Since its public launch in July 2015, Ethereum (CRYPTO:ETH) generated a monster return of 106,000%, absolutely crushing the broader stock market. The volatile nature of digital assets may scare some people off, but the possibility of life-changing returns means savvy investors shouldn’t ignore the huge potential of this new industry. The decision to invest in cryptocurrencies is entirely up to you, but it’s probably worth taking the time to understand the opportunity.
With such a crazy historical return, you probably think it’s too late to buy Ethereum, which boasts a market capitalization of $335 billion. I believe this perspective is wrong. Here’s why.
Ethereum is a programmable blockchain
One of the advantages of Ethereum over the most valuable cryptocurrency in the world, Bitcoinis that it allows the use of smart contracts. This feature allows transactions to be carried out between two unknown parties based on self-executing computer code. Trust and intermediaries such as banks, brokers and lawyers are not necessary.
With this kind of programmability, Ethereum has become the best blockchain when it comes to decentralized applications (dApps). From decentralized finance (DeFI) and gaming to social media and non-fungible tokens (NFT), Ethereum is the most popular platform due to its first-mover advantage. According to State of the Dapps, there are 2,925 total dApps running on the network, with a transaction volume of $214 million in the past 24 hours (as of February 18).
Of all blockchain projects, Ethereum has the highest number of monthly active developers working on it, with 4,000. As a result, this clearly proves that cryptocurrencies can offer real utility to the world and are not just an asset. speculative.
Planning for speed and scalability
However, with increased interest in Ethereum’s network, higher demand has resulted in expensive transaction fees, or “gas.” Since Ethereum can only process around 14 transactions per second (TPS), a single transaction has cost between $20 and $50 over the past few months. For Ethereum to become widespread and used frequently, it must become faster and cheaper.
Ethereum is transitioning from its current proof-of-work system to a proof of stake consensus mechanism. The latter allows Ethereum owners to stake a portion of their holdings in order to help validate transactions on the network. It is more energy efficient and provides faster throughput.
The update, formerly known as ETH 2.0, has been delayed and the rollout is now scheduled for June. And with the addition of shard chains in 2023, which would split the network into smaller chunks to increase speed and capacity, Ethereum could theoretically process 100,000 TPS. At these speeds, the potential for more dApps skyrockets.
Cryptocurrencies are still early
Despite all the attention the industry has received lately, cryptocurrencies are still in their infancy. According to data from TripleA, there were over 300 million crypto users worldwide in 2021. There are nearly 5 billion internet users worldwide, so crypto still has a long way to go in terms of penetration. This situation presents a really huge development avenue to bring more people into the crypto economy.
With continued technology improvements, more use cases and adoption, and regulatory clarity, it’s not hard to believe that Ethereum’s market capitalization could eclipse $1 trillion by 2025. Compared to its past performance, that would be a dramatic slowdown. However, this return would most likely exceed stock market gains.
With the cryptocurrency market having taken a hit in recent months, down around 33% since early November, now might be the time to add some Ethereum to your portfolio. It’s certainly not too late to jump into this burgeoning digital asset.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.