Why Ethereum Might Take a Hard Fall From Here Why Ethereum suffers from high costs and poor speeds, opening the door for competing cryptocurrencies.
• An upgrade is in the works, but it has been months in the making.
If enhancements aren’t made by 2022, Ethereum’s value may plummet as developers, artists, and investors shift their attention to alternative cryptocurrencies.
Why Ethereum Might Take a Hard Fall From Here
Ethereum (CRYPTO:ETH) is one of the most well-known cryptocurrencies today and a pioneer in incorporating utility into cryptocurrencies. Ethereum’s market cap is currently around $450 billion, indicating that the market has rewarded this position.
Competing cryptocurrencies are attempting to improve on Ethereum’s biggest problems, despite its success. Ethereum’s value might plummet if it loses its user base and developer lead. Even if you’re a cryptocurrency bull, you should be aware of the risks.
Ethereum’s utility advantage is being eroded
When Ethereum became popular, it was largely because the cryptocurrency could include smart contracts. Sales of NFTs could include royalties for original artists, and commercial rights or access to digital platforms could be included in a sale. That’s a great utility, but the gas fees Ethereum is experiencing today mean that small transactions aren’t even worth making on Ethereum.
Innovative projects have moved away from Ethereum to platforms like Solana (CRYPTO:SOL) because its fees are far lower. While a simple transaction on Ethereum could cost $100, a transaction on Solana costs pennies, at most.
The same can be said for Cardano (CRYPTO:ADA), Polygon (CRYPTO:MATIC), and Polkadot (CRYPTO:DOT), which are all building their ecosystems for NFT marketplaces, decentralized exchanges, wallets, and much more on lower-cost cryptocurrencies. The large projects and NFT artists will still be on Ethereum, but the upstarts are working on other cryptocurrencies. Given the infancy of the industry, that should be a concern.
Slow to react
The high-cost challenge has been known for a long time, which is why Ethereum is being upgraded to a proof-of-stake verification process. However, that upgrade has been delayed for months and won’t take place until sometime in 2022.
Ethereum’s transition to proof-of-stake might cut prices and allow for more transactions per second, but it permits alternative crypto ecosystems to flourish in the meanwhile. Developers are building on other cryptocurrencies, and new users may be drawn to lower-cost networks. A new user investing $100 in bitcoin, for example, might not be able to buy an NFT on Ethereum, but they could buy numerous NFTs on Solana, allowing them to explore the network and utility. New user acquisition is critical for any business or cryptocurrency, therefore the fact that new users are migrating to other networks is a terrible omen for Ethereum’s future.
The flip side of the coin
I think these are very significant risks for Ethereum in the next year. But there are also reasons the cryptocurrency could go up in value, which we shouldn’t overlook.
The first is that Ethereum is the second-biggest cryptocurrency in value and millions of people have an incentive to keep it that way. This includes early NFT projects, infrastructure companies, and investors. If the proof-of-stake upgrade comes relatively quickly, they may be able to hold other cryptos at bay.
Another is the first-mover advantage Ethereum has built with developers. The biggest NFT marketplace is on Ethereum, it was built with smart contracts in mind, and other cryptocurrencies are built on top of it. Again, if proof-of-stake upgrades are completed in a timely manner, these advantages could widen.
Where is Ethereum going in 2022?
There are a lot of unanswered questions for Ethereum in 2022. We know an upgrade of the network is coming, but it has been delayed multiple times, allowing other cryptocurrencies to grow their networks. But Ethereum also has a big lead in the crypto space and the second-largest market cap with millions of dedicated followers.
I’m bullish on smart contracts and NFTs in the long term, but I think cryptocurrencies with fast speeds, low transaction costs, and strong security will win in the long term. Ethereum is currently lacking on the speed and cost front, and as long as that’s the case, investors should question whether this is the best cryptocurrency for 2022.
Should you invest $1,000 in Ethereum right now?
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