Ethereum was created in 2013 by a Canadian-Russian engineer named Vitalik Buterin. It is the second-largest cryptocurrency after Bitcoin. Ethereum’s price has increased, and the coin has grown in popularity due to its smart contract features, which provide limitless possibilities for developing decentralized apps.
Ethereum has established itself as the basic building stone for the entire crypto and blockchain ecosystem, from ICOs (Initial Coin Offerings) to the myriad DeFi (Decentralised Finance) applications that are now all the rage in the crypto industry. With the increased demand for Ethereum’s real-world applications, the platform’s age has recently begun to show. What are the other factors that could trigger a rise in Ethereum price, and why would Ethereum change in 2022?
Key Factors for Ethereum Change In 2022
To begin with, Ethereum is the focus of 2022. Almost everything significant and groundbreaking in the universe of blockchain right now is happening today in the Ethereum ecosystem amid the increase in Ethereum price. The following are major trends fuelling growth in the Ethereum ecosystem and keys to change in 202e.
DAOs
To begin with, decentralized autonomous organizations (DAOs) represent the future of how communities, missions, and businesses will coexist in a single location. While DAOs have been around for a while, I believe 2022 will be the year they gain traction as a preferred structure for launching new businesses. This year will also be a watershed moment for DAO governance, as users become more comfortable with using stakes to exercise voting power and delegating voting power to those who are experts on specific topics. In the long run, this could spark a shareholder revolution in traditional markets as well.
DeFi
Conventional finance will continue to integrate with the decentralized finance (DeFi) ecosystem. It was expected that at least one big existing centralized finance (CeFi) entity would provide customers with access to the DeFi ecosystem by the end of 2021. Experts believe that as providers strive to meet regulatory standards without introducing centralization, we will see the rise of some decentralized identity management components that add a layer of know your customer (KYC) to DeFi.
The third and most important goal of the Ethereum ecosystem is now visible. The transition to proof of stake on Ethereum, as well as its impact on the Ethereum price and a broader shift in user behaviour from layer 1 to layer 2, is already underway. By the end of 2022, Ethereum will primarily function as a platform for other blockchains (layer 2 networks) to communicate with one another. The Ethereum future is a multichain future.
Reduced energy usage
Ethereum’s consensus layer is switched to proof-of-stake, which eliminates miners and substitutes them with validators. Ethereum requires miners to compete for hash power by consuming electricity under proof-of-work. Proof-of-stake is able to run with substantially less energy consumption since it uses randomization to assign block creation. According to the Ethereum Foundation, the network will use at least 99.95 percent less energy after the Merge than it does now.
Deflationary ether
The combination of EIP 1559 and proof-of-stake will have a deflationary effect on ether’s circulating supply of Ethereum price. The circulating supply equilibrium will be between 27.3 and 49.5 million ETH due to transaction fee burn, decreased rewards, and ether frozen for validation. To put things in perspective, the current supply is 118 million ETH, which is still slightly inflationary following the addition of EIP 1559.
Execution layer
Ethereum’s present execution layer will be migrated to the forthcoming proof-of-stake consensus layer and supported by the Eth1 clients. This means that, after the Merge, existing users and application developers will be able to interact with Ethereum in a very similar way.
Transaction fees
While impossible to foresee, transaction fees may initially rise or remain unchanged following the merger. New individuals and entities may come onboard to utilize Ethereum if the notion that it consumes more energy than a reasonably sized country is debunked, increasing the present demand for blockspace. Following the Merge, however, the next network updates (like sharding, rollups, and calldata improvements) will focus on enhancing scalability without sacrificing decentralization.
Scalability and decentralization
On the Beacon Chain, running a validator costs 32 ETH, which amounts to more about $120,000 at the current Ethereum price. While not a low entry barrier, it does eliminate the economies of scale that exist in mining proof-of-work networks. Ethereum allows any user with average hardware to profitably run an Ethereum validator by replacing hash power with randomness/statistics and keeping block sizes small. Furthermore, under proof-of-stake, the Ethereum network will be able to incorporate sharding and other scalability-related modifications in the future, lowering transaction costs.