Ethereum, like most other cryptocurrencies, has been on a rollercoaster ride for over a year and a half now. Things looked peachy for the world’s second-largest crypto in 2021 with its native currency Ether (ETH) trading around the $4,000 mark and global market cap rising to $500 billion by the end of the year. However, the new year started on a rough note and the price nearly halved to $2,200 in January following interest rate hike indications from the US Federal Reserve.
Ether prices have since stabilised and even begun to recover slowly. It is currently trading at around $2,740 on coinmarketcap.
Despite the erratic price actions, experts remain bullish on Ethereum in 2022 with some even predicting it will breach the $12,000-mark by the end of the year. The optimism stems from multiple developments in the Ethereum network that could make it faster and more efficient.
Let’s delve deeper into the changes that could drive the network in the future
Ethereum started off with a proof-of-work (PoW) consensus mechanism just like Bitcoin and faced criticism due to the environmental impact. PoW networks use an energy-intensive mining process.
The Ethereum network, for instance, annually used 99.6 Terawatt-hours of electricity—more power than is required by the Philippines or Belgium, an Investopedia article in December pointed out citing estimates by Digiconomist. A single Ethereum block required 220 kilowatt-hours of electricity, which is the same amount of power that an average US household consumes in 7.44 days, the Digiconomist estimates suggested.
Another major pain point for users of Ethereum network has been its high transaction fees called gas fees.
To address these problems, Ethereum started the process of transitioning to the proof-of-stake (PoS) consensus mechanism. The move to Ethereum 2.0 as it is called is being done in phases that started from end of 2020.
The London hard fork launched in April 2021 introduced coin burning, which successfully reduced the total supply of Ether circulating as its use grows. This will also make Ether a deflationary asset in a market trifled by inflation.
The Altair upgrade to the Ethereum Beacon chain in October 2017 tested the transition to the proof-of-stake (PoS) mining model. The Arrow Glacier upgrade released in December 2021 delayed the ‘Difficulty Bomb’, the decrease in mining difficulty. The delay will be till June of 2022 to accommodate the transition from PoW to PoS.
The transition is nearing fruition and is expected to complete by the end of 2022. This new consensus mechanism will lower energy consumption and reduce transaction fees as well.
“Ethereum’s transition to proof of stake – The Merge – is near: devnets are being stood up, specifications are being finalised and community outreach has begun in earnest. The Merge is designed to have minimal impact on how Ethereum operates for end-users, smart contracts and dapps… In the next few weeks, a long-lived testnet will be made available for testing by the broader community,” said Ethereum developer Tom Beiko in a post on November 29.
The transition to Ethereum 2.0 is a vital one as investors around the world are focusing on Environmental, Social and Governance (ESG) issues. Digital assets like Bitcoin and Ethereum as they are right now, are not living up to these standards. This is why the transition to Ethereum 2.0 is crucial and comments from developers indicate that the final stage of the transition is near.
Also Read: Explained | What is a blockchain ecosystem?
“Looking at the ESG principles, Bitcoin and Ethereum and other leading cryptocurrencies already address the ‘S’ and the ‘G’ pretty well...the evolution from proof of work to proof of stake and less energy-intensive consensus algorithms will bring blockchain into compliance with the ‘E’,” Charlie Morris, co-founder and managing partner at CMCC Global told Asian Investors in October last year.
Increased institutional adoption
The decentralised finance (DeFi) space has seen a massive boom in the last couple of months. Non-fungible tokens (NFTs) –tokens that provide ownership of unique digital assets -- have gained popularity. Many celebrities, artists, and retail giants have already jumped on the digital asset bandwagon, and several others are in the process of doing so.
Web 3.0 is also knocking on the door with a splutter of metaverses being announced, developed, and launched. All this spells good news for Ethereum.
The platform is believed to offer greater flexibility when it comes to integration with DeFi projects. This is one of the reasons why Ethereum already has hundreds of NFT, metaverse and decentralised application (dApp) projects on its network.
And with the continuing surge of DeFi projects, adoption of the Ethereum blockchain will only increase. It’s a trend that several venture capital firms (VCs), and financial institutions are noticing and want to be a part of.
Ethereum has seen significant growth in adoption by users in 2021. Data from blockchain intelligence firm, IntoTheBlock shows an increase of 18.36 million addresses that have a balance greater than zero.
Ethereum is still the leading smart contract platform by total value locked (TVL) in the ecosystem. TVL is the total value of crypto assets deposited in a decentralised finance (DeFi) protocol. On-chain statistics platform Defi Llama indicated in a Cointelegraph article that Ethereum currently has $124.24 billion in TVL, which vastly outstrips runner up Terra (LUNA) with $15.04 billion.
“Ethereum, helped by excitement over its potential to power the nascent web3 and the hype surrounding Ethereum-based NFTs (non-fungible tokens)… soared this last year, climbing at a faster clip than Bitcoin as venture capitalist (VC) companies and investors rush to fund Ethereum-based projects,” said BOOX Research, a cryptocurrency research organisation, while talking to Yahoo finance.
What does all this mean for Ethereum in 2022?
Walletinvestor.com, a site that publishes technical forecasts for crypto and other assets predicts ETH will rise by 70 percent, culminating in a final price point of around $7,000, by the end of the year. It even expects the price to shoot up to $15,000 if Ethereum futures ETF is approved by the SEC in 2022, per an article.
Ian Balina, investor and founder of crypto research and media company Token Metrics, said in an interview with NextAdvisor that she believes the price of Ethereum can shoot up to $8,000 in 2022. “Ethereum is the clear leader but other blockchains are onboarding new users at a faster pace due to Ethereum’s high gas fees and low transaction speed,” she said.
Coinpedia, a Cryptocurrency Encyclopaedia offering crypto-related comprehensive information, expects the cryptocurrency to hit the $12,000 mark if the transition to Ethereum 2.0 is successful.
While the famous investment bank Standard Chartered refrained from specifically talking about 2022, its long-term projections show a target of $26,000-35,000.
However, some technicals also point to a downward trajectory for Ether at least in the short term. Technical data from Coincodex, a crypto market intelligence company, suggests short-term sentiment remains bearish. From a total of 30 technical indicators, only ten showed bullish signals, with all others showing bearish signs. The data showed technical support at $2,604 down to $2,429, with upside resistance from $2,779 up to $2,954.
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First Published: IST