In contrast to Bitcoin, which saw significant investor enthusiasm and a surge in popularity following its ETF approval in January 2024, Ethereum has been lagging behind. The approval of Bitcoin ETFs generated increased investments in top cryptocurrencies and a positive market sentiment, sparking optimism about a new bull market in early 2024. However, Ethereum, which received its ETF approval in July 2024, has yet to match Bitcoin’s level of success.
Ethereum’s Struggles and Bitcoin’s Market Dominance
Recent reports highlight a significant decline in the ETH/BTC ratio, which has reached its lowest level since April 2021. According to these reports, the ETH/BTC ratio has dropped below 0.04, reflecting a shift in investor preference from Ethereum to Bitcoin. This change is primarily attributed to the strong performance of Bitcoin ETFs compared to Ethereum ETFs, which have seen significant outflows. Bitcoin’s market dominance has risen while ETH has struggled with its price and ETF inflows underperforming relative to Bitcoin. Moreover, Ethereum’s price has hit new lows against Bitcoin, and the asset has experienced a sharp decline in recent days.
Genfinity’s analyst predicts that ETH might see $2,000 soon — it will likely retest the 20-day and 50-day moving averages. Additionally, the MACD indicates some remaining sell pressure and that the asset isn’t completely oversold; it has dropped much lower during previous sell-offs.
As Ethereum takes a more gradual path in advancing its technology while investors increasingly favor Bitcoin financial products, exploring alternative blockchain technologies could uncover more promising opportunities for investment, trading, and NFT collecting.
To uncover these potential advantages and gain a deeper understanding of the evolving blockchain landscape, keep reading below!
Establishing Dominance: Ethereum’s First-Mover Advantage
Ethereum’s rise to prominence as the most used smart-contract network can be attributed to its pioneering role in introducing smart contracts. While Bitcoin was the first cryptocurrency, Ethereum was the first to offer a decentralized platform designed for executing complex contracts and decentralized applications (dApps).
By being the first to provide a comprehensive, programmable blockchain, Ethereum established itself as the go-to network for developers and projects in the crypto space. Its role as a utility coin within this ecosystem, coupled with ongoing development and innovation, has solidified its position in the number two spot as of 2024. In essence, Ethereum’s first-mover advantage stemmed from its early introduction of a versatile platform for smart contracts, setting the standard and attracting a broad range of use cases and applications.
According to a 2016 CoinDesk article, Ethereum was designed to serve as a decentralized global computer for executing peer-to-peer contracts, often called a “world computer.” Unlike Bitcoin, which primarily focused on financial transactions, the foundation introduced a Turing-complete scripting language enabling smart contracts. This innovation aimed to streamline agreements by making them self-executing and reducing the reliance on intermediaries, thus fostering a more autonomous and interconnected economic system. Ethereum’s goal was to lay the groundwork for a more efficient and decentralized network, a vision it has successfully realized.
Despite the tech’s groundbreaking advancements and its role as a decentralized “world computer,” it still grapples with performance challenges, notably slower transaction speeds and higher fees compared to other blockchain networks. Moreover, this issue persists even after the Dencun upgrade, which sought to enhance scalability and reduce costs. Given these challenges, you might consider exploring alternative technologies that integrate with Ethereum’s Ethereum Virtual Machine (EVM) but offer distinct advantages.
Leveraging EVM Integrations and Cultivating Community Loyalty
Ethereum currently boasts a Total Value Locked (TVL) of around $44 billion, a major driver behind other blockchains’ widespread adoption of Ethereum Virtual Machine integrations. Integrating with the Ethereum network facilitates smoother integration with DeFi applications and boosts liquidity and user growth. Additionally, this compatibility streamlines the onboarding process for new projects, attracts Ethereum developers familiar with Solidity, and enhances interoperability between blockchains.
Let’s explore how various blockchains leverage Ethereum’s liquidity through different technologies and integrations, enhancing their functionality and expanding their ecosystems.
Solana
Solana’s EVM integration, Neon, enables it to handle Ethereum-compatible transactions and dApps on its high-performance blockchain. Benefiting from its advanced architecture, Solana supports up to 65,000 transactions per second (TPS) and offers significantly lower fees compared to Ethereum, which managed approximately 20-30 transactions per second before Ethereum migrated to Ethereum 2.0.
Notably, Ethereum 2.0 promised up to 100K TPS, yet it has yet to reach over 62K TPS due to a lack of user activity. Furthermore, Ethereum has a slower finality compared to Solana, with Solana’s finality being around 13 seconds compared to Ethereum’s 15 minutes. You can see a complete comparison of Ethereum’s and Solana’s attributes on Chainspect.
Polygon
Polygon’s EVM-compatible sidechain, Polygon PoS, operates alongside Ethereum using a Proof-of-Stake consensus mechanism to enhance transaction speed and reduce costs. It commits transaction checkpoints to Ethereum, ensuring data validity and security while allowing developers to seamlessly migrate Solidity contracts.
Polygon, known initially as Matic Network, is a blockchain platform that aims to create a multi-chain ecosystem compatible with Ethereum. It uses a proof-of-stake consensus mechanism akin to Ethereum’s and operates as a “layer two” scaling solution to enhance transaction speed and reduce costs. Compared to Ethereum, Polygon offers significantly faster block times than Ethereum’s. Its goal is to address Ethereum’s challenges, such as high transaction fees and limited scalability, by building a more efficient and interconnected network of Ethereum-compatible blockchains.
Arbitrum and Optimism
Arbitrum uses Optimistic Rollups to bundle transactions off-chain and then submit them to the Ethereum mainnet for verification. This approach allows for faster and cheaper transactions while maintaining full compatibility with Ethereum smart contracts. Notably, Optimism also employs Optimistic Rollups to enhance Ethereum’s scalability by processing transactions off-chain and providing periodic proofs to the Ethereum network. This method boosts transaction speed and reduces fees while preserving compatibility with existing Ethereum smart contracts.
Avalanche and Binance Smart Chain
Though independent in their infrastructure, both are EVM-compatible. Avalanche emphasizes high transaction speeds and low costs, while Binance Smart Chain focuses on fast and affordable transactions with high liquidity.
Avalanche boasts an exceptionally quick time-to-finality of under one second, significantly improving Ethereum’s finality and Bitcoin’s (even longer) finality. Its consensus mechanism, which involves probabilistic consensus, supports high scalability and low latency.
BNB Chain offers faster transactions and lower fees than Ethereum, with both block times and finality being significantly faster. This efficiency is due to its more centralized Proof of Staked Authority consensus, making it a cost-effective choice for frequent trades and smaller transactions.
Beyond Ethereum: Observing the Trends
Do you notice a pattern here? Despite Ethereum holding the highest TVL, these other blockchains offer cheaper and faster transactions compared to Ethereum.
Let’s look at a list of the top blockchains by Total Value Locked:
- Ethereum: #1
- Solana: #3
- BNB Chain: #4
- Arbitrum: #5
- Polygon PoS: #8
- Optimism: #13
You might feel more comfortable using a blockchain with a higher TVL because it usually signifies greater liquidity, market depth, and overall stability, which helps reduce the risk of significant price fluctuations. Additionally, a higher TVL often reflects a stronger track record, wider adoption, and ongoing innovation, offering you increased security and more advanced features.
As Justin Drake, an Ethereum researcher, noted on The Rollup’s recent podcast, the ideal future state for Ethereum would involve handling 10 million transactions per second with minimal fees. However, Ethereum is currently lagging in performance regarding fees and transaction times.
As Ethereum continues to advance its technology stack and investors favor Bitcoin financial products, exploring these complementary technologies may offer more promising opportunities for investment, trading, and NFT collecting in the interim.
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