Three Things You Need To Know About Ethereum (ETH/USD)

Cryptocurrency, You Have To Be In It To Win It

At the risk of damaging my own credibility, I am going to go out on a limb and say that I Iike Cryptocurrency. The technology is very interesting, the potential for application is limitless, and the values associated with it are mind-boggling. Bitcoin (BTC/USD), the world’s first cryptocurrency, is worth a little less than $220 billion dollars and it's only a piece of the market. That’s a lot of cabbage. Thinking from the perspective you have to be in it to win it, you don’t have to understand or even like cryptocurrency to want to hold some if even just a little.

When it comes to which cryptocurrency to hold, that’s a little bit tougher question to answer but for me that means Ethereum (ETH/USD). Ethereum is the most advanced blockchain technology in widespread use and, more importantly, has been gaining in market share since the beginning of the year. Now worth about $48 billion Ethereum is the 2nd largest cryptocurrency by market cap and represents about 13% of the market. Because of some recent developments, there are several reasons to believe Ethereum will rest its all-time highs fairly soon and may even surpass Bitcoin in total value.

1) The Ethereum 2.0 Upgrade Is Finally Here

Ethereum, in its present form, is a proof-of-work blockchain intended to run smart contracts. The part about smart contracts means businesses of all varieties can build networks on top of the Ethereum network that execute under a given set of conditions. That’s what makes Ethereum so much better than Bitcoin which can only be used to transfer value from one wallet to the next.

The proof of work part of the equation referred to as POW, means that the miners, the computers that maintain the blockchain, have to work really hard and burn up lots of electricity to function. That, along with some other more technical issues, is why Ethereum hasn’t yet fulfilled its potential. The network can only handle a dozen or so transactions per second compared to a near limitless amount for more traditional financial systems.

ETH 2.0 is a series of upgrades that began over three years ago and expected to take at least another 2 years to complete. Among the most important parts of the upgrade include the switch from POW to POS (proof-of-stake) mining, a switch that is underway right now. POS mining means that instead of burning up electricity to prove validity miners put up a stake that is used to back transactions. In essence, miners become financial nodes that provide liquidity to the system.

In this paradigm, miners earn a fee from transactions rather than “finding” previously “unmined” coins. That upgrade is currently running on a test net and doing fine, it should go live this year. That’s important because transaction speeds, safety, and cost-of-use will be greatly improved and, theoretically at least, usher in a new Golden Age of Ethereum. The test net alone has 20,000 validators staking over 650,000 ETH or just shy of a half-billion dollars.

2) DeFi Is Gaining Traction On The Ethereum Network

DeFi or Decentralized Finance is a trend in the cryptocurrency industry that is gaining traction. Intended as a way to disrupt the traditional financial system DeFi allows cryptocurrency users a means to access lending facilities and interest-bearing savings accounts. What that means for the crypto market as a whole is that users are staking more fiat currency than ever into networks like Ethereum.

Dai and the MakerDai Lending System are only one example of a DeFi that is based on the Ethereum network. Dai tokens are an ERC-20 protocol token. These tokens are issued as a stable-coin with a value pegged to the dollar with each dollar staked to the system. Holders of DAI can then use the MakerDai Lending System to execute a wide variety of DeFi smart contracts including lending and earning interest. To date, there is just shy of a half-billion dollars pledged to the Dai network alone. Once the ETH 2.0 switch is completed the use of DeFi apps like Dai is only expected to increase.

3) The Ethereum Technical Outlook: The Bulls Are Back In Charge

If you doubt the importance of ETH 2.0 or DeFi to the price of Ethereum just look at the chart. ETH/USD began to move higher as the test net approached and then, in the last month along, added 85% to its value. The move not only broke a key resistance point, a resistant point that has been keeping the price in check since the 2018 market meltdown, but it confirmed a major price reversal and formed a continuation pattern.

The continuation pattern, a bull-flag, is an indication that this rally still has legs and could hit as high as $500 in the next week or two. Longer-term, now that the market has reversed, I see no reason why ETH won’t at least retest the all-time high assuming that all goes well with the upgrades.