At a time when the crypto market needs a savior, Ethereum might just be it. Ethereum has been the second-largest cryptocurrency in terms of market cap for quite a few years now. In many cases, it's a lot better than Bitcoin, yet, for some reason, it just never managed to surpass it. However, Ethereum has been going through a lot of changes as of late, and there are many reasons to believe that it will overtake Bitcoin sometime this year and potentially save the crypto market from a crash.
Ethereum was founded back in 2015, at a time when cryptocurrency first started to become mainstream. Unlike all of the Bitcoin clones that were coming out at the time, Ethereum was crypto that did something different. Instead of just being another crypto, Ethereum was an entire platform. On this platform, developers can create decentralized apps, smart contracts, NFTs, and so many other things that were unheard of before it came out. It was something truly revolutionary, and it didn't take long before Ethereum was (almost) at the top of the crypto world. By 2018, Ether was already the second-largest cryptocurrency in the world by market cap, a position it has maintained since then.
2021 was probably the year where Ether shined the most. From December 2020 to May 2021, Ether grew by almost 500%. In November 2021, it hit its all-time high price of over $4,800. However, now, in May of 2022, Ether is down to around $1,100. Why? Well, it's basically because the crypto market as a whole is facing one of its biggest crashes in recent years. This crash was caused by a hike in interest rates in the US, which led to more people saving money instead of investing in volatile assets. Naturally, investors took this as an opportunity to panic and sell all of their crypto assets, leading to where we are today.
But of course, this panic situation is not going to last forever. Right now, Ether is still worth more than it was in, say, July of 2021. That's less than a year ago, and it's important to note that Ether was able to reach its peak after July of that year. With the crash in mind, I believe that Ether will be the main crypto that brings the market outside of this crash. Why? Because of Ethereum 2.0.
As I mentioned earlier, Ethereum is undergoing a lot of major changes in the way it works, and it's all part of a project known as Ethereum 2.0. This "project" has been going on since 2020, and it's going to have three phases. The first phase (technically phase 0) is the "Beacon Chain", which would create an alternative proof-of-stake consensus mechanism on the Ethereum blockchain. I'll go more into that in a moment, but the Beacon Chain worked alongside Ethereum's regular proof-of-work consensus mechanism.
The second phase (technically phase 2) is called "The Merge", and it's set to be completed by the third quarter of 2022. During "The Merge", the proof-of-work mechanism would be phased out of Ethereum's blockchain and it would be completely replaced with the Beacon Chain. This is going to be a major change in the way Ethereum works, but before I talk more about that, let's take a look at the final "phase" of Ethereum 2.0.
The final phase will be the "Shard Chain". It's a bit more complicated than the previous two, but it's essentially going to make Ethereum more scalable and efficient than ever before. Transactions that previously took 10 minutes to complete would now take less than 10 seconds. The "cap" on Ethereum growth would be removed.
Now that that's out of the way, let's take a look at the difference between proof-of-work and proof-of-stake. Now, I'm gonna give you an EXTREMELY simplified explanation here, but with the proof-of-work mechanism - which was something that EVERY early crypto used - the blocks on the blockchain are created through an effort by a massive network of powerful computers all across the world. These computers join hands to create a consensus, if over 50% of the computers cannot reach a consensus, a new block cannot be created.
Proof-of-stake is something a bit different. Instead of having a massive network of computers, it uses a massive network of owners. Basically, every single person who owns a specific cryptocurrency on the blockchain would have a say in creating new blocks and validating transactions. This means that if you own 1 Ether, you technically have 1 vote in the consensus mechanism.
The reason why PoS is considered better than PoW is simple - it uses a lot less energy. Bitcoin, Ethereum, and practically every other cryptocurrency have been under fire by environmentalists, newspapers, and influential individuals like Elon Musk for their horrible environmental record. This is because all of the computers that are involved in the blockchain require a lot of energy to function. On top of that, this energy requirement creates a "cap" for how much a cryptocurrency can actually grow. For example, the more people invest in Ethereum, the larger the consensus network will have to be. If Ether or Bitcoin were to become the "standard" of international currency (something that both projects aim to do), there simply wouldn't be enough energy in the entire world to power something like that.
That's why the PoS system is preferred. It uses a fraction of as much energy as PoW does. On top of that, it's a lot faster, and easier, and it's future-proof. For starters, there's no "cap" on how much a PoS crypto can grow. The "governance" is done entirely by stakers, which are people who choose to delegate a certain amount of their cryptocurrency for governance purposes. This amount goes into "staking pools", which are sort of like political parties that have single governance cause they support. The more stakers a staking pool has, the more likely it is for that "cause" to be made part of the code.
Bitcoin still uses the PoW system, but Ethereum is switching over to PoS. But there are also a lot of other PoS cryptos out there. Why is it a big deal if Ethereum switches over to the same system? Well, it mainly has to do with the fact that Ethereum is already a massive platform for Web3 apps, NFTs, smart contracts, decentralized finance, and so much more. Ether is much bigger than simply its cryptocurrency. Others have tried to compete with Ether, such as Cardano and Solana. But so far, none of them have come even close to the user base that Ethereum has.
All of this is extremely important for the crypto market in general. The fact that there are actual uses for the Ethereum platform means that its value is more than just market speculation.
Ethereum might bring some very positive changes to the world of finance overall. It's a highly sophisticated platform that happens to be decentralized and well-governed. In the future, we are going to see a lot of DAOs and other sorts of organizations that are based almost entirely on the Ethereum blockchain.
There's even a chance that Ethereum could form into some sort of United Nations for the new age of finance, and if we bring Web3 into the mix, it would sort of be the central hub of the internet as well. But this "central hub" would be decentralized, which is what makes it so impressive. It's because of all of these changes and plans for the future that Ethereum was not that badly affected by the crash in crypto prices recently. Don't get me wrong, Ether tumbled hard. But it's hardly at a point where it can't recover. I'm willing to put my last dollar on the bet that Ethereum will eventually recover, even though I wouldn't do that for practically any other cryptocurrency.
If we see the crypto market as a whole start to recover sometime later this year, there's a very high chance that Ethereum might just overtake Bitcoin for the first time in history. I'm not gonna make any bets on that, but I am saying that I wouldn't be surprised if something like that ends up happening. In all honesty, Bitcoin is sort of like the identity of cryptocurrency, but at the end of the day, it's extremely outdated. Keeping Bitcoin at the very top of the crypto ladder is going to be detrimental to the future reputation of crypto, and if we want to improve that reputation and make crypto more widespread in the world, something as "sophisticated" as Ethereum will need to replace Bitcoin.
But I'd like to add that all of this is mere speculation. I'm not asking you to go invest in Ethereum or anything like that, and every prediction I made in this article might as well turn out to not be true. I'm just giving my opinion on the topic, and at the end of the day, I just have a gut feeling that Ethereum is going to be the cryptocurrency that reverses the crypto trends that we are seeing today.
What do you think the future of Ethereum will be like? Let me know in the comments below!