Ethereum’s price has been going up and down during the year, mostly following the Bitcoin trends. Even though the second-largest crypto by market cap has seen several ATH, there are many reasons why ETH can not hold the uptrend for a long time.
For instance, the recent price drop comes after the USA president signed a $1.2 trillion infrastructure bill that could have significant tax implications for some crypto investors. This event influenced the crypto market in general, and ETH prices could not stand aside. In this article, we’ll look at the technical aspects of the Ethereum network that keep its native coin ETH from the boost.
Launched in 2015, Ethereum blockchain is an open-source, decentralized computing network. Its key feature is that it is built on distributed ledger technology, just like Bitcoin. Ethereum allows financial agreements to be verified and stored solely using computer software and without the need of a third party.
Ethereum allows you to create and run smart contracts and decentralized applications (dApps). The network supports ongoing transactions without downtime, prevents fraud, and doesn’t allow control or interference by third parties.
Ether (ETH) coin is mainly used for two purposes: as a digital asset for trading on exchanges, and as a fuel to run applications.
Today, Ethereum is the second-largest cryptocurrency by market capitalization after Bitcoin. It’s available for trading on a variety of crypto exchanges. At CEX.IO you can get ETH with Visa or Mastercard instantly, sell it for fiat funds, trade on the spot and derivative markets, and more.
Ethereum main benefits
Ethereum’s enthusiasts think that its main advantage over Bitcoin is that it allows individuals and companies to do much more than just transfer money. Namely:
Execute smart contracts. These are computer programs that allow transforming traditional agreements into digital parallels. One of the most significant advantages of smart contracts is that the result is automatically executed when the terms of the contract are met. There is no need to wait for the person to complete the result.
Store data for third-party applications.
Ethereum separates persistent and temporary data into different attempts. This ensures that the data is secure and easy to manage. The information is kept on the blockchain in the form of smart contracts that is secure and easily accessible.
These are tokens that we can use to denote the ownership of digitalized items. NFT allow labeling art, collectibles, and even real estate. There is only one official owner possible at a time, and this is protected by the Ethereum blockchain.
What’s more, Ethereum is a project with history and continuous innovation. The platform has a large community of developers constantly working to improve the network and develop new applications. Still, the advantages of the Ethereum network triggered its popularity and led to some problems that kept the native cryptocurrency from constant price growth.
Downsides of the Ethereum that keep it from growing
Scalability and transactions speed
One of the main concerns is scalability. More and more decentralized applications use the platform and the number of transactions grows exponentially, as well as gas charges. Transaction processing is time-consuming, and paying for each basic feature is expensive and creates a lot of inconveniences for users. Thus, low throughput and high cost are significant obstacles to any meaningful implementation.
Today, Ethereum processes about 500k transactions per day. Although transactions do not need a third party to verify them, centralized partners can process them much more efficiently. For example, the Visa payment network processes 150 million transactions per day.
The main reason for Ethereum’s scalability issue is that every node must process every transaction. The more transactions initiated on the network, the more work the nodes have to perform.
Remember, the nodes should verify that the miners are working correctly and confirm transactions accurately. They play an integral role in the network as they are the main obstacle for miners should they choose to act in a malicious manner. Likewise, each node keeps an exact copy of the current state of the network.
Currently, the network uses Proof-of-Work (PoW) consensus. This consumes a lot of energy for miners to launch enormous computing power to create blocks and my ethers by solving complex cryptographic puzzles. This model has received a lot of criticism due to its harm to the environment.
Ethereum plans to move to a proof of stake (PoS), so users can confirm transactions based on how many coins they hold.
The new consensus will no longer require PoW energy, which should reduce Ethereum’s environmental impact by 99%. For the time of writing, Ethereum has both a PoS and a PoW chain running in parallel. But only the PoW chain processes users’ ongoing transactions.
There are several newer crypto projects that are more scalable, cost-effective, and environmentally friendly compared to Ethereum.
- Cardano (ADA) was launched by Charles Hoskinson, the Ethereum co-founder. The team calls the project a third-generation blockchain. It aims to address some scalability and other issues that Ethereum and Bitcoin networks are facing. Instead of imposing solutions on existing technologies, Cardano started from scratch and built an entirely new blockchain.
From the beginning, Cardano uses proof of stake consensus. It is a more environmentally-friendly cryptocurrency that uses only a fraction of the energy Ethereum and Bitcoin consume. Noteworthy, this blockchain claim to process about 1 million transactions per second.
- The team behind Solana (SOL) stated that they can process around 50,000 transactions per second (TPS). While Ethereum currently processes near 30 TPS.
There are over 400 projects running in the Solana ecosystem. You may have heard about some of them, like Circle’s USD Coin (USDC), which has partnered with Visa. Solana also manages wallets, DEXes, and other DeFi projects.
- Polkadot (DOT), like Cardano, was created by Ethereum’s co-founder, Gavin Wood, in this case. And like the other projects mentioned above, it aims to address Ethereum’s scalability and cost issues.
Still, the strongest of Polkadot’s side lies in its interoperability – it allows blockchains to interoperate with each other. This approach makes it easier for developers to migrate to the Polkadot system.
By the way, you can stake ADA, SOL, and DOT on CEX.IO at ease. Just put these tokens on your account, and they will earn money for you.
The bottom line
There is no guarantee that the value of any cryptocurrency will rise or fall. The most common finance expert’s advice is never to invest more than 5% of your portfolio in cryptocurrency. Never invest at the risk of not achieving other financial goals, such as paying off high-interest rate debt or saving money for retirement. If you’ve met all of these criteria, the best thing you can do is ignore the hype surrounding new all-time highs or lows.