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Motley Fool Issues Rare “All In” Buy Alert
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There’s one cryptocurrency that’s reached a significant milestone this month. I’m talking about Ethereum (ETH 3.85%). The world’s second-biggest cryptocurrency completed The Merge — a shift to a new method of validating transactions on its blockchain.
At the same time, Ethereum’s performance offers us a buying opportunity. It’s slipped about 20% since this operation. Those are two reasons to buy Ethereum in September. And here’s a third: There’s even more to come for Ethereum. Let’s take a closer look.
First, a bit about The Merge. This involved switching from the proof-of-work validation method to proof of stake. Proof of work relies on complex computations to verify a transaction. As a result, Ethereum used about as much energy annually as the Netherlands.
Proof of stake cut energy use by more than 99%. That’s because validation no longer requires such computer power. Instead, the biggest stakeholders win an opportunity to validate transactions. This greener profile makes it easier to imagine the world using Ethereum over the long term.
The switch also may progressively reduce the supply of Ethereum coins — if the volume of transactions is high enough. Under proof of stake, transaction fees are burned. With proof of work, they were sent to miners.
Today’s validators still receive new coins as rewards. But if transaction volume is high, the burned transaction fees could exceed the new coins brought into circulation. And a lower supply supports a higher price.
These are the immediate positive points resulting from The Merge. But The Merge also is one more step toward the next part of Ethereum’s general update. What’s on the horizon? Something that will eliminate two of Ethereum’s biggest problems: slow transaction speed and high cost of transactions. I’m talking about sharding.
Sharding is a way of horizontally splitting up a database. It reduces congestion on the main network, speeds up transactions, and lowers transaction costs.
Sharding also may result in more decentralization. That’s because it allows more people to participate in the network. The idea is to make it possible to run Ethereum on platforms such as laptops and phones. Decentralization is key because it offers users more control over their data — and more security. Ethereum plans on launching sharding next year.
Now, let’s consider Ethereum’s price today. As mentioned above, it’s declined since The Merge. Why? In some cases, investors may be following the adage, “buy the rumor, sell the news.” My colleague Travis Hoium points out another reason: Proof-of-work miners may be selling off positions as they close their mining businesses.
It’s also important to consider the current rising-interest-rate climate. This pushes investors into safer assets. And riskier assets like cryptocurrencies tend to suffer. This means we shouldn’t expect Ethereum — or cryptocurrency in general — to rebound overnight.
But if you take a long-term view, which is always a great view to take, now is a good time to get in on Ethereum. Price declines mean you’ll pick up the cryptocurrency at a discount. And you’ll be getting in on the story before the next big part of Ethereum’s upgrade — a part of the upgrade that truly can change the way business is done on Ethereum.
Ethereum is already a leader in the areas of decentralized applications and non-fungible tokens. But over time, Ethereum’s upgrade should attract more and more developers and users to the blockchain. They’ll appreciate the higher speed and lower costs.
All of this could significantly lift the value of Ethereum over the long term — and reward investors who bet on this crypto during difficult market times.
Adria Cimino has positions in Ethereum. The Motley Fool has positions in and recommends Ethereum. The Motley Fool has a disclosure policy.
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