There have been plenty of great developments in the Ethereum blockchain. This has been good for its native currency ETH (Ether) and has restored confidence in holders toward the end of the first quarter of 2022. This has led to a rally in ETH price to above the $3K level, starting in March 22. Some analysts take this as an ominous sign that ETH has turned bullish once again, but what is really the motivation behind it?
Toward the end of 2021, Ethereum developers released the Kintsugi Merge test network. This is a more realistic approach to testing how the Ethereum network will be like post-merge (i.e. when the Beacon Chain merges with the mainnet). This allows developers to test the features of the network in an environment that supports PoS (Proof-of-Stake). This is where smart contracts can be tested without any additional costs to developers.
Ethereum developers have also released the Kiln public test network in March of 2022. This is the final test network before the transition to PoS. This is where developers can test their applications and tools before deploying on the mainnet. Node operators and stakers can also test on Kiln, to evaluate the performance on a simulated blockchain.
Toward the end of March 2022, the number of ETH 2.0 validators has reached 300,000+ with over $28 Billion TVL (Total Value Locked). That is based on the valuation of ETH (~$2900-$3,000 circa March 1, 2022). The total amount of ETH locked (requires 32 per validator) has reached 9.6 Million ETH. At the price of ETH in March 28, 2022 at $3,300.62 (10:46 PM EST), the total value locked would be $31.6 Billion. The value of ETH increases with the market, and any surge also brings up the TVL for the validators.
Ethereum is receiving not just retail support, but institutional as well. Macro guru Raoul Pal has become more bullish on his outlook of Ethereum. He believes it is on track to outperform Bitcoin based on its performance. Pal is looking at long term metrics that show that the market Ethereum is capturing covers a much larger base than Bitcoin. This includes the derivatives and money markets, where billions of dollars are sitting. Should even a small percentage of the money flow into the DeFi space, where ETH is a major currency, it can create network effects that can further drive ETH value higher.
Other reports are coming that banks are positive on Ethereum. It seems banks like JP Morgan had at one time been very critical of cryptocurrency. The sentiment has changed, and they now invest in projects that involve cryptocurrency like Ethereum. Perhaps the recent developments in how Ethereum will become more energy efficient and how it is a platform that facilitates a decentralized financial system opens opportunity for capital investments.
The transition to a new consensus mechanism can greatly impact Ethereum network performance. A faster and more energy efficient system gives it a positive outlook compared to Bitcoin and other energy intensive cryptocurrency that use PoW (Proof-of-Work). The more important matter that investors are keeping an eye on is how the move to ETH 2.0 will improve the network’s overall performance. This attempts to solve the problems of scaling, which Ethereum competitors (e.g. Solana, Harmony, Avalanche) have already been addressing. A more stable network with the capability to process more transactions will be huge for Ethereum, and can establish it as a dominant platform for years to come.