Cryptocurrency, in general, has had a fantastic year. Despite widespread volatility over the last few weeks, the crypto market, as a whole, still has a market cap of around $2.25 trillion.
As we head into 2022, it's the perfect opportunity to reevaluate your investments and consider adding a little crypto to your portfolio. Many cryptocurrencies are priced at a discount right now due to volatility within the industry, which could make right now a smart time to buy.
Not all cryptocurrencies are created equal, however, and some have more potential than others. While nobody knows for certain what 2022 has in store for the crypto market, there's one investment I'm stocking up on before the new year: Ethereum (ETH -0.29%).
Is now the right time to buy Ethereum?
Ethereum is one of the strongest cryptocurrencies of the year and could be even more powerful in 2022. Developers are currently working on rolling out Ethereum 2.0, an upgrade to the blockchain that will move it from a proof of work (PoW) protocol to a proof of stake (PoS) system.
Under a PoW protocol, miners verify transactions using high-powered computers that solve complex calculations. This is not only time-consuming and results in slower transaction times, but it also consumes a colossal amount of energy. A PoS protocol involves validators putting a portion of their crypto tokens at stake to earn rewards, which is much faster and more energy-efficient.
Currently, Ethereum can handle around 15 transactions per second. After the upgrade, it could potentially process up to 100,000 transactions per second, and will use around 99.95% less energy than it does currently.
Ethereum 2.0 is expected to be completed sometime next year. Once that transition is fully rolled out, Ethereum will have a significant advantage over its competitors. Not only will it be faster and more efficient than Bitcoin (which still uses a PoW protocol), but it will also be able to keep up with newer cryptocurrencies like Cardano that already use a PoS system.
Is Ethereum the right investment for you?
If you're considering investing in Ethereum, right now may be a good opportunity. Its price is lower right now due to widespread volatility within the crypto market, so you can invest for a discount.
However, Ethereum isn't right for everyone, and there are risks to consider before you buy.
For one, there will likely be more volatility as Ethereum continues rolling out its update. This transition is significant, and it's already experienced hiccups along the way. Earlier this year, it faced a critical bug that split the blockchain, leaving it exposed to an attack. Developers fixed the issue quickly, but there could be similar problems in the future as Ethereum continues to find its footing.
In addition, cryptocurrency, in general, is still highly speculative. While Ethereum is one of the strongest players in the field, nobody knows for certain whether crypto will still exist in a decade or two. That makes it a fairly risky investment, because even the best cryptocurrencies aren't guaranteed to succeed over the long run.
Next year could be promising for Ethereum, but it's not the right investment for everyone. If you're comfortable with higher levels of risk and are willing to hold your investment for the long term despite short-term volatility, Ethereum might be a smart addition to your portfolio.