As cryptocurrency prices continue to sink, it can be a daunting time to be an investor. The crypto market as a whole has lost roughly half of its value since November, dropping from around $3 trillion to approximately $1.6 trillion.
Although it may be tempting to avoid the crypto market altogether, right now could actually be a smart opportunity to invest more. Prices are lower than they've been in months, making it a more affordable time to buy -- and you could see substantial earnings when prices rebound.
However, it's still important to choose your investments wisely, as not all cryptocurrencies will be able to survive periods of volatility. But there's one crypto that I plan to hold forever, even if prices continue to fall: Ethereum (ETH +1.78%).
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Is Ethereum a good investment?
Ethereum is already a major player in the crypto space, but it could become even stronger in the coming months and years.
One of Ethereum's primary advantages is that its network is programmable. Users can build smart contracts on the network, which allow two individuals to execute transactions without a third party such as a lawyer.
Smart contracts play a major role in the decentralized finance (DeFi) space. They could potentially revolutionize the finance and banking industries by making it easier for individuals to borrow and lend money without a middleman like a bank.
Ethereum is also the largest non-fungible token (NFT) marketplace host, which could prove to be lucrative if NFTs continue to gain popularity. Buying or selling NFTs on Ethereum's network requires the use of its native token, Ether. In other words, if NFTs succeed, Ethereum will benefit from it.
What will 2022 look like for Ethereum?
Perhaps the biggest reason to be excited about Ethereum's future is that it's currently moving from a proof of work (PoW) protocol to a proof of stake (PoS) protocol. This essentially means that it's changing how transactions are verified, and a PoS system will make it much easier for Ethereum to scale.
Under a PoW protocol, miners verify transactions using high-powered computers. This requires an incredible amount of energy, and it's also a slow process. Right now, Ethereum can only handle around 15 transactions per second. That sluggishness has Ethereum at a disadvantage, as competitors like Solana (SOL +0.91%) can handle tens of thousands of transactions per second.
Once Ethereum moves to a PoS protocol, however, it could process up to 100,000 transactions per second. Between this speed and the fact that Ethereum is already the largest smart contract platform, it could have a major advantage over Solana, Cardano (ADA +0.78%), and other so-called "Ethereum killers."
After the update, Ethereum will also use around 99.95% less energy. This could help it better compete with Bitcoin (BTC +2.04%), which has been widely criticized for its energy consumption.
Is Ethereum the right investment for you?
Ethereum is expected to complete the next phase of its update later this year, which could make it an even stronger investment. However, it's not the right investment for everyone.
Like all cryptocurrencies, Ethereum is still speculative. There's a chance it won't survive over the long term, so if you choose to buy, make sure you're only investing money you can comfortably afford to lose.
It can also be extremely volatile, as the last two months have proven. Ethereum has been subject to severe price swings in the past, even losing close to 95% of its value back in 2018. Before you buy, make sure you're comfortable with this level of risk and volatility.
Ethereum could be a smart long-term investment, but it does carry more risk than your average stock. If you're willing to take on more risk for the potential to earn substantial rewards over time, though, it could be the right cryptocurrency for you.
