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Ethereum (ETH): Crumbling Under Its Own Success? Let's Take a Look!

By Michael @ CryptoEQ | CryptoEQ | 17 Nov 2021


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Ethereum Challenges to Adoption 

Ethereum’s main challenge to adoption stems directly from its well-known scalability problems. Unlike new generation blockchains focusing on high-throughput capacity that are built from scratch, Ethereum is grappling with how to scale the network without compromising decentralization or security. This is commonly known as the Scalability Trilemma, where sacrificing one of the three properties is necessary for the short-term for the other two to be viable. Ethereum has clearly taken the path of decentralization and security over scalability in the short term.

Scaling woes have also continued to accelerate as gas costs regularly become prohibitively high for many dApps.  Other platforms have the advantage of building their platforms without the stress of meeting network capacity demands. These high fees have opened the door to Ethereum competitors that optimize for cheaper fees (while compromising in other areas) like Solana and Binance Smart Chain.

Ethereum competitors. Source: Address Capital


The eventual transition of Ethereum to PoS via Eth2 and then to sharding, outlined in the roadmap, will provide a useful gauge as to the long-term viability of Ethereum as a dApp and smart contract network. For now, speculation runs rampant, but it is impossible to predict how PoS will play out at scale. 

That said, because of Ethereum’s slow but measured total overhaul, some developers and users are looking to build and interact with dApps on other platforms, with some even migrating to them. EOS is the largest present competitor to Ethereum as a smart contracts platform, but it has severe decentralization and mutability concerns stemming from its Delegated Proof of Stake (DPoS) consensus. Despite the mounting issues, EOS dApps that require little need for decentralization, such as games and gambling apps, tout high user counts although there’s evidence to suggest these numbers are forged/manipulated

Finally, Ethereum’s continually shifting narrative regarding scalability and upgrades may prove too much for many users and developers to tolerate. Scaling Ethereum has turned into a highly complicated issue that has progressed slower than anticipated, creating prohibitively expensive transaction fees at times.

Sources: Coinmetrics



Ethereum Adoption

Ethereum has the most extensive network effects of any cryptocurrency except for Bitcoin. Ethereum’s sizeable network effects should afford it extended sustainability despite scalability concerns that other platforms do not have to address. Additionally, Ethereum holds the market lead in active developers and projects. The sheer size of the development community for Ethereum – many of which programmed their first smart contracts on the platform – should provide a pool of talent to help propel it into the next generation of cryptocurrencies. 

Source: Address Capital

Ethereum’s subreddits (ethereumethfinanceethtrader)  are also one of the most active out of any cryptocurrency, with 444k members in the largest case. Ethereum’s Twitter also has 448k followers and the term “ethereum” is well behind in Google Searches compared to Bitcoin along with every other top coin. Ethereum is one of the few cryptocurrencies mentioned in the mainstream media besides Bitcoin and other leading cryptocurrencies (in market cap terms) such as Litecoin, Ripple, and Bitcoin Cash. All of these result in a growing user base which can be seen in the image below of Ethereum addresses reaching new highs in 2020.

Ethereum transactions per day average ~1.6M, nearly twice as much as Bitcoin, and an order of magnitude ahead of any other altcoin. Much of the recent drive in daily transactions can be attributed to the rise of the DeFi (Decentralized Finance) movement on Ethereum. Total ETH held in DeFi currently is ~6.5 million (~5% of ETH supply) or nearly $90B and continues to grow quarter over quarter.

Ethereum growth in different sectors. Source: Address Capital

Source: Dune Analytics

Due to its popularity, liquidity, and compatibility with ERC-20 tokens, Ethereum is listed not only on the most well known exchanges like Coinbase, Binance, Bittrex, Kraken, Bitmex, Gemini, etc. but on nearly every exchange across the globe. The average buyer would have no trouble finding an exchange that lists it. In addition to being listed, it is typically a base trading pair for most tokens including ERC-20 coins which helps provide liquidity where many other assets suffer. Arguably the number one statistic that displays Ethereum’s popularity over its relatively short history is that typically 80+ of the top 100 tokens listed by market cap are built on the Ethereum network. Adoption can be inferred but not directly measured by gas usage since interacting with the Ethereum blockchain requires the use of gas. As seen in the chart below, gas usage has increased every year, reaching all-time highs in 2021.

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Michael @ CryptoEQ
Michael @ CryptoEQ

I am a Co-Founder and Lead Analyst at CryptoEQ. Gain the market insights you need to grow your cryptocurrency portfolio. Our team's supportive and interactive approach helps you refine your crypto investing and trading strategies.


Gain the market insights you need to grow your cryptocurrency portfolio. Our team's supportive and interactive approach helps you refine your crypto investing and trading strategies.

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