Ethereum: 2022 Prospects

Ethereum – the second most important cryptocurrency and the basis of most DeFi projects – faced a crisis last year. While more projects are still being launched on Ethereum, they experience difficulties due to poor scalability, low bandwidth, and expensive transactions.

Ethereum (ETH) is perhaps the most important cryptocurrency in the world when it comes to the development of blockchain technologies. Hundreds of unique projects with their own tokens have been created on its blockchain. The network’s smart contracts facilitated numerous popular technologies, such as NFT, DeFi, and GameFi. Technological superiority allowed ETH to break into the top of cryptocurrencies in terms of capitalization, by which today it is second only to “digital gold” – bitcoin.

Ethereum is more than just a cryptocurrency at this point; it is a decentralized platform for creating applications (ETH even gets called the “largest blockchain computer”). All calculations on the platform are performed by smart contracts – intelligent automatic software systems capable of fulfilling their functions without human input. Smart contracts run on the blockchain, making them impossible to falsify. Thanks to the undeniable advantages of this solution, Ethereum has become a leader in blockchain implementation into business processes.

As has already been mentioned, ETH underlies the fastest growing areas of the crypto business – NFT, DeFi, and GameFi. It was their progress that allowed for such significant growth in Ethereum price over the year – from about $610 to $4,700 per coin. In early November, it peaked at $4,890 and was $3,730 by the end of the year.

The altcoin value grew especially quickly in August 2021, following the London update release and the activation of the coin-burning mechanism. Launched on August 5, the London update was another step towards the 2.0 protocol. The hard fork completely changed the process of accruing transactions so that part of the commissions that miners previously received as a reward now gets burned in an attempt to solve the problems of the high gas fees.

Joseph Lubin, co-founder of Ethereum and founder of ConsenSys, noted that with the success of any new technology come problems with scaling, and it is “a measure of success defined by growing pains – something that cannot be avoided”. In this case, “growing pains” seem insurmountable – excessively high transaction costs, network congestion, and smart contract functionality insufficient for modern demands.

Lubin said that the transition to Ethereum 2.0 will help reduce transaction costs and also added that the problem of Ethereum scalability is already being eliminated through Layer 2 (L2) solutions.

Back at the end of November, Vitalik Buterin also mentioned that the only safe way to scale the Ethereum network while maintaining a decent level of decentralization is to use L2, but added that their own sharding solutions would take a long time to implement. The Ethereum co-founder claimed the network could scale 100 times in a few months using Rollups (one of the Layer 2 solutions).

However, any L2 solutions will only temporarily fix the network problems, and the competition is getting closer. So, in order to maintain leadership and decisively resolve their issues, Ethereum will inevitably have to switch to a PoS consensus algorithm in 2022. Realistically, it should have been done a while ago, but numerous problems in the Ether development team hindered the project development.

Now, realizing they’re lagging behind, the developers have accelerated the work on the new Proof-of-Stake network as much as possible. The Kintsugi testnet, in which the community can try out their new ideas, has already launched. It means that DApps designers currently have the opportunity to prepare the launch of their projects in the latest version of Ethereum – a good six months before the actual debut of Ethereum 2.0.

Kintsugi has become synonymous with transparency and openness, and it is meant to show the community in advance how the Proof-of-Stake Ethereum network will work. You can use Kintsugi through a special landing page, which provides you with everything necessary. It also has documentation to help you figure out the testnet. Using Kintsugi requires a Metamask wallet.

Yet, it’s all too little, too late. Ethereum has already become a victim of its success. The network is the absolute leader in hosting decentralized applications, smart contracts, NFTs. Due to the massive influx of users, fees have risen, and the operation speed has fallen. Bets on NFT auctions and direct exchanges between users have become unprofitable. The constant delays to the PoS version launch led to competitors – such as BSC, Cardano, Polkadot, Solana, etc. – quickly gaining strength.

2022 will be a pivotal year for Ether. Everyone sees that the Ethereum 2.0 network can withstand any load without slowdowns and with minimal fees. But the development is far from complete, and the new network still must get tested, most likely followed by finalizing individual components.

Previously, the summer of 2022 was considered the realistic timeframe for the transition to a new consensus algorithm. Now, however, there are more optimists who believe the change to Proof-of-Stake may happen in the spring. Investors also demonstrate confidence in the project: large crypto investment companies have recommended those who keep only BTC in their wallets to buy Ethereum for diversification. The famous American billionaire investor Ray Dalio disclosed that he owns Ethereum and Bitcoin. He stated: “I view Ethereum as alternative money in a world where fiat currencies can no longer be considered reliable.”

As for capitalization, experts are confident in ETH growth potential for 2022 – at least to $5,000, while most optimistic scenarios predict the cost of Ethereum to reach $10,000. Still, much will depend on the Bitcoin dynamics. If the tailwinds for the first cryptocurrency stay strong, it will boost the rest of the market.

Director of Pantera Capital Dan Morehead believes that by 2030 the value of Ethereum could climb to six figures. Brian Shuster, CEO of Ark Capital, is more cautious in his forecasts, suggesting that by the end of the decade, ETH will have grown in price up to $100,000. I myself am even less optimistic: evolution is inevitable, so more advanced and functional developments will eventually force out the “dinosaurs” like Ether.

But in any case, most experts agree that Ethereum will be able to maintain its position in the cryptocurrency market in the coming years. In the wake of another crypto winter, it could potentially show a multifold increase compared to previous highs.