Ethereum, a decentralized financial giant, has experienced significant growth in the last few years. This is due to events such as “DeFi Summer” or the rise of nonfungible tokens.
However, Ethereum’s popularity may be causing its downfall as other protocols seek to take over or completely consume its market position.
Bitcoin and the birth Ethereum
Bitcoin (BTC), the mother of all blockchains, was the first modern version of cryptocurrency. There have been many attempts to offer more functionality since then, but few have succeeded. Ethereum is the only cryptocurrency that has risen up to the occasion, its native Ether (ETH coin) being the second-largest cryptocurrency in terms of market capitalization.
Cointelegraph Research released a 74-page study that examines Ethereum’s rise to the top. It starts by looking at Bitcoin and Ethereum’s history, as well as where it is today. Ethereum gave users the ability to create smart contracts in a way that Bitcoin couldn’t. This helped to propel Ethereum to its current position as the most popular blockchain for DeFi. Bitcoin is here to stay. There have been many improvements in its DeFi capabilities, mostly using layer-2 solutions to improve scalability such as Lightning Network Portal, DeFiChain, and Portal. But Ethereum still leads Bitcoin in DeFi, but will it be able to stay there?
What are the current strengths and limitations of Ethereum?
Ethereum enjoyed unprecedented adoption in 2021. It reached 800,000 daily active users in November. There are real-life use cases for Ethereum, with over $150 billion in total value across DeFi applications on the blockchain by 2021. Decentralized applications that run on Ethereum offer services such as lending, derivatives and asset management. However, the popularity of blockchain has also been a curse due to its increasing adoption over the last several years.
You can download the complete report, including charts and infographics, here.
The network’s usage is more, which means that it becomes more congested and leads to higher transaction costs (also known as gas fees). These fees are intended to encourage miners to use the proof-of work consensus mechanism that the network uses. The solution to congestion and scaling is Ethereum’s switch from proof-of-stake to Ethereum 2.0. This is a major step in the transition to Ethereum 2.0. But delays in Eth2’s rollout at each stage could make it difficult for Ethereum to be the best. This is due to the popularity of smart contract blockchains.
There are new kids on the block
There are many blockchain protocols trying to rise to the top of crypto charts. Only a handful of blockchain protocols have been able to demonstrate strong adoption, popularity, and real-world uses in recent years. They are beginning to attract attention from people who normally would go to Ethereum. Cointelegraph Research’s report focuses on three of these blockchains, Solana Polkadot, Algorand and Algorand. To determine whether any of these protocols are the “Ethereum Killer”, we will detail each protocol’s history, unique characteristics and ecosystem.
Solana claims that the network can process more than 50,000 transactions per seconds (TPS), however, it has yet to reach this level. However, it still offers faster transaction speeds than Ethereum and a fraction of the transaction cost. Polkadot adds interoperability, allowing different chains to work seamlessly together. This has yet to be fully launched and it is not clear how Polkadot works in real life. Algorand, a blockchain developed by the most brilliant minds in cryptography has a high TPS, low network fee and zero downtime history. Its adoption metrics indicate a slow but steady rate — will this strategy prove to be successful in the end?
Algorand, Polkadot and Solana operate in a very different way from each other and each offer advantages over Ethereum’s current form. Although multichain is the future and there are many paths to interoperability, the DeFi space will always be dominated by the best — but which one?
Will Ethereum be able to maintain its position in 2022?
There is a lot of competition for Ethereum in the form of Polkadot, Solana and Algorand. Each of these solutions can solve the current problems that Ethereum is facing. These up-and-coming protocols could be happy to replace Ethereum as King of DeFi if the rollout of Eth2 isn’t completed well or is delayed.
This article is intended for information only. It does not constitute investment advice, an investment analysis, or an invitation to purchase or sell financial instruments. The document is not intended to replace individual investment advice or any other advice.