Ethereum Dominance Hangs in the Balance: What You Need to Know

13 Jan, 2022
Ethereum Dominance Hangs in the Balance: What You Need to Know

Ethereum. It can be anything you want it to be. That is if you read what's out there in the crypto sphere.

Its dominance will fade according to some analysts, who have been predicting other blockchains will overtake the number two platform. Or it will be the center of the crypto universe, according to its founder. Its native coin Ether (ETH) will overtake Bitcoin as the number one digital currency, according to fans of the "flippening" theory. It's going to make me rich, according to its investors.

And for those who are jumping into the NFT (non-fungible token) and DeFi (decentralized finance) markets, who knows what they're thinking? They just want to capitalize on the craze.

So, what does all of this mean to the retail crypto investor? Here's what you need to know:

Ethereum – the good and the not-so-good. Released in 2015, Ethereum has maintained its number two blockchain and coin positions to crypto market leader Bitcoin. Its open-sourced blockchain provides developers with a secure platform to create and run decentralized applications (dApps), including smart contracts, which allow parties to validate transactions without a third party such as a bank or other institution.

Ethereum also powers some of the largest NFT marketplaces, including OpenSea, Rariable, and Mintable. "Last year, Ethereum smart contracts linked to NFT marketplaces and collections saw an influx of around $20 billion, and the pace has not slowed down in 2022," the bitcoinist reports.

Now for the not-so-good news on Ethereum. It is still plagued by high transaction or "gas" fees and congestion on the network as demand often outstrips supply. The Ethereum network has been working hard to relieve these issues, which still persist. The platform has touted its latest upgrade, which will move it to a proof-of-stake protocol as we previous explained:

"Ethereum's ‘proof of work’ (PoW) protocol, which involves many miners who compete to validate a block on the blockchain, has also come under scrutiny for its energy-guzzling. Ethereum 2.0 will move from proof of work to ‘proof of stake (PoS),’ a protocol that selects one miner with a "stake" in the blockchain to validate the transaction."

So far, the upgrade has produced mixed results and reviews.

Competitors keep vying to be the "Ethereum Killer"

Excitement and speculation abound in the crypto world as to which platform might, just might, overtake Ethereum as the prime platform for dApps. Many of these networks are already using the PoS protocol and have made gains in 2021. Platforms such as Solana, Cardano, Polkadot, and others are on the list as the "one" that will knock Ethereum off its pedestal.

"You have Solana, Tezos, all these other thousands of proof of stake blockchains. We don't know which ones of those will be the winner yet," Brian Estes, Off The Chain Capital, said in a year-end interview with Real Vision Network.

"Binance Smart Chain and Solana have been taking a significant amount of market share away from Ethereum because Ethereum is slower and expensive and Binance Smart Chain and Solana are much faster and cheaper," he said. "When we hit that shakeout phase in the next one to three years, I would say that almost all the proof of stake blockchains will get washed out, and we'll be left with a handful of winners there, too."

Estes predicts that it will be Bitcoin, not any of the current competitors to Ethereum, that will be the true winner in the blockchain world. That philosophy contradicts the "flippening" theory that Ethereum would, at some point, overtake Bitcoin as the dominant blockchain and cryptocurrency. Block (formerly Square) CEO Jack Dorsey has also thrown his hat in the Bitcoin ring as he makes moves to elevate the network's utility.

Analysts keep trying to predict the path forward.

Much like the traditional financial markets, traders spend a lot of time reading the "reviews," as such they are, of the current state and direction of Ethereum.  That, of course, changes with the market winds. Some feel the network has what it takes to weather any shakeout, storm, or the competition.

"If you roll the clock forward 10 to 20 years, a very sizable percent, maybe even north of 50%, of the world's financial transactions in some way, shape or form will touch Ethereum," Joey Krug, co-chief investment officer at digital asset investment firm Pantera Capital, recently told Bloomberg.

JPMorgan analysts have a different view.

"In our mind, this optimistic view about ethereum's dominance is at risk," the analysts, led by Nikolaos Panigirtzoglou, said in a recent note. "This is because the scaling of the Ethereum network, which is necessary for the Ethereum network to maintain its dominance, might arrive too late."

The analysts point to the network's eroding market share which competitors have managed to chip away at its dominance, especially as the DeFi and NFT markets have become hot.

"In other words, Ethereum is currently in an intense race to maintain its dominance in the application space with the outcome of that race far from given, in our opinion," the note said.

Don't write the obit so fast, Ethereum's founder says.

For all the talk and hype about the rise and fall of the network, Ethereum cofounder Vitalik Buterin remains steadfast in his vision.

Progress on the transition to the new version of blockchain - also known as ETH2.0 and Serenity - is just 50% of the way there," Buterin said in a recent post titled "Endgame." The article paints a picture of Eth2 as the go-to smart chain platform designed with new features to increase scalability and security.

So, does Ethereum's future really hang in the balance? There's no real answer for traders other than to watch, wait and see. The number two coin may have half the market capitalization of Bitcoin and currently far outruns its competitors. That in itself is the strongest signal of its survival in today's crypto world.

Joyce Pavia Hanson

Contributor

Share: