At the start of the last fiscal quarter of 2021, Bitcoin is once again leading the charge toad new heights in the crypto markets. The original cryptocurrency is racing upwards, making it a great occasion to go long using options trading like the ones found on Bitlevex. However, while BTC is going up, many investors are focused on Ethereum in 2022. The #1 smart contract platform in the crypto sphere is showing incredible signs of strength in this last quarter. And with the DeFi and NFT markets booming, usage of the Ethereum network is hitting historical heights. In this blog, you will know about Ethereum in 2022 – What’s Next for the #1 Smart Contract Platform.
In this article, we take a closer look at Ethereum, its advantages, and shortcomings. We will analyze some of the current and upcoming network upgrades that could have a significant impact on the price of ETH, as well as the entire DeFi ecosystem.
Table of Contents
What is Ethereum in 2022?
Ethereum is considered to be the first successful smart contract-capable blockchain. By allowing developers to deploy decentralized applications on its network, Ethereum multiplied the use cases of blockchain technology. Smart contracts allow us to automate certain functionalities, which allowed us to apply this technology to existing industries such as healthcare, logistics, pharmacy, and many others.
In addition, Ethereum allows for the creation of:
- Fungible tokens, or in other words, proprietary cryptocurrencies under the ERC-20 protocol. Prime examples of such tokens are USDT
- Non-fungible tokens (NFTs), unique digital assets under the ERC-721 protocol.
The Ethereum blockchain currently functions on a proof-of-work consensus. This means that miners confirm the transactions on the network by completing complex mathematical puzzles.
Finally, we should mention the ETH cryptocurrency that is native to the network. This proprietary token is used to pay the gas fees whenever there are transactions on the network, including the creation of smart contracts and deployment of dApps.
What are Ethereum’s shortcomings?
Currently, Ethereum is suffering from its own success. The PoW consensus model upon which it is based scales extremely poorly with mass usage. This means that as more users join the network, the less efficient it becomes. Transactions become slower and more expensive to carry out.
Because of the exponential growth of the DeFi and NFT ecosystems, the Еthereum network has been saturated. This has contributed to transaction fees skyrocketing to unreasonable amounts, rendering some DeFi applications literally unusable.
So why are most experts still bullish on ETH?
And yet, many experts still believe in the power of Ethereum. It remains the #1 development platform for dApps for many reasons, which we depict below.
Only recently, a proposal was adopted on the network which goes towards a deflationary model for the ETH cryptocurrency. After the recent London hard fork, a portion of the ETH used in transaction fees is burned, or in other words, irrevocably destroyed.
This update has contributed towards the destruction of more than 500.000 ETH at the time of writing. This means that more than $1.7 billion in rewards have been destroyed in just over 2 months.
ETH Supply shock
In addition to the burn model, on-chain data shows that miners are hoarding their ETH rewards, creating increased scarcity on the market. This decreasing supply is believed to impact the price positively in the near future.
Switch to proof-of-stake
The most significant future upgrade of the Ethereum network is the switch to a proof-of-stake consensus mechanism. Expected to go live somewhere during 2022, this update will allow Ethereum to provide much better scaling and faster transactions while conserving all of its functionalities.
Additionally, mining will become a thing of the past, allowing Ethereum to be regarded as a carbon-neutral blockchain. PoS is expected to consume 99% less electricity than the current PoW model.
Top player in DeFi and NFTs
Two major catalysts in the current crypto bull run are the DeFi ecosystem paired with the explosion of the NFT markets. And Ethereum already nests more than 90% of both of these markets.
DeFi is expected to continue its exponential growth in the following years. As smart contracts become more secure and UI more user-friendly, we should expect the mainstream investor to start using decentralized financial services on Ethereum massively.
Established dApp ecosystem
While other blockchains are already offering working PoS and scalable systems, there’s a reason why developers aren’t mass migrating from Ethereum to the competition. The reason is that Ethereum has already a fully developed ecosystem of management tools, wallets, decentralized applications, NFT marketplaces, and Layer 2 optimizing solutions. And for most third parties, it’s not cost-effective to migrate to a new platform and start from scratch.
As the first smart contract platform, Ethereum in 2022 remains on top of the popularity list for users and developers. With an established ecosystem, there are many third-party developers providing Layer 2 scaling solutions for Ethereum that improve its efficiency and speed. And with the upcoming switch to a PoS model, we can expect this network to easily overcome the competition and stay on top of the smart contract food chain.