Ethereum (CRYPTO:ETH) is up 419% in 2021. Here's what's ahead for 2022

The world's number 2 crypto is undergoing major upgrades.

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Ethereum (CRYPTO: ETH) is currently trading for US$3,844 (AU$5,413).

That's up 419% so far in 2021.

But it hasn't all been uphill.

Ethereum hit all time highs on 10 November, touching US$4,865. Which puts the world's number 2 crypto by market cap down 21% in just over a month.

That's all virtual water under the bridge. Now crypto investors are casting their eyes to the year ahead.

What's ahead for the number 2 crypto in 2022?

Josh Gilbert, crypto analyst at multi-asset investment platform eToro, told The Motley Fool:

Ethereum looks like it could be set for a strong year in 2022, following its roaring success in 2021. It underpins much of DeFi [decentralised finance] and NFTs [non-fungible tokens], arguably the hottest 2 crypto components right now.

Gilbert also pointed to an expected decrease in supply of the token in 2022:

The cryptoasset has also introduced a burn mechanism with the introduction of the EIP-1559 upgrade, which will slow the supply of Ether whilst demand continues to soar. In 2022, we will see further upgrades to the Ethereum network as part of the ETH 2.0 upgrade. These updates will improve the scalability and security of ETH.

What can investors expect from Ethereum 2.0?

With the rapid pace of innovations in the crypto world, you'd be forgiven for not being atop all the latest upgrades.

To get the inside scoop on what crypto investors can expect from the ongoing Ethereum 2.0 upgrade, The Motely Fool turned to Ray Brown, market analyst at crypto exchange CoinSpot.

Brown told us:

Ethereum 2.0 is the first major multi-phase upgrade of the Ethereum blockchain, intended to increase the Ethereum network's speed, efficiency, and scalability while boosting security and making the network more sustainable.

Supporters of the ETH blockchain are likely to see a reduction in gas and transaction fees and increased transaction throughput which have been seen as limiting factors of the network's success.

Essentially, with Ethereum 1.0, many investors identified a number of bottlenecks, including the need to increase the number of possible transactions per section (currently 15 to 45).

The 2 main structural changes of the upgrade, Brown said, are a transition to Proof-of-Stake from Proof-Of-Work and the introduction of sharding.

So what's the difference between Proof-of-Stake and Proof-Of-Work?

According to Brown, among other things, it will significantly reduce the token's carbon footprint:

Proof-of-Stake (PoS) is a consensus method that states a person can mine or validate block transactions based on how many coins they hold. The more coins a miner owns, the more mining power they have.

Switching to PoS from the current mechanism of Proof-of-Work (PoW) will make Ethereum significantly more environmentally friendly, given it will no longer require huge amounts of computing energy to crack mathematical equations that currently validate its blocks.

As for sharding, Brown explained:

Sharding is the splitting of a blockchain into multiple blockchains, also known as 'shards'. Sharding is basically spreading the load across multiple portions, meaning reduced network congestion and increased transactions per second for ETH transactions.

Ethereum 2.0 has been rolling out in phases with smaller upgrades, Brown said. The 2.0 upgrade is expected to be completed around June 2022.

So, is Ethereum 2.0 going to be worth the effort?

"If executed correctly, it could be a complete game changer and will certainly be worth the wait," Brown told The Motley Fool.

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Ethereum.  The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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