Even in a shaky market, Ethereum is arguably the most vital project in the entire crypto ecosystem. Here are the top 5 reasons to be bullish on Ethereum!
The Ethereum blockchain still has the most dApps in the crypto ecosystem by far, with around 3000 dApps running on the protocol at the time of publication. Many of the most popular DeFi applications are hosted on Ethereum, with billions of dollars of value locked inside them. The Maker lending protocol alone hosts over $15 billion of people’s crypto!
All of those dApps are secured by lots of computational power, with nodes widely distributed around the world. In short: The Ethereum network and the dApps that run on it aren’t going anywhere soon!
Having said all this, Ethereum does need to fix its gas fee system and integrate more seamlessly with L2 scaling platforms if it’s going to win out against other platforms like Solana and Polkadot. One solution would be for Ethereum to integrate with these other protocols using bridging technology, as we move into the “multiverse” era of blockchain technology.
Ethereum is the founding platform of Etheria, the first-ever NFT project! Although the floor price and sales volume of NFTs may rise and fall, the general trend suggests that demand for NFTs is growing, with conservative estimates putting NFT growth to $66 billion by the year 2031.
The NFT market already grew from $232 million in 2020 to $22 billion in 2021. That’s an astonishing increase, and the vast majority of these sales happened on Ethereum using ETH as currency.
The most popular NFTs so far have been “profile pic” NFTs, such as Cryptopunks, Bored Apes, or the World of Women digital avatars. But some of the more recent projects with NFT marketplaces, including Metaverse, e-Sports and play-to-earn worlds, have more complex ecosystems that are just getting started.
The use cases of NFTs are also growing, as more DeFi protocols (like Arcade) are accepting Ethereum-based “blue chip” NFTs as collateral for lending.
3) The network effect
The network effect is arguably the best reason to be bullish on Ethereum long term. The reason that so-called “Ethereum killers” like EOS have been falling out of use, while Ethereum is still growing, is that developers are deserting these networks and the users are following.
Ethereum, with its friendly developer environment, accessible coding languages and sophisticated development stack, is continually growing its community of builders. This “network effect” is similar to what was achieved by the most successful tech companies that survived the dot-com boom and bust of the early 2000’s.
Venture Capital firms like Andreessen Horowitz and Fenbushi Capital know this, and a lot of “smart money” has come over to Ethereum. In all likelihood, Vitalik Buterin’s continued influence is also a key factor in encouraging investor participation. VC companies bring money, and all of this capital is being put to work to fund further research and development on the network.
4) The Merge
Sometime later this year Ethereum will transition from proof of work to proof of stake. The merge will be one of the most complex upgrades ever attempted on a live blockchain, and it’s going to have a significant impact on Ethereum’s fundamentals. In just a few months Ethereum will reduce its energy consumption by 99.5% or more, as the network will no longer depend on ASIC miners for security.
The merge is also expected to further decentralize Ethereum. Due to setup complexity and the cost of new equipment, mining tends to become dominated by large players who have an outsized impact on the network. The same thing could happen with staking if everyone uses a few large services like Coinbase and Binance to stake.
However, if people stake with services like Lido and Rocket Pool, it will decentralize Ethereum. Staking is more egalitarian than mining since anyone with even a fraction of an ETH token can participate.
5) Ethereum supply shock
The price of any asset represents the balance between supply and demand. Ethereum is about to experience a massive supply shock which could send ETH into the stratosphere. First there was EIP 1559, which has already burned 2.3 million ETH tokens worth about $8 billion. EIP 1559, which creates predictable transaction fees on the network, will continue burning ETH and reducing supply for the foreseeable future.
After the merge, the issuance of new ETH could also decrease by as much as 90%. Paying stakers is significantly cheaper than paying miners, which means the network can mint less ETH for its security budget. Also, staking locks ETH in the deposit contract which reduces the liquid supply of tokens in the market.
All of these factors represent massive supply destruction for ETH. Even if we just assume that demand remains steady for Ethereum, the reduced supply could force ETH to reprice at substantially higher levels.
Given its outstanding network effect, thousands of dApps and reduced token supply, Ethereum is one of the easiest projects to be bullish on this year. Ethereum is a great protocol and has a promising roadmap that should guarantee even more growth in the years to come.
This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.