Ethereum (ETH-USD) is the second-largest cryptocurrency by market capitalization. It has been one of the most consistent cryptocurrencies in every bull market since the project was founded. However, there is more to Ethereum than how it performed in the past. Ethereum’s future potential lies behind its significant plans to expand utility and adoption.
ETH might have the second-largest market cap, but I believe it is far from reaching its full potential. If you compare Ethereum to Bitcoin (BTC-USD), ETH has outperformed BTC on almost every bull market.
Moreover, Ethereum is also planning a set of significant upgrades to its network, formerly called Ethereum 2.0.
The upgrade will make ETH the largest proof-of-stake cryptocurrency. It will also significantly reduce the amount of power the Ethereum network consumes. The “merge” upgrade (switch to proof of work) is likely to happen in either 2022 or 2023, and this upgrade would likely drive the price of Ethereum even higher.
Ethereum’s Importance In the Cryptocurrency Market
The most significant factor that guarantees the presence of ETH as a major cryptocurrency is the fact that there are over 499,000 ERC-20 tokens on the Ethereum network.
These tokens are entirely dependent on the Ethereum network and have to pay their gas fees in ETH. Thus, these nearly half a million tokens create significant demand for ETH, and they also make sure that the Ethereum project won’t simply die down as ERC-20 tokens have a combined market cap of nearly $200 billion.
ERC-20 tokens include well-known cryptocurrencies such as Shiba Inu (SHIB-USD), Chainlink (LINK-USD), Wrapped Bitcoin (WBTC-USD), Tether (USDT-USD), USD Coin (USDC-USD), DAI (DAI-USD), Decentraland (MANA-USD), and Basic Attention Token (BAT-USD).
Another factor that makes ETH a good investment is its safety. According to Etherscan, the Ethereum network currently has a hash rate of over 1,000,000 GH/s, making it one of the safest networks. I believe this combination of safety and profitability makes Ethereum a better investment choice than Bitcoin.
In terms of adoption, Ethereum has already become the primary payment method for the rapidly growing non-fungible token (NFT) market. Moreover, Ethereum also has inserted itself as a necessity in the Metaverse. Axie Infinity (AXS-USD), The Sandbox (SAND-USD), and MANA are the payment methods for their respective Metaverse worlds, all of which are ERC-20 tokens. If the ambitious plan to make the Metaverse mainstream succeeds, or if NFTs keep becoming more popular, ETH will directly gain from it.
The most significant stablecoins are also ERC-20 tokens that are dependent on the Ethereum network. These stablecoins themselves are becoming important worldwide payment methods due to the volatility of cryptocurrencies.
I believe that Ethereum’s strong emphasis on innovating will steadily make it the lingua franca of crypto. Bitcoin’s lack of complex smart contracts, lack of solutions for environmental concerns and lack of a dedicated team will make it harder for Bitcoin to compete.
There are many cryptocurrencies other than ETH that are already proof-of-stake and support complex smart contracts. However, none of them can match Ethereum’s prominence.
Ethereum Could Be an Alternative to Stocks
Investing in cryptocurrencies is certainly risky. However, I would not ignore its long-term prospects due to short-term risk. Cryptocurrencies such as Ethereum are gaining more and more real-world usage through innovation and upgrades to their scalability. I believe crypto is no longer the highly speculative asset it once was. As the market capitalization of crypto increases, the volatility will naturally decrease.
I still think that cryptocurrencies are undoubtedly riskier than stocks. Thus, I would not recommend them as an alternative to stocks in the short term. However, worldwide events such as inflation and war are making the stock market more and more volatile. If these problems get more severe, regular investors will find it more worthwhile to allocate a larger chunk of their portfolio for cryptocurrencies. ETH is likely to be the one to gain the most from such a scenario.
On the date of publication, Omor Ibne Ehsan held a LONG position in MANA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.