Ethereum is a high-risk investment in the current climate – Ethereum 2022 update
For the majority of investors, cryptocurrency is seen as a high-risk investment entirely. Why is this? Two main reasons:
- Has no physical value, which leads to trouble understanding how the supply and tokenomics function reliably. An extension of this is that it’s then considered entirely speculative and has no real use. Technical analysis and emotional investors have propped up a lot of the value.
- It’s new; unproven. The space has barely been around for 10 years, so unlike the stock market, precious metals, etc. that all have traceable performance long term, the overtime data is viewed as more or less irrelevant for now.
Now some of these might reflect accurately against certain cryptocurrencies, but there are various different utilities. Let’s use Ethereum (ETH) as a basis in deflection to these prior claims about cryptocurrency:
- Ethereum’s value comes from several things other than supply and demand. ERC20 token gas fees help hold the value, and to even own any ERC20 tokens, a certain amount of ETH must be held in that wallet. Despite Ethereum’s token supply being ‘unlimited’, the action of creating more / burning tokens is congruent with the volume, usability, and demand. ETH is also used as collateral, lent/borrowed, staked for interest, and is the primary token used as a medium of exchange for buying / selling NFTs on Opesea – a platform that did over $5B in volume in January 2022 alone.
- While the space is quite young, Ethereum isn’t just something that blew up recently. The project was created back in 2015 and has accumulated a market cap of 394.9B. If you ranked Ethereum by market cap next to the world’s biggest companies, it would be the 17th largest globally. It is also the 27th highest valued currency in the world too, with Bitcoin as the only non-fiat currency ranked higher. These statistics alone prove that Ethereum is something to take seriously.
Here’s another take: The world is moving faster than ever. With the internet, just about everything is accessible instantly, so innovation happens quickly. When global communities get behind something like crypto, the real-world potential for the technology can be fast-tracked and implementable far sooner. Ethereum is one of these fast movers.
The Cons of Ethereum
Though its token incentives are strong, they are mostly third-party based as of right now. Whether this is good or bad comes down to personal deliberation.
Ethereum’s ERC20 token is fairly low-cost when creating a currency, and has allowed for a number of ‘pump and dump’ schemes to have run on the Ethereum network. Stricter verification for ERC20 projects has been called for by the community and is on the table for when the highly anticipated Ethereum 2.0 arrives. The current gas fees are also extremely bad, but that is to be resolved too.
The High Upside Potential of Ethereum in 2022
The high upside potential of Ethereum is very real. While less than half the market cap of Bitcoin, Ethereum outperforms the orange coin in other ways: utility, volume, and its actual blockchain. The Ethereum blockchain is a host for innovation. And it’s about to undergo a huge upgrade: Ethereum 2.0.
The aim of Ethereum 2.0 is to make Ethereum far more scalable, secure, and sustainable.
- ZK rollups – layer 2 protocols designed to free up the main network – are predicted to reduce Ethereum fees to practically zero and ramp up transaction speeds to instantaneous. These protocols feed the network information in a way that reduces the cost as the network scales with more users and transactions.
- The move from Proof-of-Work to Proof-of-Stake will save just over 99% of the current energy used to validate transactions. This will allow for sustainable power output as the network scales, and dramatically decrease its environmental impact to zero.
- The move to Proof-of-Stake will also increase the staking rewards, further incentivizing more users to purchase and hold Ethereum.
- The token supply output of ETH – the creation of new tokens – will drop by 90% and a further 5% per year from then on, and in doing so, highlight its scarcity.
The Ethereum 2.0 upgrade has further potential such as dApp creation, plans for future interoperability with other ecosystems, new security measures, and the next step for NFTs.