The cryptocurrency market is in a peculiar position at the moment. Since the asset class hit an all-time high in collective value of nearly $2.9 trillion in November 2021, it has shed almost two-thirds of its value and is now barely hovering around the $1 trillion mark.
Some of the most valuable cryptocurrencies, like Bitcoin (BTC +0.77%) and Ethereum (ETH +0.62%), have suffered major blows to their prices. Bitcoin fell by as much as 70% from its all-time high, but has recovered slightly in the last few weeks. Even with the highly anticipated transition to proof of stake, known as The Merge, set to occur in just a matter of days, Ethereum has been unable to mount any considerable momentum.
The smart contract-based blockchain was down nearly 80% at its low point in June and currently sits at around $1,700 today. That's just a fraction of its all-time high of nearly $4,700.
With nearly every cryptocurrency down since the beginning of 2022, which ones are worth adding to your portfolio today?
The Ethereum sidekick
Based on news of The Merge being scheduled for a soft deadline of around Sept. 13 or 15, many investors are likely looking to grab some more Ethereum before the update occurs.
However, while this doesn't sound like a bad idea, there is another cryptocurrency out there that could potentially benefit more from The Merge than Ethereum itself. Known as a Layer 2 sidechain, Polygon (MATIC +0.00%) could potentially shatter its previous all-time high as it becomes more popular.
Polygon's rise in value and utility is the result of its role of making Ethereum's blockchain, known as a Layer 1, faster and cheaper to use. Over the last year, users of the Ethereum network looked for alternatives as speeds lagged and fees increased when traffic was high. However, Polygon isn't a true alternative to Ethereum. It maintains compatibility with the blockchain so that users and developers can get the best of both worlds -- namely the fast speeds and low fees of Polygon and the security and decentralization of Ethereum.
As hype around The Merge built, rumors and unsubstantiated claims began to circulate about just exactly what would happen to Ethereum after its upgrade. Ask any Ethereum investor and they likely would have told you that after The Merge, Ethereum would become faster and cheaper to use, which could likely mean the end of Polygon's utility.
Yet that is not the case. While Ethereum's ultimate goal is to increase scalability, the move to proof of stake won't directly get rid of those high fees and lagging speeds. For that to happen, a technology known as sharding will need to be implemented. Set for release sometime in 2023, sharding will split up Ethereum's primary blockchain into smaller, more manageable ones. Once this technology is live, Ethereum will become exponentially faster and cheaper to use.
But this won't be the end for Polygon.
CRYPTO: MATIC
Key Data Points
Polygon could take Ethereum to the next level
For Ethereum to reach its ultimate goal of becoming "powerful enough to help all of humanity," it will need to drastically increase its throughput -- something Polygon can help with. Currently, Ethereum can process around 20 transactions per second (tps) -- and while it's only an estimate, one of Polygon's co-founders believes that sharding will only get Ethereum to around 1,280 tps. It's estimated that Polygon's blockchain can handle somewhere around 7,000 tps -- speeds that could support billions of users.
What is most encouraging about the long-term prospects of Polygon is that Ethereum developers are more than aware of the role Layer 2 solutions have in the development of Ethereum. Straight from the Ethereum website itself, readers will find dialogue that Ethereum's development will work in "harmony" with Layer 2 solutions so that Ethereum can scale even more.
Just like nearly every cryptocurrency, Polygon has been hurt in 2022. It has lost more than two-thirds of its value, but unlike some other cryptocurrencies, the Layer 2 solution has considerable long-term potential. With The Merge looming, now could be a great time to add some Polygon to your portfolio. But don't feel rushed -- even after The Merge, Polygon should continue to develop and support Ethereum well into the future until it eventually becomes "powerful enough to help all of humanity."
