Ethereum (ETH 1.18%), along with the general cryptocurrency market, probably isn't making investors think of an early retirement right now. The crypto giant has lost more than 60% this year. Amid rising inflation and concerns about the economy, investors are seeking the safest investments. That means riskier areas like cryptocurrency have been suffering.
This may look grim. But it's important to remember economic troubles and market downturns don't last forever. That means certain solid crypto players may rebound and even post big gains down the road. Considering this, could Ethereum eventually help you retire early? Let's find out.
One of the biggest blockchains
First, let's take a look at Ethereum today. It's one of the biggest and most popular blockchains out there. It's actually the second-biggest cryptocurrency by market value after Bitcoin.
Ethereum is a leader in decentralized applications (dApps) and non-fungible tokens (NFTs). More than 2,900 dApps run on Ethereum, according to State of the dApps. And it's the biggest blockchain by sales volume for NFTs, CryptoSlam data show.
Ethereum also is a leader when it comes to the number of developers working on its blockchain. They totaled more than 4,000 by the end of last year, according to Electric Capital research. That's up by 42% from earlier in the year. This is key because it shows developers are using the blockchain more and more.
The major problem with Ethereum right now is slow transaction speed -- and therefore, high transaction costs. But this soon may become a thing of the past. Ethereum has launched a major upgrade. It includes several stages. It's switching to the proof of stake method of validating transactions from proof of work. This validation method will increase speed, lower costs, and use less energy. And it also will allow users to stake their holdings.
The merge may happen soon
The switch -- known as "the merge" -- is set to happen in the coming months. Later stages of the upgrade will include the introduction of sharding to further streamline operations and boost speed. This splits up the workload to reduce congestion.
So, Ethereum has many real world uses and is doing its part to transform the way business is done. The fact that it's already a leader offers it an advantage over newer players. And if the upgrade goes well, Ethereum will be eliminating its biggest problems.
Now, let's look at Ethereum's performance prior to this year. The cryptocurrency soared as much as 1,800% over the past five years. But it's also posted periods of big losses from time to time during that period.
It's fair to say Ethereum and the cryptocurrency market in general can be pretty volatile. Ethereum has demonstrated, though, that over time, it can deliver great gains. Those who bought Ethereum five years ago and still are holding on are benefiting from an increase of more than 400%.
Let's get back to our original question: Could this crypto giant help you retire early? Possibly. It depends on when you buy Ethereum and when you sell. For instance, those who bought several years ago probably could sell today and retire early.
If you bought Ethereum late last year, though, don't be discouraged. Losses happen fast in the crypto world. But so do gains. Your investment may bounce back more quickly than you expect.
Of course, cryptocurrency remains a risky area. It's new -- and we don't know what role it will play years down the road. But if crypto does gain more and more momentum, Ethereum could keep its spot at the head of the pack. And that means it may help some long-term investors retire early.