Ethereum (ETH 1.57%) is the decentralized, open-source technology that powers much of the crypto world. Everything from decentralized finance (DeFi) applications and non-fungible tokens (NFTs) to enterprise blockchain solutions relies on Ethereum's technology.
Ethereum's native token, Ether, is the second-largest cryptocurrency after Bitcoin (BTC -0.58%). The Ethereum Merge, the network's long-awaited shift to a proof-of-stake system, is expected to make the technology remarkably more energy-efficient. The Ethereum Foundation has predicted the shift will cut energy usage by around 99.95%.
If you want to profit from the growing use of Ethereum, there are several ways you can invest. The most direct option is buying Ethereum itself. Because it's extremely volatile, this carries the greatest risk but also the greatest potential profits. Another option is buying Ethereum stocks, including managed funds that invest in Ethereum for you and companies with large exposure to Ethereum technology.
Ethereum is an open-source blockchain technology in the form of software. Software developer Vitalik Buterin originally proposed the idea in 2013, and Ethereum launched in 2015.
Any developer making an application that would benefit from blockchain technology can build it on the Ethereum network. While Ethereum is most associated with its native Ether token and other cryptocurrencies, its technology is also enabling widespread innovation in industries as diverse as insurance, logistics, and healthcare.
Developers write programs on Ethereum using self-executing, self-enforcing protocols called smart contracts, which are deployed to Ethereum-powered blockchains. The blockchain's network of computers executes the smart contract by performing specified actions when the conditions of the contract are met. Blockchain data can't be modified after it's created, and that gives users confidence in the technology.
Although early cryptocurrencies, most notably Bitcoin, are merely stores of value that can be transferred, Ethereum has more uses. If Bitcoin is a smartphone app, Ethereum is more like the device maker. Ethereum's cryptocurrency benefits from its technology because transaction fees for decentralized applications on its blockchain are paid in Ether.
The Ethereum Merge is the term for the network's switch from its original proof-of-work system to a proof-of-stake system, scheduled to occur in mid-September 2022.
When Ethereum launched, it used proof of work, the same system used by Bitcoin, to validate and record transactions. A notable drawback of this system is extremely high energy usage, which has led to Bitcoin using more power per year than some entire countries.
In 2020, Ethereum introduced the Beacon Chain, a proof-of-stake network. However, it continued using its original proof-of-work mainnet for processing transactions. The Merge is when Ethereum will combine the Beacon Chain with the mainnet and make the transition to proof of stake.
The primary benefit of The Merge is energy efficiency. Transaction speeds will change a small amount but not enough for most users to notice.