The cryptocurrency market flourished in 2021, with Ethereum’s market cap zooming over 425 percent. This hike saw Ether outperform its largest competitor Bitcoin, which only recorded an increase of 66 percent. Binance experts accredited the meteoric outclass to the surge in DeFi (Decentralized Finance) and the EIP-1559 update that saw Ethereum’s inflation rate drop drastically.
Regardless of the price jump, Ethereum still retained its position, lagging behind bitcoin. Hopefully, besides the evident operational challenges, Ether is expected to eclipse its biggest rival to become the largest crypto in terms of market capitalization. Nonetheless, besides anticipating a technical adjustment, Ethereum still faces major hurdles that could stall its upsurge.
China’s ban on the leading peer crypto, Bitcoin, saw 67 800 holders exit the exchange in 2021 alone. However, recent observation has seen the supply drop continuously while the number of holders increases. Nevertheless, Bitcoin experienced a recent surge that showed that the digital currency surpassed its previous statistics and survived a direct attack.
Ethereum Blockchain Technology
The terms “ether” and “Ethereum” have become synonymous in the crypto world. Ethereum is simply a decentralized network whereby a decentralized application is entrenched while Ether is the currency that drives or enables the use of these applications,
Statistics from CoinGecko.com-a crypto data tracker- revealed that Ethereum enjoyed a market capitalization of $140 billion behind bitcoin’s market cap of more than $1 trillion. While the supply of Ethereum has been limited, its demand increased due to the rise in institutional interest.
At the core of Ethereum’s predominance is DeFI-peer to peer cryptocurrency platforms that provide ungoverned lending services, unlike typical banks. For instance, Naga Trading Platform is a Decentralized Finance that runs on the Ethereum blockchain using an open-source code. Moreover, these sites feature algorithms that set real-time rates depending on the supply and demand graphs. On Friday, DeFi pulse data revealed that the total number of loans on DeFi platforms- also known as the value lock- was $79 billion, a 600% rise from $11 billion last October.
Nevertheless, DeFi, too, features its fair share of problems. Research from Dune Analytics revealed that 2%-5% of Ethereum-based decentralized transactions were botched due to several complications. These complications include inadequate gas prices or slippage- a term used to 4denote the required fees for a successfully conducted transaction on the Ethereum network. While DeFI is destined for impressive growth, progress comes with inherent risk.
Furthermore, issues such as front-running and failed transactions are significant since users end up losing millions of dollars daily. Another practice that limits the appeal of the Ethereum blockchain is lining a transaction in the execution queue before a predetermined future contract. As a result, it hinders the growth of the ecosystem. Nonetheless, DeFi sites such as Naga Trading Platform epitomize the future of financial services since they provide a cheaper and efficient way for companies and individuals to access credit.
Most traders agree that a major technology bump with the Ethereum network is its inability to scale to satisfy the market demand without facing slow execution of transactions as well as incurring high transaction costs.
Fortunately, Ethereum 2.0- the first stage of an upgrade launched last year- aims to attend to the blockchain’s tech issues on efficiency, scalability, and speed.
Another challenge hindering the growth of Ethereum is the stiff competition it faces from other networks such as Binance Smart Chain and Avalanche, which are well-suited for Ethereum’s applications and assets. This seems to be a major threat since reports reveal that users have transferred about $170 million from Ethereum to Avalanche since February 2021.
Another Major Technological Enhancement
Hopefully, with the onset of EIP-1559 (Ethereum improvement proposal), a technical 4enhancement that is expected to be launched in July will boost the digital currency and reduce the supply of Ethereum.
EIP-1559 seeks to minimize the volatile nature witnessed in Ethereum’s fees by providing mechanisms to burn some of the cost, thus slowing the token’s issuance.
With the advancement in blockchain technology, cutting down on Ethereum’s cost could impact its pricing similar to a bitcoin halving event, whereby an adjustment expurgated bitcoin supply driving its price to record highs. While Bitcoin has been the most traded crypto coin for a decade now, expect major altcoins such as Ethereum to step up and even surpass it.