Ethereum investment analysis

Ethereum is getting ready to put out some of their biggest releases to date, and investors who are looking to get in on a top tier project that still has much to offer the world had better pay attention because it’s going to be a big deal.

While it’s easiest to make a profit on low market cap altcoins who have a ton of growth potential, it’s important that you don’t count out large cap coins like ETH. Cryptocurrency is still developing, and there’s plenty of room even for these giant projects to keep growing. In this regard, Ethereum is one of the most promising.

While ETH has already achieved gratuitous mainstream success, the development team is not prepared to let ETH stagnate. Instead, they are releasing some of their most ambitious developments yet, and that could make this coin very valuable in the future. In this article, we’re going to take a look at those developments and what they could mean for you as an investor.

Casper and the move to POS

Ethereum is finally making their move to a proof of stake algorithm and moving away from their legacy proof of work model. The advantages to going with a proof of stake algorithm are numerous.

For starters, it would solve one of the largest problems currently plaguing the proof of work sector: centralization. Despite the fact that cryptocurrencies were originally birthed to be a decentralized payment exchange, the reality is becoming quite different. Mining has become prohibitively expensive, and only those with large amounts of start-up money can afford the equipment required to mine on large networks like Bitcoin or Ethereum.

Everyday miners have been completely pushed out, and this leaves the majority of the hashrate in the hands of very few miners or groups. This is a troubling development, and while many think there’s no reason for these groups to act maliciously, that may not always be the case.

Proof of stake does not require any such machinery, and the electricity required to mint coins via proof of stake is significantly smaller than the massive amounts needed for a proof of work setup. This not only makes POS a better choice economically but also ecologically.

POS also comes with a much lower barrier to entry than POW, and almost anyone can learn how to mint coins using POS in an hour or two, even with no prior knowledge of the software. This allows more people to pick up their own piece of the pie, and it also allows the entire network to become more distributed since now more computers can participate.

Proof of stake also has another great benefit. Miners have no vested interest in holding a particular currency. In fact, in most cases they will simply mine whatever is most profitable for their hardware and then dump those coins on an exchange in order to trade them for something else.

When using POS, the more coins you are holding the more stakes you can make, and that means a switch to this algorithm actually incentivizes you to hold at least a certain amount of Ethereum at all times. In fact, it becomes beneficial to hold as much ETH as you can to earn even more stakes.

However, unlike POW, low weight wallets will not simply be excluded from staking. While it may take them more time to do so, they will stake eventually, and the cost for electricity is so negligible that it will not result in weeks of net loss for low power miners like POW would.

There are still many who are critical of the proof of stake algorithm though, as it is arguably less secure than proof of work. The main security mechanism for this particular algorithm is based upon the idea that those who would be holding a majority of the network’s coins would not do anything to jeopardize their sizeable investments.

For many this is not enough, and they fear manipulation may soon be an issue. However, the ETH development team has come up with a solution for this as well. It’s called Casper, and this protocol will force anyone who wants to mint coins using POS on Ethereum’s network to actually have something at stake in order to participate.

This works as a type of collateral scheme. In order to mint coins, you must have locked up a certain number of ETH. Anyone who is found to be validating bad transactions or not acting in the best interests of the network will be punished.

These coins that are locked in a smart contract will be taken from them. This adds a sizable loss potential for bad actors that would make them think twice before trying anything, and it seems to be a suitable solution to the grievances presented by those who dislike the algorithm switch.

Sharding and the quest for blockchain scalability

The next big announcement for Ethereum will be sharding. This is effectively Ethereum’s version of side chaining. In the current system, all of the data on the blockchain must pass through every single node on the network. This was originally instituted for security purposes, but it is not a very efficient way to handle data, and it makes the whole process very slow.

Ethereum holders quickly learned that thanks to Cryptokitties, and it has become a large pain point for the entire network. It’s hard to be a launch pad for decentralized applications when those applications can’t actually do anything on your network without paying an exorbitant fee for the privilege. Once the ETH network gets clogged up transactions grind to a halt, and the gas prices go through the roof.

With the implementation of sharding, now these transactions will not have to pass through every single node. Instead, a small group of nodes will verify each transaction instead. This takes pressure off of the network, but enough of these nodes will still be used so as to provide reliable security that can’t be compromised.

According to the Ethereum FAQ, the developers want the network to be capable of processing 10,000 transactions per second to make it a real contender for hosting applications. When combined with POS, sharding should cut both the issue of slow transactions and high fees off at the knees. Allowing users to participate in these new decentralized applications more quickly and with lower costs.

Plasma and child chains

The development team has also been hard at work on Plasma. This is a technique that will allow for projects launching on Ethereum to run on their own child chains. Not only does this give them the freedom to manage their own chain, but it also allows them to perform their operations without clogging up the rest of the network, leaving users outside of their space to transact freely.

This will allow a greater deal of scaling ability to current and new applications looking to place themselves within the ETH framework. You could think of this as a blockchain on top of a blockchain. While these chains are connected to Ethereum for security reasons, they are for all intents and purposes their own unique entities.

Conclusion

In closing, thus far ETH has been a proof of concept. They have proved that their project has the base components required in order to launch these decentralized applications. However, they are now bringing that idea to full fruition. With developments for Casper, plasma, and sharding well under way, soon investors will see the true power of this project and even mainstream consumers will find it hard to ignore what the blockchain has to offer.

Over 1,600 projects have launched on the Ethereum network to date. They have massive market penetration and many developers with a vested interest in their infrastructure. Now they have come to the point where they will be fine tuning that offering in order to give those developers and the users of their applications a flawless experience. One that lacks any centralized points of failure or censorship that would be a threat with the traditional hosting of these applications.

It’s going to be a long, bump road for the blockchain, but these developments will likely help others outside the space to view these projects a little more objectively. Perhaps the biggest triumph of the Ethereum network will be that it can help to convince outsiders that the blockchain is good for more than simply speculating on the price of digital currencies.