Ethereum is a decentralized finance giant that has seen significant growth over the past few years, spurred by events such as “DeFi Summer” and the rise of non-fungible tokens (NFTs).
Ethereum’s popularity, however, could spell its downfall as other protocols seek to eat away at or completely consume its market position.
Bitcoin and the birth of Ethereum
Bitcoin (BTC) is the mother of all blockchains and was the first modern iteration of what is widely known today as a cryptocurrency. Since then, there have been many attempts to provide users with greater functionality, but most have not had the strength to stick. One that has risen to the challenge is Ethereum, with its native coin Ether (ETH) now the second-largest cryptocurrency by market capitalization.
Cointelegraph Research has released a 74-page report that dives deep into Ethereum’s rise to this position, beginning by looking at Bitcoin alongside Ethereum’s history and where it stands today. Ethereum provided users with a way to create smart contracts in a way that Bitcoin could not, which helped propel Ethereum to its current status as the primary blockchain for DeFi. It’s clear that Bitcoin is here to stay, and there have been advancements in its DeFi capabilities – primarily using Layer 2 solutions to drive scalability, such as Lightning Network, Portal, and DeFiChain. However, Ethereum is still ahead of Bitcoin in the DeFi space, but can it stay there?
Ethereum’s current strengths and weaknesses
Ethereum saw unprecedented adoption in 2021, peaking at 800,000 daily active users in November. It has real-world adoption use cases, with a total value locked of over $150 billion on DeFi applications running on the blockchain in 2021. Some of the services offered by decentralized applications on Ethereum include lending, derivatives, asset management, stablecoins, trading and Insurance. However, due to the increasing adoption of blockchain over the past few years, its popularity is also its curse.
The more the network is used, the more it becomes congested and the higher the transaction costs, also known as gas fees, increase thereafter. This fee is there to help incentivize miners on the network to engage with the proof-of-work consensus mechanism it uses. There is an answer to the congestion and scaling problem, and that is Ethereum’s move to proof-of-stake and other upgrades in its full transition to what is colloquially known as Ethereum 2.0. However, delays in going live with various stages of the full Eth2 rollout, combined with the growing popularity of other smart contract blockchains, could bring Ethereum’s head down.
New Kids On The Block
There are many blockchain protocols trying to climb to the top of the crypto charts. In recent years, only a few have shown strong real-world adoption, popularity, and use cases, and they are starting to catch the attention of some in the blockchain space who would normally go for Ethereum. The Cointelegraph Research report dives into three such blockchains: Solana, Polkadot, and Algorand. Each protocol’s history, unique features, ecosystem, and scaling potential are explained in detail to help determine if any of these chains have what it takes to be the “death killer”. ‘Ethereum’.
Solana reports that it can process over 50,000 transactions per second (TPS), but the network has yet to reach those levels, although it still offers faster transaction speeds than Ethereum at a small fraction of the cost per transaction. Polkadot brings interoperability to the picture, allowing various channels to work together seamlessly. However, it hasn’t fully launched yet, and it’s unclear how Polkadot will perform when it really matters in the real world. Algorand is a blockchain created by some of the best minds in crypto, with high TPS, low network fees, and no downtime history. Its adoption metrics show a slow but steady pace – will this strategy be a winner in the end?
Solana, Polkadot, and Algorand work very differently from each other, and each offers advantages over Ethereum in its current form. While the future may be multi-chain and complete with pathways to interoperability, only the best can dominate in the DeFi space – which one will it be?
Can Ethereum maintain its position in 2022 and beyond?
Ethereum has stiff competition like Solana, Polkadot, and Algorand. Each provides solutions to current Ethereum problems. If the full rollout of Eth2 is not well executed or continues to be delayed, these up-and-coming protocols would be happy to take Ethereum’s place as king of DeFi.
This article is for informational purposes only and does not represent investment advice, investment analysis or an invitation to buy or sell financial instruments. Specifically, the document is not a substitute for individual investment or other advice.