While cryptocurrencies are a relatively new addition to the financial world, they’ve taken markets by storm and ended up becoming equally important to the older stocks, bonds and real estate. The popularity of digital money and tokens can be easily attributed to different factors, including the decentralized nature of the blockchain, the easy and accessible asset transfer, as well as the fact that transactions are fully anonymous. Add to this the fact that the blockchain also has several potential use cases, which could potentially revolutionize industries and change businesses as we know them, and it’s easy to understand the hype surrounding crypto.
When you’re looking to buy or sell, you must check how Ethereum is performing to determine the best time for a transaction. 2022 has been a difficult year for digital assets, and investors were often left unsure of how to proceed or which strategy to adopt in order to perform successful transactions. Prices plummeted to very low lows, meaning that investors lost a large amount of capital.
And while 2023 has come with an amelioration in price points, and all cryptocurrencies have started making the arduous climb back to higher levels, several events have left their mark on the crypto market, such as the collapse of several crypto-friendly banks. Now, in the midst of a banking crisis and a possible breakdown, many are wondering about crypto’s position in the financial systems of the future.
Scaling
While blockchains are generally highly efficient, they are also incredibly large, containing massive amounts of data, which can cause some unexpected issues. For this reason, scaling technology is pretty popular within the network, as it allows it to function optimally. The number of processed transactions increases even when the system is used consistently. Transaction speed and volume are not the only aspects of scalability, as the cost per transaction, scalability and blocktime are also impacted.
Recently, Ethereum announced the launch of a new scaling solution, the final phase in the mainnet launch, which began in 2019. This technology transfers trades from the mainnet to a layer-2 network, compressing them into smaller data blocks. These files are the foundation of the proof-of-stake mechanism the Ethereum blockchain currently employs, which replaced the earlier proof-of-work consensus mechanism. The new system is significantly faster, processing over 100k transactions every second compared to PoW’s maximum of 30. It is also more energy-efficient and has a wider distribution range.
Banks sinking
One of the biggest obstacles in the road of cryptocurrencies becoming more widely popular are fiat currencies and traditional tradable assets. However, digital money has also been designed to power daily transactions. That hasn’t yet been fully possible, especially since crypto was a rather obscure asset when it first appeared. Over the next few years, however, it gained notoriety. However, its often-steep fluctuations have meant that most investors, either individual or institutional, have steered clear of it to avoid significant capital loss. Yet, the digital asset market is steadily becoming more attractive to traders who are lured in by its promise to act as a hedge against inflation.
Many believe that now’s the perfect time for cryptocurrencies to start working alongside fiat money. The context is somewhat different at the moment since banks are having a rough time. Ethereum uses a dynamic issuance model and has no fixed supply, compared to Bitcoin, which does, and whose relative scarcity makes it particularly valuable. Together, the two provide highly efficient stores of value and are fantastic options for investors looking to diversify their portfolios and protect their holdings in the event of an economic meltdown.
Fees surging
The shift to proof-of-stake prepared the Ethereum blockchain for several other upgrades, enabling it to operate at a higher level than ever before. They include the Surge, Verge, Purge and Splurge. The Surge is the first on the list and is set to introduce the concept of sharding, which splits the network between several validators, meaning that different transactions can be operated on simultaneously. There’s also an additional system attached to the larger upgrade, which enables the different shards to communicate among themselves and ensure that the network operates adequately.
The data lift required to maintain nodes and which needed specialized tools and machinery to operate can now be handled on a personal computer. Roll-ups permit transactions to be linked cryptographically and presented as a single entry. They are also amassed into a single off-chain to appear on the network as a single entity.
Once this step is complete, the Verge will be implemented. This system means an entire chair history is no longer required, creating a stateless client system. The Purge will delete all unnecessary data, while the Splurge will introduce long-term enhancements that will change the blockchain in the long term.
Shanghai upgrade
The Shanghai upgrade, set to be released around April 12th, will provide investors with direct access to staked funds, a major change for the Ethereum platform. This hasn’t been possible until now, and how this will affect the market and cryptocurrencies themselves is yet to be determined. The update is a series of several modifications on the blockchain related to the Ethereum Virtual Machine, a software component containing over 120 operation codes that enable the decentralized program of the networks.
There is over $17 million worth of staked ETH as of March 2023, meaning that many traders will likely want to withdraw these funds. The estimated daily cap will be around 43,200 Ether per day. This measure exists to control the migration of validators outside of the network. The upgrade is expected to contribute to a sudden rise in prices. While similar events have occurred in the past, it is currently difficult to determine exactly how substantial this price spike will be.
While cryptocurrencies are not yet used on a large scale within society, and only a few businesses and institutions currently employ them, this is likely to change in the upcoming years. The main reason is that digital money provides a faster and relatively straightforward way to perform transactions, making it appealing to many people.