Ethereum's Long-Term Allure Is Palpable | ETF Trends

Ethereum, the blockchain network that serves as the foundation for the cryptocurrency known as ether, is being taken to task this year. So are other digital assets.

Still, the long-term outlook for Ethereum — which is in part rooted in the decentralized finance (defi) evolution — is compelling, indicating that assets such as the Grayscale Ethereum Trust (ETHE) could be appealing for risk-tolerant investors with longer time horizons. ETHE is an index fund that tracks the CoinDesk Ether Price Index.

Ether is the second-largest digital currency behind only bitcoin, and crypto enthusiasts and analysts are highlighting Ethereum 2.0 as a potential tailwind for the digital asset because it takes the currency from proof-of-work to proof-of-stake. Aside from bitcoin, most other cryptocurrencies are proof-of-stake.

“Proof of stake has been looked on more favorably as it’s supposed to decrease Ethereum’s energy intake by 99%. Ethereum 2.0 more recently rebranded calling itself consensus layer because the terminology of E 2.0 caused confusion, leaving people wondering if they need to do something to upgrade, which then resulted in people being exploited by those that took advantage of the lack of knowledge,” noted David Kroger, vice president and digital data scientist at Cowen Digital.

The upgrade has been delayed with some crypto market observers saying it could be pushed off until early 2023. While the dust settles on when that will happen, investors mulling ETHE might want to consider the implications surrounding this event.

“The upgrade will help, but layer two solutions will still be needed and is not the silver bullet people are anticipating,” added Kroger. “And for those that don’t know, layer two solutions at a high level just means a solution to help scale an application by processing transactions off Ethereum, while keeping the security measures in decentralization. The transactions processed, then get rolled back into Ethereum, all which is done through cryptography. This is going to help lower the overall transaction fees, which will help adoption across the long term.”

Moves that can boost long-term adoption are pivotal for any cryptocurrency, but that goal is elusive for many. Conversely, Ethereum is being proactive on that front as it seeks to trim energy consumption and pare transaction costs. That could set Ethereum up for defi success over the long term.

“The trend has been to focus on scalability over decentralization. This is because getting users on-chain and engaging in a cryptocurrencies ecosystem is important from both an adoption and an investor standpoint,” said Kroger.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.