Ethereum (CCC:ETH-USD), the world’s second-largest cryptocurrency, is more than just an internet token. It is the top smart contract and decentralized application network, with more use cases than other digital assets.
As it moves to a proof-of-stake model, the network’s capacity will increase substantially and significantly reduce its energy requirements. Therefore, ETH-USD represents the cream of the crop as far as crypto investing is concerned.
The ETH token has shot up more than 380% in value since the beginning of the year. At the same time, industry stalwart Bitcoin (CCC:BTC-USD) is only up about 60% in the same period.
The Ethereum platform is undergoing major changes to increase its scalability, transaction throughput and efficiency while reducing its gas fees. The platform has already shown significantly more real-world utility than its peers, and future upgrades will create more divergence between them.
The London and Shanghai Hard Fork
The whole crypto sector has been buzzing since the release of Ethereum’s London hard fork. This is a major step towards Ethereum 2.0 and introduced some critical changes to the network.
Most notably, it updated the fee structure to an algorithmically determined model. It involves a base fee, which is usually 25% to 75% transaction value, and a priority fee that incentivizes miners to put a particular user’s transaction first.
In contrast to the first-price auction model the platform ran on previously, the new model was said to significantly boost efficiency. However, the base fee is burned after each transaction is complete, making ETH a deflationary asset. The currency’s supply is likely to reduce overtime, pushing its price higher.
The Shanghai hard fork is the next and perhaps final upgrade that will wrap up the Ethereum 2.0 update. It will go live anytime between the end of this year and early to mid-2022. The update is likely to merge Ethereum’s mainnet and Beacon Chain to implement proof-of-stake protocol.
Ethereum Has an Abundance of Use Cases
Bitcoin, the undisputed leader in the crypto space, is more of a safe haven asset for investors against fiat currencies. However, Ethereum is an ecosystem that is powering the digital economy.
Aside from the typical staking involved with most cryptos, it is the foundation for decentralized finance (DeFi) protocols. These are based on smart contracts, which execute when a predetermined criterion is met. Crypto investors have at least 7.7 million ETH tokens in DeFi protocols at this time.
Moreover, Ethereum is a dominant force in the nonfungible tokens, or NFT, space. NFTs are unique tokens that can represent avatars, art, music and other related items.
The NFT market has been booming this year, and Ethereum has been powering those transactions. Virtually every NFT exchange uses ETH to conduct these transactions on their respective platforms.
Ethereum is also a base layer for stable coins such as Tether (CCC:USDT-USD), pegged to the US dollar. More than 50% of transactions in Tether are based on Ethereum.
2.0 Can Help Ethereum Outpace Bitcoin
Ethereum has been on quite a roll in the past year. Since the pandemic began, major institutional investors have loaded up on the crypto, which propelled its price up more than 2,700% since January 2020.
With Ethereum 2.0 around the corner, its value is expected to rise even further. The platform will become more robust than ever before, offering even more utility for its user base. Hence, ETH-USD is perhaps the hottest crypto to invest in these days.
On the date of publication, Muslim 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.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.