Ethereum is slowly growing in acceptance around the world. The list of decentralized applications and Initial Coin Offerings (ICOs) on the Ethereum platform is expanding all the time. Perhaps, more importantly, enterprises are actively helping to make Ethereum the go-to blockchain for big companies.
But what does all this mean for the ETH to USD price? It’s important to understand the factors affecting the price of Ether compared to fiat currency in order to have a good sense of where it’s going.
Ethereum’s Growing Acceptance
Ethereum is now graduating from its experimental stage into acceptance. While the list of shops where you can actually spend Ethereum tokens is still minimal (although there are some places), there are other ways that the Ethereum network is growing in acceptance, and it’s token – Ether (ETH) – is gaining utility and value.
A group of 30 banks and other companies have formed an Ethereum alliance to collaborate on how to use Ethereum and its technology to improve global business and trade. The group is already testing ways of using Ethereum as a way to settle international payments quickly and at low cost. The Ethereum alliance is focusing at the moment on building private blockchains. But, the idea is that one day they will be able to link those private blockchains to the Ethereum public blockchain and build a much stronger network.
Even organizations like the United Nations are getting on board with Ethereum . The UN is experimenting with using blockchain technology and the Ethereum network as financial infrastructure to move money around for its World Food Program.
Price Set by Supply and Demand
ETH/USD price is set by the balance of supply and demand for ETH. The more people want to buy Ether, the higher the upward pressure on the price. As more people want to get rid of their Ether, more Ether becomes available on the market. This puts downward pressure on the Ether price. So how does Ethereum acceptance affect the demand and supply of Ether?
The only new supply of Ethereum is from mining. Right now, there is no supply cap on Ethereum like there is with Bitcoin. New Ether tokens are created at a rate of around 15% per year. That means that most Ether you find on the market has to come from people wanting to sell the Ether they have.
Demand for Ether comes from all sorts of directions. At the moment, much of the demand comes from speculation. Some investors are betting that Ether will continue to grow in value over the years and are buying the Ether tokens now in anticipation.
But Ether tokens aren’t just an investment. They have utility on the Ethereum platform. You need Ether tokens to buy all of the different kinds of ERC-20 and other types tokens available on the network. Developers also need Ether tokens to run their applications and smart contracts on the Ethereum network.
As the network acceptance grows, demand will increase from all of these angles. More people will be using ETH as a medium of exchange on the platform, more applications will need ETH to run their smart contracts, and more investors will likely speculate on the increasing price.
Provided that the supply of new Ether tokens will remain low and demand will increase as Ethereum acceptance grows, the price of ETH/USD will have to go up to balance the two.
With any network product, the value of the network grows as more users start using it. This is a well-studied topic, and it is the reason that companies like Facebook and Google are so dominant in their industries. The more people use Google, the smarter it becomes, which makes even more people want to use it. The cycle makes Google stronger and stronger in a positive feedback loop.
It’s the same with Facebook. The more people are on Facebook, the more valuable it is to everyone using it. Even if another social network came along that had slightly better technology than Facebook, it would hardly be worth the switch. This makes it extremely difficult for new companies to take over in network industries.
Ethereum is in the very privileged position of already being the most widely accepted decentralized smart contract platform, and its Ether being the second biggest cryptocurrency by market cap. As long as Ethereum can continue to innovate at a reasonable pace, it should be able to maintain its strong position at the top of the cryptocurrency ladder. This means demand for Ether will continue to grow long into the future as the network gets more and more positive feedback and even more momentum.
Ethereum has growing demand and network effects on its side, but ETH/USD isn’t guaranteed to keep growing forever. There are a few factors that could set back the price, at least temporarily, as Ethereum acceptance grows.
Firstly it depends on the technological capabilities of Ethereum. Ethereum has experienced periods of fast growth in the past. These have usually been coupled with network congestion that pushes transaction prices up and Ethereum’s usability down. The growth of the Ethereum network is no good if the technology isn’t capable of handling that growth. There are some great proposals to increase the scalability of Ethereum, but none have been successfully implemented just yet.
Another setback outside of Ethereum’s control could come from unwanted regulation. Decentralized platforms like Ethereum have been coming under increased scrutiny recently. Governments and regulatory bodies are starting to take cryptocurrency more seriously as networks like Ethereum are growing in popularity. Restrictions on usage or outright bans could seriously harm the ETH/USD price.
It’s Still Early Days
Ethereum is growing in acceptance all around the world. Regular people, investors, and technology innovators are all realizing that decentralized networks have a big part to play in our future. This acceptance will put more and more upward pressure on the price of Ether. But this large-scale acceptance could also lead to speed bumps including technological scalability and regulation.
Ethereum is becoming more and more important as a technology platform, but it is still moving into uncharted territory. Investing in Ether is still a big risk, so remember to be careful!