editor’s note: This weekend edition we take a break from our usual fare. In this essay, recently published in the Stansberry Berry Compendium Masters Series, crypto expert Eric Wade explains how Ethereum’s own success created its biggest challenge…explains why an upcoming update could change the crypto world as we know it…and reveals how this change could give us the opportunity to get profit.
“The rates were crazy high!”
“Does it really cost that much to transfer my tokens?”
“I stopped trying to get the transaction to go through.”
These are some of the most frequent comments we receive…
Over the past year, we have seen a massive increase in transaction fees on Ethereum (ETH).
I ran into this problem recently. I wanted to transfer some Ethereum from my MetaMask wallet to a centralized exchange. Simply sending my Ethereum from one address to another would have cost $80. That wouldn’t bother me if I was trying to send $1 million worth of Ethereum… But I was trying to send only $100.
That means it would have cost me $180 to make a $100 transfer. In the meantime, you could do a similar transaction for around $0.05 on Binance Smart Chain, now called BNB Chain.
I closed MetaMask and decided to do the transaction later. And I’m not alone…
Ethereum fees, commonly called “gas” fees, are what sustain miners and keep the ecosystem running. If you make a transaction on any network, you should expect to pay a fee. I have said before that I have a general mistrust of systems or networks that No have fees.
But Ethereum has added so many new users and gotten so busy that the demand for access is outstripping the capabilities of the network.
You see, Ethereum is the second largest crypto in the world by market cap. It is the largest crypto if you count users and transactions. So by some metrics, Ethereum has already overtaken bitcoin (BTC).
As a result, it has become all too popular to process transactions cheaply or efficiently…
A simple trade on the Ethereum mainnet can cost anywhere from $20 to $100, compared to a few dollars or cents on blockchains like Avalanche or Harmony.
In many ways, Ethereum has become a victim of its own success…
The rise in Ethereum gas fees has caused billions of dollars to flow into cheaper blockchains. Ethereum has simply become too expensive for most users.
Last April, Ethereum had 80% of the total crypto market value locked (“TVL”) on its blockchain. Today, it only has 59% of the TVL of the market. Have a look…
That’s where ETH 2.0 comes in…
With ETH 2.0, Ethereum will move from an energy-inefficient proof-of-work consensus mechanism to a more efficient proof-of-stake mechanism. This update aims to increase the scalability of Ethereum while maintaining the security and decentralization of the network.
But it’s only the first step… The real long-term solution is to “chunk”.
Sharding will split the blockchain data horizontally to expand the capacity of the network. It will substantially reduce network fees and increase transaction performance by creating new subchains called “shards.”
We believe that the ETH 2.0 upgrade and sharding will make Ethereum the layer 1 blockchain of choice.
A layer 1 blockchain has the ability to process transactions on its own without another network. So if Ethereum can offer low-cost transactions, it would be the first decentralized, secure, and energy-efficient blockchain.
You see, every blockchain faces three main challenges to be successful…
First of all, it must be safe. It must be difficult to rewrite the history of the blockchain, post invalid transactions, and perform double spend or 51% attacks.
Second, it must be decentralized. Instead of power residing in the hands of a few, it is shared by the community.
Finally, it must be able to scale to handle a growing number of users in a cost- and energy-efficient manner.
Blockchains typically sacrifice one pillar to satisfy the other two. It is the “blockchain trilemma”.
For example, some blockchains have cheap and fast transactions… But have sacrificed decentralization or security for scalability. Meanwhile, Ethereum is extremely secure and decentralized… But it has a scalability problem. It is so popular that it has higher transaction fees than any other blockchain.
This blockchain trilemma has kept many developers and investors on the sidelines. But soon, they will have a Layer 1 blockchain that offers everything, creating a wave of new developments and investments in Ethereum.
So this update will have a big impact on the market. We think it will take us from Crypto 1.0 to Crypto 2.0… where cryptocurrencies and blockchain will finally go mainstream.
We are already seeing signs that it will happen…
Some of the largest companies in the world, such as Ford, Visa, and MetLife, already invest in and use crypto. Meanwhile, countries like El Salvador and the Central African Republic are using or allowing cryptocurrencies as legal tender. And we’re seeing more and more individual investors get into this space. In the last 12 months, the number of Ethereum addresses holding even the smallest amount has increased from 59.7 million to 81.9 million, according to Glassnode. That’s a 37% increase.
With cheaper, faster transactions and a way to beat inflation, we expect more money to flow into this space… driving up the prices of many tokens and coins.
editor’s note: According to Eric, cryptocurrencies are on the cusp of an incredible moment… And it could be here as soon as August 31st. Even if you don’t own a single cryptocurrency, this event could affect your wealth for years to come. That’s why Eric shares how you can prepare your portfolio. He has identified five tokens that have a potential of 10 packers…but only if you act now. Please click here for more details.