Ethereum (ETH -0.04%) has climbed more than 500% this year. This may look impressive, but Ethereum's gains actually pale compared to those of other cryptocurrencies. For instance, fellow smart-contract platform Solana has soared 14,800% so far this year.
Ethereum probably won't be among the biggest crypto winners of 2021, but next year, the situation may be completely different. Why? Because Ethereum is getting an upgrade.
It's happening in a few stages. But the full package should be complete at some point in 2022. Now the question is: Should you buy this crypto player before the upgrade? Let's take a closer look.
From finance to gaming
First, a little background on Ethereum. The blockchain platform is the world's second biggest -- right after Bitcoin. It runs self-executing contracts known as smart contracts. This allows it to host decentralized applications in just about any area you can think of -- from finance to gaming.
The coin used on the network is known as Ether. Ethereum also is a big player in the world of non-fungible tokens (NFTs). You can buy these on the network as proof of ownership of various items -- including artwork.
Ethereum is an old player compared to some of the cryptos climbing up the performance charts recently. It's been around since 2015. By comparison, popular meme-coin Shiba Inu launched five years later. This head start and the quality of Ethereum's blockchain network have helped it stay ahead in terms of usage. Ethereum is the all-time leading blockchain in terms of NFT sales volume, according to CryptoSlam.
Ethereum probably sounds pretty good to you right now. So why the upgrade? The network has one main flaw -- its transaction speed. Here's an example of how it compares to others: While it processes about 30 transactions per second, smaller-rival Solana processes tens of thousands.
The upgrade will make slow speed a thing of the past. Ethereum will move from a proof-of-work to a proof-of-stake model, which means validating transactions won't involve a lot of computer power. This saves time and energy. Instead, an algorithm will assign validation to potential validators according to their number of coins held.
Reducing network congestion
Another important step in the upgrade is the introduction of shard chains. This spreads the workload horizontally across new chains and will reduce congestion on the network and speed things up. Once everything is in place, Ethereum aims to process as many as 100,000 transactions per second.
So let's get back to our question: Should you buy Ethereum before the upgrade? Of course, there's always the risk the launch will be delayed or that the upgrade won't roll out as smoothly as planned. That could seriously hurt Ethereum.
Crypto remains risky -- even when you invest in the bigger players. So only invest what you can afford to lose.
But if you accept the potential risk, there's reason to be optimistic about Ethereum -- and the rollout of Ethereum 2.0. If all goes according to plan, Ethereum could soar. And that's why it's a great idea to invest in this dynamic player before it becomes even better.