April 1, 2021

The future of Ethereum

Ethereum, the largest cryptocurrency after Bitcoin, has been lagging a bit price-wise in recent months compared to the entire cryptocurrency market. The reason Ethereum is lagging behind may be due to concerns surrounding the Ethereum network, such as gas fees. Because of these concerns, some of the attention is shifting to other digital open source projects, such as Cardano and Polkadot. Is this shift in attention temporary? And what does the future look like for Ethereum? In this article we will discuss these points.

The future of Ethereum
The future of Ethereum

What is Ethereum?

Like all cryptocurrencies, Ethereum uses blockchain technology. Ethereum is an open source, blockchain based, decentralized platform. Decentralized applications (DAPPs) and smart contracts can be built on the Ethereum network. These DAPPs and smart contracts can be run without any down time, fraud or interference from third parties. Ethereum also has its own programming language that allows developers to launch their own application on Ethereum. The possible applications of these DAPPs and smart contracts are virtually infinite.

Ethereum 2.0

In the introduction I mentioned that there are concerns around the technical aspects of the Ethereum network. Ethereum 2.0 could change this. Ethereum 2.0 is an upgrade of the current Ethereum network. The goal of this upgrade is to improve the speed, efficiency and scalability of the Ethereum network. To achieve these goals, a number of already existing technologies are applied. These are sharding, staking and a beacon chain.

The sharding technology that will be used in Ethereum 2.0 may provide the most impressive improvement. At the moment, the Ethereum network can handle around 30 transactions per second, which often causes accumulations and delays in transactions. Ethereum 2.0 wants to use the shard chains to scale those 30 transactions per second to as many as 100,000 transactions per second.

The Ethereum 2.0 upgrade will initiate the transition from Proof-of-Work to Proof-of-Stake, with the eventual goal of Ethereum fully transitioning to the PoS consensus algorithm. Although strike also consumes energy, this consumption is significantly less than mining, a nice contribution to a more sustainable society. As of December 1, 2020, it is also possible to strike Ethereum and become a validator in order to reap rewards.

The beacon chain is also a very important component of Ethereum 2.0. The beacon chian is essential because it is going to be the backbone of Ethereum 2.0. You can think of the beacon chain as the conductor of an orchestra with shard chains and strikers as musicians. Beacon chain should coordinate the network in such a way that steps can be taken safely towards a scalable and sustainable Ethereum.

The impact of DeFi

In less than a year and a half, DeFi, aka Decentralised Finance, has skyrocketed in both value locked-in and hype. Decentralised Finance (or simply DeFi) refers to an ecosystem of financial applications built on the blockchain.

More specifically, the term Decentralised Finance refers to a movement that aims to create an open-source, permissionless and transparent financial ecosystem that is accessible to all and operates without a central regulator.

The biggest advantage of DeFi is the easy access to financial services, especially for those outside the current financial system. Another potential benefit of DeFi is the modular framework on which it is built. Compatible DeFi applications on public blockchains have the potential to create entirely new financial markets, products and services.

Below you can see the total value locked-in DeFi, this shows that there is more and more money and trust in DeFi. DeFi may experience a great development in the coming years, which may also support the development of Ethereum, because almost all DeFi is built on Ethereum.

Technical Analysis

Ethereum recently broke out of a symmetrical triangle at the daily time interval. Currently it is testing the all time high around 2,000 US dollars. If this resistance breaks and can act as support, 2,500 to 3,000 US dollars are real price estimates. Below we will also discuss what the Ethereum/Bitcoin chart looks like. It is also important for investors to know if Ethereum could outperform Bitcoin.

Below I have displayed the Ethereum/Bitcoin chart on a 3 day time interval. It can be seen that Ethereum is consolidating above an important support level. If this support holds, I think it is likely that the Ethereum/Bitcoin valuation will accelerate significantly this summer. This acceleration will mainly be driven by the hype surrounding Ethereum 2.0 and the growing DeFi market.

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