1. What is Ethereum?
Ethereum, a decentralized open source blockchain, is the first network to launch smart contract features.
Ethereum was launched in July 2015, and over the course of a few years, its value has grown dramatically thanks to its extensive decentralized application (DApp) offerings. Decentralized finance (DeFi) and the explosive growth of irreplaceable tokens (NFT) have managed to make it the most actively used blockchain network.
Moreover, its own currency, ETH, remains firmly in second place in the cryptocurrency space in terms of market capitalization and daily trading volume.
2. What is the intrinsic value of Ethereum?
Before determining what makes Ethereum unique, let's first explore the definition of intrinsic value and how it applies to digital currencies like Ethereum.
In finance, intrinsic value represents the perceived or actual value of an asset or currency. It should not be confused with market prices, as assets can be overvalued or undervalued.
Fiat currencies such as the dollar or euro have intrinsic value because they are issued by monetary authorities such as central banks and are mainly used in their economies.
What is the intrinsic value of digital money? Cryptocurrencies like Bitcoin (BTC) or ETH are not supported by government central banks, but their intrinsic value can be defined by their scarcity, use cases, and technical applications. Over the years, cryptocurrencies have gained a reputation as a store of value and are expected to become units of exchange in the future.
3. What is Ethereum's real value?
Given that intrinsic value is the perceived or actual value of an asset by investors, practicality is critical for Ethereum to attract interest and capital across the crypto community.
In contrast to Bitcoin, an alternative to national currencies, Ethereum is built as a platform that facilitates programmatic smart contracts and applications that use it.
Smart Contracts:
Given that ethereum's smart contracts support valuable real-world use cases such as DApps, DeFi and NFT applications, Ethereum's smart contracts have become the main utility for the platform. They allow automatic enforcement of agreements without the need for financial transactions by intermediaries such as banks or legal arrangements by legal entities.
Billions of dollars worth of assets are already locked up in payments, loans, insurance and any DeFi application that shapes the future of finance. Ethereum smart contracts could change the way finance and public services are managed, including categories such as governance, supply chain, markets and digital recognition.
Despite intense competition from other blockchain networks, Ethereum remains the most popular DApp platform, hosting the most DeFi projects, NFT and ERC-20 tokens.
4. What exactly is Ethereum 2.0?
Ethereum is moving from proof-of-work (PoW) to proof-of-stake (PoS) governance for the foreseeable future, resulting in a faster and more efficient blockchain.
Since DeFi and NFT took over the financial and art worlds, the ethereum network has experienced a considerable surge in transaction volume and size. This kind of traffic often leads to systemic bottlenecks, and fees soar, making the blockchain unsustainable.
To bring Ethereum into the mainstream and support more and more transactions, a substantial transformation is needed. Upgrading from PoW to PoS will make Ethereum more scalable, efficient, and sustainable, while ensuring its basic decentralization.
The upgrade will only take place on the back end of the technical framework and will not affect the way users trade and hold assets on the network. Ethereum's roadmap envisages the following three phases to complete the upgrade:
Stage 0, also known as beacon chain:
This update is live, and it brings a pledge to Ethereum. It sets the stage for future upgrades and will coordinate the new system.
Merger:
The ethereum main network of the current network will have to merge with the beacon chain at some point, which is expected to happen in 2022. The merger will enable the entire network to pledge and mark the end of energy-intensive mining.
Fragmentation chain:
Sharding is expected to start in 2023. However, sharding is a multi-phase upgrade to improve ethereum's scalability and capacity. Sharding chains enable tier 2 solutions to provide low transaction costs while improving network performance.
Sharding is a process that allows smaller sets of nodes to process transactions in parallel without reaching consensus across the entire network. Ethereum 2.0 promises to speed up transactions to 100,000 transactions per second (TPS) by deploying sharding chains, compared to the current 30 TPS.
The transition from Ethereum to PoS has been hotly debated within the crypto community. While some of the resulting benefits are obvious, including scalability and sustainability due to more energy efficient systems, many are concerned that decentralization may be at risk from its implementation.
The PoS validation process may trip up large holder verifiers that may have undue influence on transaction validation, thereby affecting the true nature of decentralization. Opponents also see sharding as a threat to Internet security. Because fewer validators are required to protect multiple and small shard chains, they may be more exposed to a higher risk of malicious actors.
How will Ethereum 2.0 affect the intrinsic value of Ethereum?
Many cryptocurrency experts believe 2022 will be a make-or-break year for the price of Ether. Since its launch in 2015, the digital currency has experienced an extraordinary rise, from just $0.30 to a high of $4,800 in 2021, including highly volatile moves along the way.
Will Ether keep up with its massive growth by shifting to ETH 2.0? While it is impossible to predict the price of any asset based on technical or fundamental analysis, the consensus among crypto investors is that ETH 2.0 will impact Ether's intrinsic value, largely depending on the smooth implementation of the upgrade.
As with any major shift, the initial deployment of ETH 2.0 May be the immediate cause of the fluctuations. Until the upgrade is thoroughly tested, approved and effective across the network, experts predict that months of uncertainty will inevitably affect ETH prices.
In the long run, the transition to more sustainable and efficient PoS will benefit ethereum adoption by users and companies building on the platform. However, the manner and timing of all this is what is causing investors to hesitate, and they are showing signs of caution in allocating until there is a more accurate outlook.
Much depends on the success of the resulting requirements and functionality upgrades, and whether the updated platform can maintain its lead over all other innovative network competitors.
5. Can Ethereum be a store of value?
Competition with BTC as a store of value is open. ETH is likely to become the dominant digital currency due to its real-world use, according to financial analysts.
BTC and ETH have long been seen as inflation hedges due to their decentralisation and programmable provision. While bitcoin's limited supply of 21 million coins is an obvious feature, ether's supply is unrestricted but is considered deflationary.
Deflationary supply:
In contrast to Bitcoin, Ethereum has an unlimited supply of Ether. However, its circulation is limited by the mining process each year. This mechanism is called deflation, because as the network develops, supply adjusts to network demand and price inflation slows temporarily.
With Ethereum's new PoS consensus mechanism, verifiers are rewarded with transaction fees for each verified transaction, rather than rewarding miners for new blocks like PoW.
The pledge mechanism ensures that Ether is locked up and the more coins are pledged, the greater the chance that they will become more valuable because there are fewer in circulation. In some ways, this process has made cryptocurrencies scarcer, even if not in the same way as bitcoin.
Ether futures:
Cme added Ether and Bitcoin to its cryptocurrency offerings in February 2021. The significant achievement means more cryptocurrency is being injected into the market, which could help boost its value.
In December 2021, CME also launched the micro Ether futures contract, a version of cME's popular E-Mini stock index futures contract. They have smaller contracts than institutional investors and are therefore more accessible and affordable for retail investors.
These are also expected to help the value of Ether as more market participants from institutional and retail investors gain more exposure to cryptocurrencies and hedge their price risk.