The reason is the latest Ethereum network upgrade, which comprises a phased shift from a proof-of-work protocol to a proof-of-stake, increases storage capacity and processing power for smart contracts, among other things.
This is a big deal.
It’s believed that shifting to proof of stake would reduce Ethereum’s energy use, measured at 45,000 gigawatt hours by 99.9%. Its carbon footprint would then only be that of its servers. The shift is also anticipated to boost the network speed. That’s important for Ethereum, which aspires to become a platform for a broad set of financial and commercial transactions.
At the moment, Ethereum handles about 30 transactions per second. Vitalik Buterin, the inventor of Ethereum, thinks this can go up to 100,000 per second through sharding.
The recent upgrade is the most substantial change to the Ethereum blockchain since 2015.
Despite all the ups and downs, Ethereum is the second-largest blockchain platform. Many crypto market analysts appear quite bullish due to the latest upgrade and substantial institutional interest. There is a consensus that it will likely increase a lot in value shortly. And it is not difficult to see why this bullish trend exists.
Ethereum 2.0: A Game Changer
Ethereum has increased significantly since the start of 2021, and the momentum shows no signs of letting up. One of the biggest reasons is Ethereum 2.0, an upgrade of Ethereum’s algorithm that transitioned it from proof of work to proof of stake.
Why is this so important?
Researchers at Cambridge University have come out with a study that said that the Bitcoin network’s annual electric bill often exceeds Chile and Bangladesh. Cryptocurrency booster Elon Musk and others turned on cryptocurrency; as a result, urging investors to avoid Bitcoin and Ethereum and any coins that use proof of work.
This is why the upgrade is so important. The reduction in the overall carbon footprint will drive Ethereum higher. The London hard fork includes a fee reduction feature called EIP 1559, which decreases the supply of Ether as part of every transaction. This leads to the possibility of Ethereum becoming deflationary.
We already see progress on this end; as of mid-August, 3.2 ether per minute were being eliminated because of EIP 1559, putting upward pressure on the price of Ether. Also, another change is sharding, whereby the Ethereum network is divided into 64 geographic regions, with transactions inside a shard processed separately. The results are then reconciled with the main network linked to all the other shards, making the overall network faster.
Ethereum can revolutionize computer programming and digital ownership completely. Through Ether, people can transact from all over the world without dealing with banks and bureaucracy. The technology can power blockchain-based health care records, sustainable energy sharing, among other innovations.
Considering all these factors, it is not surprising that we have a host of bullish projections. WalletInvestor is projecting a 2022 Ethereum price of $3,144.51. Digitalcoin has gone a step further, saying Ethereum could reach $4,076.70 in 2022. Meanwhile, Trading Beasts has given a much more conservative estimate, believing the price will be $3,283.896 at the highest in 2022.
The price of Ethereum could skyrocket and possibly surpass the value of Bitcoin within the next five years, per Nigel Green, CEO and founder of financial advisory and asset management business deVere Group.
I will take all of these estimates with a pinch of salt. Nevertheless, the writing is on the wall; ETH will continue to do well, especially compared to its biggest rival, Bitcoin. Does that mean it will eventually surpass Bitcoin? It could happen. But you have to remember, Ethereum and Bitcoin fulfill two very different purposes.
Sunny Days Ahead for Ethereum
The latest upgrade is yet another reason to load up on ETH. I don’t foresee the asset falling in value any time soon. Yes, this is the crypto world why we are talking about. There will be ebbs and flows due to the news-sensitive nature of the space. Many of these news items will have little to do with the cryptos themselves; China’s cryptocurrency crackdown is a good example. But they will have a substantial impact on your holdings.
But if you are looking at Ethereum as a long-term investment, there is much to like, especially with the latest upgrade.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.