After losing more than 70% of its value in 2022, Polygon (MATIC 1.69%) is now up more than 90% since the start of 2023. While this rise is likely due to a rally sweeping through the entire cryptocurrency asset class, there is reason to believe that Polygon still has plenty of room to run in the coming years.
Despite 2022 shredding its price, Polygon actually had one of the more successful years compared to its peers. As the result of a multitude of new partnerships with companies looking to tap into the potential of blockchain technology, Polygon’s market cap jumped into the top 10 most valuable cryptocurrencies.
Companies like Meta Platforms, Disney, Starbucks, Coca-Cola, and JPMorgan all announced varying forms of partnerships with Polygon in 2022 as they looked to develop new business models utilizing the potential of blockchain technology.
A valuable sidekick
Polygon was selected for a handful of reasons, but likely the most attractive was its compatibility with Ethereum (ETH 1.24%). Known as a Layer 2 blockchain, Polygon’s purpose is to actually make Ethereum faster and cheaper to use. As one of the most popular blockchains, Ethereum can be costly and slow to use when traffic is high. With Polygon, transactions are processed on its own blockchain, bundled together, and then added to Ethereum. As a result, Polygon offers users the best of both worlds. It’s cheap to use, fast, and maintains compatibility with Ethereum.
This technology has helped put Polygon in a unique position that makes it one of the most sought-after blockchains. But with more companies looking to utilize the blockchain, Polygon itself needs to be ready to ensure it can handle an exponential growth in users without sacrificing speeds or increasing fees.
Over the last year, Polygon developers have been busy working on implementing a new technology that will allow the blockchain to handle this increase in use. To do so, a new technology known as zero-knowledge rollups (zk-rollups) will be implemented and has a release date set for some time in the late first or second quarter of 2023. With zk-rollups, Polygon will become even faster and cheaper to use. The technology behind zk-rollups is a little technical, but understanding this process can be beneficial to projecting Polygon’s potential future price because usability is one of the key features that determines a cryptocurrency’s value.
Currently, transactions on Ethereum require validators to include their “proof of computation.” It’s similar to having to show your work when solving a math problem and prevents malpractice from occurring on the blockchain.
However, instead of a pencil and paper, this is all done with computers and packed into each block on the Ethereum blockchain. As transactions become more complex, blocks become more congested and clunky.
But with zk-rollups, this proof of computation can be offloaded from Ethereum’s blockchain and processed on Polygon instead. As a result, Polygon can process more transactions and make Ethereum even faster. This new functionality could help move Polygon’s speeds up to nearly 40,000 transactions per second (tps), a significant increase from Ethereum’s current 12 tps to 15 tps.
With speeds this fast, Polygon could offer users an efficient and cost-effective solution as they begin to utilize blockchain-based applications and business models.
With its price now at around $1.48 at the time of writing, there is still plenty of potential for Polygon as it is still down more than 45% from its all-time high. As previously mentioned, one of the primary metrics that help us value a cryptocurrency’s potential price is its usability. When zk-rollups are introduced, Polygon will be able to handle an exponentially greater amount of traffic and thus increase its usability. Even better, as trends of blockchain usage continue to materialize, Polygon is in a position to become a lucrative staple of crypto portfolios for the coming years.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. RJ Fulton has positions in Ethereum and Polygon. The Motley Fool has positions in and recommends Ethereum, JPMorgan Chase, Meta Platforms, Polygon, Starbucks, and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney, long January 2024 $47.50 calls on Coca-Cola, short April 2023 $100 calls on Starbucks, and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.