Ethereum: why is it time to buy more?
According to founder Vitalik Buterin, the Ethereum (CRYPTO: ETH) network is on the brink of a spectacular technological revolution. In a year, Ethereum will transition to a Proof of Stake (PoS) network where investors can earn interest by validating blockchain transactions with their coins (known as staking), executing digital agreements between the parties ( smart contracts) at record speed and consume much less electricity when using the grid. The next Ethereum 2.0 network upgrade is a massive overhaul of the current slow and inefficient network.
But the potential for lower fees to run these smart contracts – or what’s known as gas fees in the crypto community – is what makes Ethereum such a great buying opportunity right now. Let’s see how this is a game changer and why, among other things, it makes Ethereum a great investment to buy now.
Strong barrier to decentralized finance
These days, Ethereum powers just about everything in the $ 196 billion decentralized finance (DeFi) space, including borrowing and lending, high yield cryptocurrency savings accounts, software. peer-to-peer, digital asset ownership certificates negotiation (for example in the case of non-fungible tokens) and coin exchanges. Most DeFi platforms that offer such services issue their own tokens, but they are based on the Ethereum blockchain, known as ERC-20, thanks to its ability to power smart contracts.
This raises a fairly significant issue: high gasoline costs. Currently, the Ethereum network can only process about 15 transactions per second. These are just regular transactions, like sending money from point A to point B.
On the other hand, smart contracts consume a lot more data to be stored on the blockchain and require more consideration in the form of gas charges from users for processing. In addition, as in the service industry, investors can provide a “gas tip” for better / faster service (transaction processing), which further increases gasoline costs.
Take the example of TVN. Right now, it can cost up to $ 150 in gasoline costs to make a new NFT for sale. There are more extreme examples. In July, when Mila Kunis auctioned 10,000 of her animated series Stoners cats NFT, investors rushed to buy them. The Ethereum network was so overloaded that it drove gas prices up to hundreds of dollars apiece. Keep in mind that investors themselves also pay around $ 20 per day in gasoline costs to purchase each NFT. This $ 20 per day is due to the fact that NFTs are a smart contract: they bind the buyer with the NFT and the seller with the payment, and its processing takes up space on the blockchain and requires thought to be executed.
Moreover, taking out a crypto asset loan these days is quite expensive. For example, it costs almost $ 80 to deposit collateral on a DeFi lending platform and an additional $ 80 to withdraw. Again, these high base rates mean that investors have to deposit a large sum of money to earn significant fixed income or take out a huge loan, which is well worth the effort.
Ethereum 2.0 to the rescue
Fortunately, the launch of Ethereum 2.0 would definitely reduce these gas charges to near zero, making it easier to access DeFi services. Indeed, Buterin plans to upgrade the ERC-20 to the point of being able to process more than 100,000 transactions per second. With all of this friction with DeFi on the verge of subsiding, I strongly recommend investors to increase their stake in the promising coin.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.