Ethereum is a decentralized finance giant that has seen significant growth in recent years, catapulted by events such as “DeFi summer” and the rise of non-fungible tokens (NFTs).
Ethereum’s popularity, however, may be leading to its downfall, as other protocols look to reduce or completely take over 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 now known as cryptocurrency. Since then, there have been numerous attempts to offer users more functionality, but most have not been able to stick it out. One of those that has risen to the challenge is Ethereum, whose native currency Ether (ETH) is now the second largest cryptocurrency by market capitalization.
Cointelegraph Research has published a 74-page report that takes a deep dive into Ethereum’s rise to this position, beginning by examining Bitcoin along with 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 the network to its current status as the leading blockchain for DeFi projects. It is clear that Bitcoin is here to stay, and there have been advances in its DeFi capabilities – primarily using layer 2 solutions to help scalability, such as the Lightning Network, Portal, and DeFiChain. However, Ethereum is still ahead of Bitcoin in the DeFi space, but can it hold its own?
Ethereum: strengths and weaknesses today
Ethereum saw unprecedented adoption in 2021, peaking at 800,000 daily active users in November. It has real adoption use cases, with a total value locked of over $150 billion through DeFi applications running on the blockchain in 2021. Some of the services decentralized applications offer on Ethereum include loans, derivatives, asset management, stablecoins, trading and insurance. However, due to the increasing adoption of blockchain in recent years, its popularity is also its curse.
Download the full report here, with graphs and infographics.
The more the network is used, the more congested it becomes and the higher the transaction costs, also known as gas fees. These fees are there to help incentivize miners on the network to participate in the proof-of-work consensus mechanism it uses. There is an answer to the problem of congestion and scaling, and that is Ethereum’s switch to proof of stake and other improvements in its full transition to what is colloquially known as Ethereum 2.0. However, delays in implementing the various phases of the full Eth2 rollout, combined with the growing popularity of other smart contract blockchain networks, could take the crown away from Ethereum.
The new kids on the block
There are plenty of blockchain protocols out there trying to climb to the top of the cryptocurrency charts. In recent years, only a few have shown strong adoption, popularity, and real-world use cases, and are starting to get attention from some in the blockchain space who would normally go to Ethereum. The Cointelegraph Research report dives into three of these blockchain networks: Solana, Polkadot, and Algorand. The history of each protocol, its unique features, its ecosystem, and its potential to scale are explained in detail to help determine if any of these chains have what it takes to be the “Ethereum killer.”
Solana claims that it can process more than 50,000 transactions per second (TPS), but the network has not yet reached these levels, although it still offers faster transaction speeds than Ethereum at a small fraction of the transaction cost. Polkadot brings interoperability, allowing multiple strings to work together seamlessly. However, it hasn’t quite got off the ground yet, and it’s unclear how Polkadot will work when it actually counts in the real world. Algorand is a blockchain created by some of the best minds in the crypto space, with high TPS, low network fees, and no history of crashes. Your adoption metrics show a slow but steady pace – will that strategy be a winning strategy in the end?
Solana, Polkadot, and Algorand all operate very differently from one another, with each offering advantages over Ethereum in its current form. While it is true that the future may be multi-chain and complete with paths towards interoperability, only the best can dominate in the DeFi space – which one will it be?
Can Ethereum hold its ground in 2022 and beyond?
Ethereum has stiff competition from networks like Solana, Polkadot, and Algorand. Each of them offers solutions to the current problems of Ethereum. If the full rollout of Eth2 does not go well or continues to be delayed, these promising protocols would be happy to take Ethereum’s place as king of DeFi.
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