Why is Ethereum considered intrinsically valuable? –

Ethereum is a decentralized, open-source blockchain and the first network to launch smart contract functionality.

Ethereum was launched in July 2015 and has grown significantly in value since then due to its wide range of decentralized application (DApp) offerings. The explosive growth of decentralized finance (DeFi) and non-fungal chips (NFT) has also contributed to the success of the most widely used blockchain network.

Moreover, its native currency – Ether (ETH) – has consistently maintained its second position in the top of the most popular cryptocurrencies by its market capitalization and very high daily trading volume.

What is the intrinsic value of the Ethereum network?

Before we identify what’s unique about Ethereum, let’s first explore the definition of intrinsic value and how it applies to digital currencies like Ethereum.

In finance, intrinsic value is the perceived or actual value of an asset or currency. The concept should not be confused with the market price, as assets can be overvalued or undervalued.

Trust currencies such as the US dollar or the euro have intrinsic value because they are issued by monetary authorities such as central banks and are mainly used in their economy.

What is the intrinsic value of digital currencies? Government central banks do not support cryptocurrencies such as Bitcoin (BTC) or ETH, but their intrinsic value could be defined by their deficit, use cases and technological application. Over the years, cryptocurrencies have gained a reputation as a store of value, and there are growing indications that they will become units of exchange in the future.

What is the true value of Ethereum?

Because intrinsic value is the perceived or real value of an asset of an investor, utility is crucial to why Ethereum has attracted interest and capital to the crypto community.

Unlike Bitcoin, which was created as a monetary alternative to national currencies, Ethereum was built as a platform that could facilitate smart contracts and programmatic applications using Ether.

Smart contracts

Ethereum’s smart contracts are the main utility of the platform, as they support valuable real-world usage cases such as DApps, DeFi and NFT applications. They allow the automatic execution of agreements without the intervention of intermediaries, such as banks, for financial transactions or legal entities, for legal arrangements.

At the time of writing, billions of dollars worth of assets are already locked into payments, loans, insurance, and any DeFi application that shapes the future of finance. Ethereum smart contracts are likely to change the way financial and public services are managed, including sectors such as governance, supply chains, markets and digital identification.

Despite fierce competition from other blockchain networks, Ethereum remains the most popular platform for DApps, hosting the largest number of DeFi projects, NFTs and ERC-20 chips.

What is Ethereum 2.0 about?

Ethereum is moving from a proof-of-work (PoW) governance mechanism to a stake-of-work (PoS) governance mechanism in the near future, resulting in a faster and more efficient blockchain.

The Ethereum network has seen a significant increase in the volume and size of transactions, as the DeFi sector and NFTs have taken over the financial and artistic world. Such traffic has often caused systemic blockages with a significant increase in fees that have made the blockchain unsustainable.

In order to bring Ethereum into the mainstream and to support a growing number of transactions, the need for a substantial transformation has arisen. Upgrading from PoW to PoS will make Ethereum more scalable, efficient, and sustainable, while ensuring fundamental decentralization.

The upgrade will take place exclusively in the backend, in a technical framework, without affecting the way users trade and own assets in the network. The Ethereum roadmap outlines the following three steps to completing the upgrade:

Phase 0, also known as the Beacon Chain

This update is already live and brings the staking feature to Ethereum. Beacon Chain lays the groundwork for future updates and will coordinate the new system.

The Merge

The Ethereum mainnet, which is the current network, will have to merge with Beacon Chain at some point, and this is expected to happen in 2022. The merger will allow staking for the entire network and will indicate the end of energy-intensive mining. .

Shard Chains

Fragment chains are expected to be launched in 2023. However, fragmentation is a multi-step upgrade to improve the scalability and capability of Ethereum. Snippet chains allow tier 2 solutions to deliver low transaction fees while improving network performance.

Sharding is the process that allows smaller sets of nodes to process transactions in parallel without the need for consensus across the network. Ethereum 2.0 promises to bring transaction speeds up to 100,000 transactions per second (TPS) by implementing shard chains, compared to the current 30 TPS.

Ethereum’s transition to PoS has sparked heated debate in the crypto community. While some of its benefits are clear, including scalability and sustainability due to a more energy efficient system, many fear that decentralization could be jeopardized due to its implementation.

The PoS validation process can be hampered by large validators that can have an excessive influence on the verification of transactions, thus impacting the true nature of decentralization. Transition detractors also see sharding as a threat to network security. As fewer validators will be needed to secure multiple and small fragment chains, there is a higher risk that they will be more exposed to malicious actors.

How will Ethereum 2.0 affect the intrinsic value of Ether cryptocurrency?

Many crypto experts believe that 2022 will be a favorable year for the price of Ether. The digital currency has seen tremendous growth since its launch in 2015, from just $ 0.30 to a high of $ 4,800 in 2021, with extremely volatile movements along the way.

Will Ether keep up with the massive growth of the network by moving to ETH 2.0? Although it is impossible to predict the price of any asset based on technical or fundamental analysis, crypto investors unanimously believe that ETH 2.0 will have an impact on the intrinsic value of Ether and many aspects will depend on the smooth implementation of the upgrade.

As with any significant transformation, the initial implementation of ETH 2.0 could be a direct cause of volatility. Until the upgrade is tested, approved and effective across the network, experts predict months of uncertainty that will inevitably affect the price of ETH.

In the long run, the transition to a more sustainable and efficient PoS will benefit from the adoption of Ethereum by users and companies based on the platform. However, the manner and timing of all this is a matter of hesitation among investors, who are cautious until there is a more precise outlook.

Also, the price of ETH will most likely be influenced by the success of the resulting upgrade in terms of demand and functionality and whether the renewed platform will be able to maintain its leading position among all other innovative competitors.

Can Ethereum be a valuable repository?

Competition with BTC as a security deposit is open. Due to its use in the real world, ETH has the potential to become the dominant digital currency, according to financial analysts.

Both BTC and ETH have long been considered a kind of hedge against inflation due to decentralization and programmable supply. While Bitcoin’s limited supply of 21 million coins is a clear feature, Ether’s supply is not limited, being considered disinflationary.

The disinflationary offer

Unlike Bitcoin, Ethereum has an unlimited supply of Ether. However, its circulation is limited each year by the mining process. This mechanism is called disinflationary because the supply is adjusted to the requirements of the network as it progresses, and inflation temporarily slows down.

With Ethereum’s new PoS consensus mechanism, validators are rewarded with a transaction fee for each verified transaction, instead of miners being rewarded with new blocks, as is the case for PoW.

The staking mechanism ensures that the Ether is blocked, and the more coins are bet, the more likely they are to become more valuable because they are less in circulation. In a way, this process makes cryptocurrency rarer, albeit in a different way than Bitcoin.

The future of cryptocurrency Ether

In February 2021, CME Group added Ether to its cryptocurrency offering, along with Bitcoin. This significant achievement means that there are more ETH cryptocurrencies traded on the crypto markets, which could help increase its value.

In December 2021, the CME Group also launched contracts for micro Ether futures, which are nothing more than versions of the popular futures contracts on the E-mini stock index of the CME Group. They are smaller contracts than the contracts of institutional investors and are therefore more affordable for retail investors.

All of these achievements are expected to contribute to the value of Ether, as more and more participants, both institutional and retail investors, gain more exposure to cryptocurrencies.

(i) Check the list of cryptocurrencies updated according to market capitalization.