Ethereum Has What It Takes to Take Off Ahead of Its 2.0 Upgrade

  • Ethereum (CCC:ETH-USD) is up 40% from its March 7 low. 
  • The transition to proof-of-stake will increase transaction speed, volumes, and network scalability 
  • Bullish investors should take this opportunity to scale into a position  
A concept image of mining an Ethereum (ETH) token.
Source: Shutterstock

Ethereum is one of the best performing cryptocurrencies in the last month. At the time of this writing, ETH is up 40% from its low of March 7.

The reason behind this growth is the much-anticipated launch of Ethereum 2.0. While Ethereum 2.0 will enhance the network’s primary blockchain it has bullish implications for the ETH token.  

If you’re not familiar with ETH, it is a blockchain network that uses the same Proof of Work (PoW) protocol as Bitcoin (CCC:BTC-USD). According to Jamie Douglas Coutts, a senior market structure analyst at Bloomberg Intelligence, competition hasn’t diminished Ethereum’s popularity with the developer community.

Says Coutts, “In terms of scale, Ethereum is 2.8x larger than the second biggest platform, Polkadot (CCC:DOT-USD), and maintains the largest ecosystem of tools, apps and protocols.” 

However, as time has passed, ETH has been a victim of its own success. Ethereum remains the go-to blockchain for many developers (the DeFi community). And Ethereum is also being used for many NFT marketplaces.  

This is clogging the network and some developers are put off by the gas fees that Ethereum charges to use the network. This is where Ethereum 2.0 comes into the story.  

Ethereum ETH $3422.97

A Closer Look at ETH

The primary objective of Ethereum 2.0 is to change the consensus mechanism of the ETH blockchain from its current Proof of Work (PoW) protocol to Proof of Stake (PoS). With a Proof-of-Stake system in place, the network will have faster transaction speeds, volumes, and network scalability through what the network calls shard chains.  

One such shard chain, the Beacon chain has already been developed. The last step of the process will connect the main Ethereum blockchain (Layer 1) to the Beacon chain. At that point, the transition will be complete.  

As part of the migration process, many ETH coins are being burned rather than being distributed to miners to verify transactions.

With the PoS protocol in place, ETH holders will stake their coins to confirm transactions.

According to Will Hamilton, head of trading and research at Trovio Capital Management, this shift means “…that total emissions may become deflationary, likely acting as a catalyst for upside price momentum during the second half of 2022.” 

Moving to a PoS model will make Ethereum significantly better for the environment. A recent survey conducted by StarkWare revealed that 28% of respondents in the 25-34 age group acknowledged owning crypto.

That’s not an insignificant number. However, the survey also notes that many individuals are concerned about the environmental impact of mining cryptocurrency. Moving to a PoS system has the potential to make ETH a more desirable token.

Scaling Into Ethereum Makes Sense 

The transition to a PoS protocol is taking longer than expected. While there is sentiment that the network may launch ETH 2.0 at some point in 2022 (perhaps even by June), it’s also possible that the launch could be delayed into 2023.  

This is why Investors would be best trying to scale into a position rather than trying to time exactly when Ethereum 2.0 will launch. 

Ethereum 2.0 has been launching in stages (the first of which took place in December 2020), but it’s the all-important proof-of-stake adoption that is likely to take ETH to new heights. Some bulls are suggesting that Ethereum will overtake Bitcoin for crypto supremacy. 

Don’t invest in ETH with that thought in mind. It’s enough to know that lower fees and faster transaction speeds will increase Ethereum’s appeal to the DeFi community. That means that the price of Ether is going up, and probably significantly.  

On the date of publication, Chris Markoch held a LONG position in ETH. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.

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