With its ability to codify, decentralize, secure and trade just about anything, Ethereum​ (ETH) has created a lot of buzz since its 2015 launch. It was quick to move up the ladder in terms of market capitalization, leaving behind a trail of 700-odd other cryptocurrencies. Its recent rally has been unprecedented, an increase of 900% in 2017, growing from about $8 at the beginning of the year to beyond $80 in early May. Here’s a close look at Ethereum and an attempt to understand the factors that are fueling its spectacular rise.

Ethereum, launched on July 30, 2015, is a decentralized software platform that enables Smart Contracts and Distributed Applications (ĐApps) to be built and run without any downtime, fraud, control or interference from a third party. Ether, a cryptographic token, acts like a vehicle for moving around on the Ethereum​ platform. It is a form of payment made by clients for operating on the Ethereum platform and thus acts like an incentive for developers looking to develop and run applications within.

One of the natural consequences of its popularity has been its constant comparison to Bitcoin. The two differ in their basic purposes. Unlike Bitcoin, the primary purpose of Ethereum is not to establish itself as a payment alternative. It goal is to facilitate and monetize the working of Ethereum to enable developers to build and run ĐApps. However, on the trading platform, Ether rises as a staunch competitor to all cryptocurrencies, including Bitcoin. (Related reading, see: Bitcoin Vs Ethereum: Driven by Different Purposes)

Why Is It Rising?

Over the eight years of its existence, Bitcoin has taught a few lessons and helped generate the confidence among people to plunge into the world of Virtual Currencies. Bitcoin, fueled by a stream of positive news, is trading at a life-time high. This has generated positive sentiment about cryptocurrencies in general, and Ethereum is benefitting from the same, just like the rest.

Further, Ethereum on its own has been generating excitement with big names such as JPMorgan Chase Co. (JPM), Intel (INTC), Bank of New York Mellon Corp. (BK), and Microsoft (/markets/stocks/msft/MSFT) endorsing it by joining the Enterprise Ethereum Alliance that “connects Fortune 500 enterprises, startups, academics, and technology vendors with Ethereum subject matter experts.”

Microsoft Corp. has been offering Ethereum Blockchain as a Service (EBaaS) on Microsoft Azure since November 2015, in collaboration with developer https://consensys.net/ConsenSys, “so Enterprise clients and developers can have a single click cloud based blockchain developer environment.” Given that Ethereum is not just a platform but also a programming language running on a blockchain, helping developers to build, publish distributed applications and run programs, it is being explored the most for enterprise use. (Related reading, see: The First-Ever Ethereum IRA is a Game-Changer)

Chris Kline, COO of BitcoinIRA (the first IRS-approved Bitcoin-based IRA) told Investopedia, “Smart contracts are not only disruptive, they are logical. Whether it's government, global corporations or small business, these will inevitably be a part of everyday life. As that realization grows, so too will Ethereum.”

In early April, Blockchain​ Capital, a venture capital firm investing in cryptocurrency ecosystem, successfully raised $10 million in a record six hours for its first digital liquid venture fund, called Blockchain Capital III Digital Liquid Venture Fund, LP. The Singapore-registered fund raised capital via a digital token build on the Ethereum platform. (Related reading, see: SingularDTV Creating Entertainment On The Ethereum Blockchain)

Not just corporates and private institutions, but even global organizations such as the United Nations are looking to harness the Ethereum blockchain to deliver humanitarian assistance, such as the World Food Programme. What started with a Proof-of-Concept in Pakistan in early January this year, has been transformed in a fully functional Blockchain pilot being rolled out in Jordan, CoinDesk.com reported earlier this month.

The Bottom Line

With great enthusiasm around Ethereum, its price has risen, too fast too soon, and thus the current rally may not be sustainable for long. This is natural and thus investors must tread carefully at this stage. However, any correction in the near to medium term shouldn't undermine its potential. The rising awareness and confidence among the masses about cryptocurrencies coupled with the immense possibilities offered by Ethereum will eventually power its journey going forward. The future belongs to decentralization.

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.