After a difficult start to the new year, the leading US stock exchange Coinbase is examining the future path for the leading smart contract platform Ethereum.

In a detailed report, David Duong, head of institutional research at Coinbase, reports to speak that Ethereum is at a critical juncture both in terms of implementing ETH 2.0 and pushing other blockchain projects.

“As scalability challenges for Ethereum continue to escalate, we believe the desirability of Layer 1 alternatives will depend largely on the speed at which ETH 2.0 solutions emerge, and 2.

We could see the advancement of alternative Layer 1 networks in the first half of 2022, as well as bridges to connect these chains. However, the opportunities for Layer 1 alternatives could diminish significantly in the second half of 2022 as we anticipate zero knowledge (ZK) technology to improve and become more widely deployed.”

With zero-knowledge proof, one party can prove the authenticity of information to a second party without disclosing it. Cryptographers use the ZK method to increase the security and privacy of data.

The report highlights that the high cost of using the Ethereum protocol has negatively impacted scalability, but also mentions that there is still a lot of development needs for the network.

“Gas fees on the Ethereum network are one of the biggest obstacles to mass adoption of ETH and smart contract platforms in general. This is why Layer 1 alternatives like Solana (SOL), Avalanche (AVAX) and Terra (LUNA) are attracting a lot of attention in 2021.

However, the bulk of application development active on Layer 1 networks still appears to be happening on the Ethereum blockchain, with a combined value of $156 billion across 214 projects.”

Ethereum competitors Solana, Avalanche, and Terra have all seen significant growth over the past year, but are still not immune to a broader crypto market pullback in 2022.

Ethereum started the year at $3,730 but has seen a series of price declines and is now down 32.9% overall to trade at $2,401.

ETH price 4 hour chart | Source: Trade View

Coinbase analysis concludes that the transition from Ethereum to PoS will likely result in less ETH being issued and miners selling the coins, but with no impact on the functionality of the blockchain. According to the report, no definitive winning web has surfaced this year.

“However, we believe the peak of Layer 2 scaling solutions combined with upgrades such as beacon chain consolidation and sharding could limit the growth of alternative Layer 1 in its current form. .

For example, as Ethereum’s scalability improves, users of decentralized applications are unlikely to look for cheaper and faster alternatives.

However, we believe there will still be room for multiple chains to coexist in the crypto space in the near future, driven by cross-chain interoperability and the potential need for consensus mechanisms.

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