptocurrency. For example, if a new high-profile project is built on top of the Ethereum network that gains widespread adoption, the price of ETH may rise in response to the increased demand. Innovation can also extend to on-chain improvements like the “Merge” of Q3 2022, which saw Ethereum move from a proof-of-work to a proof-of-stake system while laying the foundation for scaling. On the other hand, if there is a major security breach or technical issue within Ethereum, ETH may fall as trader and investor confidence in the platform diminishes.
Market forces of demand and supply also impact ETH prices. If more people are looking to buy the coin than those willing to sell, prices will undoubtedly go up. The reverse is true. The market forces of supply and demand are among the most important factors influencing the price of ETH, especially considering that crypto markets are developing.