Does Ethereum Have A Disadvantage Over Other Layer-1 Competitors?

Ethereum (ETH) has been the blockchain with the largest impact in the history of cryptocurrency, after Bitcoin (BTC). The native Ether token of Ethereum has remained the second-largest cryptocurrency by market cap since its introduction in 2015. NFTs, smart contracts, and dApps are just a few of the ground-breaking Web3 technologies that Ethereum developers have contributed to the cryptocurrency industry. However, Ethereum still has weaknesses where competitors are emerging to take its place.

Competitors of Ethereum emerged to offer solutions to its lingering issues as the blockchain emerged to enable smart-contract functions that the Bitcoin network could not support.

An Ethereum competitor is referred to as an “Ethereum killer” in the blockchain industry. Many of Ethereum’s capabilities will be present in these competing chains, but they often employ alternative technologies and make claims to address its drawbacks. In areas where Ethereum has suffered as demand rose in late 2021, an Ethereum killer frequently has quicker transaction speeds and reduced gas rates.

These rival blockchains all make use of the smart contract technology that was first made popular by Ethereum. Smart contracts are computer programs that run when specific criteria are satisfied and carry out predefined actions. Smart contracts enable trustless transactions in DeFi since they are code-based.

“Ethereum killers,” like its primary rivals, emphasize enticing Web3 developers to build dApps on their blockchains. Decentralized exchanges (DEXs), another type of DeFi dApp, and play-to-earn games are just some of the Web3 projects that Ethereum rivals have available.

The rivals of the network are about to take actions that will permanently set them apart. The top blockchain platform for smart contracts has a roadmap with upgrades and changes that will eventually fix its current problems, but its rivals have been able to gain significant ground at its expense. The current famous Ethereum competitors are Solana, Cardano, Polkadot, Avalanche,…

Ethereum’s Difficulties

After driving the ICO boom of 2017, Ethereum started to develop exponentially. The network quickly saw the emergence of decentralized applications, and the price of its native token, Ether (ETH), started to rise steadily. However, it is still subject to the usual ups and downs of the cryptocurrency market. Since its inception, it has experienced a wave of tremendous popularity, propelling the development of Decentralized Finance and accounting for the vast majority of dApps in the ecosystem.

The widespread use of Ethereum has proven to be a bittersweet development. On the one hand, this expansion encourages innovation and draws users to the crypto sector, enabling the realization of ideas. DeFi, blockchain games, the metaverse, and other blockchain applications can all be built on top of it. On the other side, the network’s first attempt at broad adoption showed its limitations as a result of the increasing adoption, which made it difficult for it to continue being scalable and cost-effective.

The lack of scalability

One drawback of blockchain technology has always been its inability to scale. It is most likely the topic of conversation on the blockchain network, mainly because it is more obvious than other issues. Transaction volumes on the network skyrocketed during the ICO boom and DeFi summer, as would be expected with widespread use. The network’s speed possibly prevented further expansion, though it was only a minor issue.

Currently, Ethereum can only handle 15 to 30 transactions per second. Slow TPS numbers may cause network congestion due to rising transaction volumes, which will delay transaction completion and result in exorbitant transaction fees. The processing capacity is a big barrier for applications built on the network because dApps like games or decentralized exchanges demand rapid transaction finality. This is probably why many use cases, like automation or machine learning, haven’t found adoption on Ethereum.

Centralization

Some mining pools were noticeably bigger than others when Ethereum was still a Proof-of-Work network, giving them more consensus power. Naturally, this concept has raised concerns about centralization, which is in direct opposition to what it stands for a safe, expandable, and decentralized blockchain network.

Ethereum launched a Beacon chain in 2021 as a prelude to its conversion to a proof-of-stake mechanism, which it has already finished. Some claim that this paradigm lowers the likelihood of a 51% attack since it increases the cost of an attack. The miners have gradually been replaced with validators who staked ETH under the new system. As institutional capital and major exchanges compete for a significant portion of the ETH staking power, more concerns about centralization have surfaced.

Gas fees

The ideal gas fee for Ethereum should be $0.05. On the blockchain, the average gas charge increased to between $60 and $70 during the DeFi boom and the gas wars that followed. Gas fees are essentially bids for including a group of transactions in the constrained block space within the ecosystem. These bids increase in situations of strong demand as customers try to expedite their transactions to obtain an advantage. As a result, transaction costs are astronomically high.

As a result, developers choose less expensive blockchain networks like Solana, Tron, and BNB Chain because using applications on Ethereum at these levels is out of the price range of the typical Web3 user.

It is significant to remember that The Merge did not resolve the problems with gas fees. However, as of the second half of 2022, average gas costs have decreased from about $40 to $15.55 due to recent renovations and the state of the cryptocurrency market.

MEV

Maximal Extractable Value, or MEV, is a term frequently used to describe the Ethereum network. MEV stands for the maximum value that miners can obtain by rearranging transactions when constructing an Ethereum block. MEV has been utilized by protocols to balance prices on decentralized exchanges.

In the proof-of-work period, MEV was referred to as Miner Extraction Value; however, Ethereum has since switched to becoming a proof-of-stake network. However, the network is vulnerable to a variety of MEV extraction strategies, including front-running, liquidation, and sandwich assaults.

Privacy

The network and many other Layer-1 blockchains have an issue with privacy, which is essentially nonexistent. Since Ethereum is a fully transparent blockchain, every transaction is not only recorded on the ledger but also made available to the whole world. Although openness may be beneficial, when it takes an extreme form it becomes one of the biggest drawbacks of the blockchain, especially for institutional players and DeFi traders.

Although zero-knowledge rollups based on Ethereum have partially overcome the privacy issue, they cannot be used in place of traditional blockchains. Many of them are constrained and unable to facilitate the adoption of smart contracts.

Conclusion

Ethereum has a devoted community, and the wealth of developer resources combined with its popularity gives it a substantial advantage over its rivals. However, some believe that it must address its scalability problems soon in order to prevent another blockchain from stealing its market share.

We should observe how Ethereum performs as a Proof-of-Stake network with full sharding capabilities throughout the coming years. No one can discount the sudden appearance of a capable player to compete for the top slots in Layer-1 adoption in the meantime.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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