Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of fraud or third party interference.
Ethereum is used to build decentralized applications (dapps) on its platform. The most common use case for Ethereum is to create a smart contract that acts as a digital agreement between two parties.
This could be used to create a will, or to automate the sale of a house.
The price of Ethereum has fluctuated wildly in its short history. At its launch in July 2015, the price of an Ethereum token (Ether) was just $0.43.
In the years following, the price of Ethereum would see a high of $1,422.47 in January 2018 before dropping by over 80% 9 months later.
As of September 2019, the price of Ethereum is once again on the rise, trading at around $200 per Ether.
So what determines the price of Ethereum? Let’s take a look at the factors that can affect the price of ETH.
Supply and Demand
The most basic factor that affects the price of any asset is supply and demand. If more people want to buy Ethereum than there are Ether available, the price will go up.
Similarly, if more people want to sell Ethereum than there are buyers, the price will go down.
It’s worth noting that Ethereum has a fixed supply; there will only ever be 21 million ETH in existence. This is different from many fiat currencies (like the US dollar), which can be printed by central banks at will.
This fixed supply means that increases in demand must be met by increases in price in order for sellers to part with their ETH tokens.
News and Media Attention
Another important factor that can affect the price of Ethereum is news and media attention. Cryptocurrencies are a highly volatile asset class, and positive or negative news can cause prices to swing wildly up or down.
For example, in June 2017, news broke that a startup called Status was raising money through an Initial Coin Offering (ICO) on the Ethereum network. The news caused investors to buy up ETH tokens en masse in order to participate in the ICO, driving up the price of ETH.
Similarly, in January 2018, news outlets began reporting on the potential for regulation of cryptocurrencies by South Korean authorities. This caused a sell-off across all cryptocurrency markets, and ETH prices fell from over $1,400 to below $700 within a week.
It’s important to be aware of these sorts of events when trading Ethereum or any other cryptocurrency; even small swings can result in large profits or losses.
Smart Contract Usage and Adoption
The third factor that affects Ethereum’s price is usage and adoption of its smart contract platform. As more developers build dapps on Ethereum and more users adopt those dapps, demand for ETH tokens will increase.
This increased demand will put upward pressure on ETH prices.