Why Ethereum Could Fall Hard From Here

Ethereum (CRYPTO: ETH) It is one of the most established cryptocurrencies available today and a pioneer in building facilities in cryptocurrencies. The market rewarded this position as the market capitalization of Ethereum is around $450 billion as of this writing.

Despite the success of Ethereum, rival cryptocurrencies are trying to improve their biggest flaw. If Ethereum loses its user base and developer leadership, it could lead to a collapse in the value of Ethereum. Even if you are optimistic about cryptocurrency, the downside is worth understanding.

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Ethereum’s utility advantage is eroding

When Ethereum became popular, it was largely because the cryptocurrency could include smart contracts. Sales of NFTs can include royalties to original artists, and commercial rights or access to digital platforms can be included in the sale. This is a great benefit, but the gas fees that Ethereum faces today mean that small transactions are not even worth making on Ethereum.

Innovative projects have moved from Ethereum to platforms like Solana (CRYPTO: SOL) Because their fees are much lower. While a simple transaction on Ethereum can cost $100, a transaction on Solana costs pennies at most.

The same can be said about Cardano (CRYPTO: NO)And ribbed (CRYPTO: matic), And dotted (CRYPTO: DOT), which all build their ecosystems of NFT markets, decentralized exchanges, wallets, and more on low-cost cryptocurrencies. Large projects and NFT artists will remain on Ethereum, but startups are working on other cryptocurrencies. Given the start of the industry, that should be a concern.

slow to respond

The high-cost challenge has been known for a long time, which is why Ethereum is being upgraded to a proof-of-stake verification process. However, this upgrade has been delayed by several months and will not take place until sometime in 2022.

Once Ethereum moves to Proof of Stake, it should lower costs and allow more transactions per second, but in the meantime, allow other cryptocurrencies to evolve. This is a problem because developers are building on other cryptocurrencies, and new users may be drawn to low-cost networks. For example, a new user investing $100 in cryptocurrency may not be able to buy an NFT on Ethereum, but on Solana they can buy multiple NFTs, test the network and utilities. Attracting new users is fundamental to every cryptocurrency business, so if new users are on board with other networks, it’s a bad sign for the future of Ethereum.

The other side of the coin

I think this is a very big risk for Ethereum in the coming year. But there are also reasons for the appreciation of the cryptocurrency, which should not be overlooked.

The first is that Ethereum is the second most valuable cryptocurrency and millions of people have an incentive to keep it that way. This includes early NFT projects, infrastructure companies, and investors. If the proof-of-stake upgrade comes relatively quickly, they may be able to hold other cryptocurrencies at bay.

The other feature is the first feature that Ethereum built with developers. The largest NFT market on Ethereum is built with smart contracts in mind, and other cryptocurrencies are built on top of it. Again, if the Proof of Stake upgrades are completed in a timely manner, these benefits could expand.

Where is Ethereum heading in 2022?

There are a lot of unanswered questions regarding Ethereum in 2022. We know that a network upgrade is coming, but it has been delayed several times, allowing other cryptocurrencies to expand their networks. But Ethereum also has a huge lead in the crypto space and the second largest market cap with millions of dedicated followers.

I am optimistic about smart contracts and NFTs in the long term, but I believe that cryptocurrencies with higher speeds, lower transaction costs and strong security will win in the long term. Ethereum is currently lacking in speed and cost, and as long as that is the case, investors will have to wonder if this is the best cryptocurrency for 2022.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.