How Is The Price Of Ethereum Determined?

Ethereum is a public, P2P network or blockchain with its own cryptocurrency called Ether.

Created by Vitalik Buterin in 2014, the purpose of Ethereum is to be a platform on which smart contracts can be run.

In a simpler term, Ethereum is intended to be a world computer.

Where Bitcoin stores a list of transactions on its blockchain, the Ethereum blockchain is developed for storing different types of data, which can be accessed and used by the computer programs running on the Ethereum blockchain.

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About the Price of Ethereum

Many people wonder how the price of ethereum (the cryptocurrency) is determined.

Before we dig deep into the matter, it’s important to know that it works no different than it would with other currencies.

The price of Ethereum is determined the same way as everything else – through a social consensus.

Now, what does that mean?

It means that Ethereum price relies on what the owner will sell it for, and the buyer would pay for it.

The seller’s price is usually referred to as the “ask price,” and what buyers pay is referred to as the “bid price.”

The minor space between the two prices is referred to as “spread,” and the last transaction is the “current price.”

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The Example

Gold, property, stocks and even fiat currencies are priced the same way.

For instance,

If tomorrow someone is willing to give you 90 cents of goods for a dollar, then you would either need to accept that price or wait till the value goes up. Also, you can offer that dollar for 95 cents of goods.

It is basically a back and forth tug of war, which prices everything in the market.

Essentially, an Ether is worth whatever you both, the seller and buyer, agree it is worth.

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“Ethereum Can’t be Worth Anything” is a MYTH!

For those who say Ethereum or Bitcoin can’t be worth anything because it’s not backed by anything, they are dead wrong.

These people will argue that US dollar and other fiats are backed by the assets of the country. The question here is, “Who decides what those assets are worth?”

The answer to the question is simple.

A dollar is worth a dollar because of the social consensus made by the giver and taker of the currency.

Similarly, if the social consensus decides an Ether is worth $1 million USD, by both the buyer as well as seller agreeing to those terms, then an Ether would be worth $1 million.

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Final Thought!

Investors and traders use the fundamentals of Ether to make the best possible guess about its future value. They take the demand, supply and the market conditions of Ether today and try to determine what the current market consensus price will be.

In case of Ethereum, it has a limited supply, and it can be used to make blockchain-based smart contracts on its network with a growing user base.

This all points to the future price of the Ethereum getting higher than it is today. Though, Ethereum has competitors, who may take its market share proving to be a better network for smart contract applications.

And if that happens, then Ethereum could lose its value.

These are the speculations used when determining whether or not Ethereum is a good addition to a portfolio.

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Kapil Gauhar

Kapil Gauhar is the founder of Blogger’s Gyan. He is a Passionate Blogger, a Big Thinker and a Creative Writer. His passion for doing friendship with words and letting people know about the wonders of the Digital World is what motivates him to take writing as a career.