Ethereum has been the leading blockchain in the smart contracts space since it first became prominent. It has maintained this title through the decentralized finance (DeFi) and non-fungible tokens (NFTs) boom. However, there have been fast competitors that have popped up with the advent of both these new spaces which continue to battle ethereum for supremacy.
One avenue that these competitor smart contracts blockchains have had much success compared to ethereum has been the speed and affordability of the blockchains. Ethereum remains the blockchain with the highest fees due to its network traffic but not for much longer. Coinbase analysts highlight how the leading smart contracts network may yet hold on to its crown.
ETH 2.0 May Be The Answer
In a recent report from Coinbase Institutional, the exchange’s analysts highlight what could help ethereum maintain its supremacy over other blockchains. ETH 2.0 has been in the works for a while, held back by a number of delays that have rocked the project. However, developers have announced that they are back on track and if everything continues as planned, ETH 2.0 may debut in 2022.
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With this upgrade, the network will become more scalable, allowing for faster and cheaper transactions. Once this happens, says the analysts, it will allow it to maintain its dominance over other networks that offer to do the same things at a cheaper and faster pace.
“ETH 2.0 certainly holds the potential to disrupt and possibly dominate alternative L1s if it can manage lower fees and better network performance,” the report reads.
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In the interim, the report also notes that the much-anticipated Merge may not be what the majority thinks it is. While it is touted to come with better throughput and gas fees, there may not be much change to the network’s current challenges. For one, the speeds and higher gas fees are a result of the demand on the network. “So if activity on the network picks up after the merge, fees on the base layer actually have the capacity to rise,” the analysts said.
Do Not Discount The Ethereum Upgrade
Despite the fact that the merge may not bring significant change if demand picks up after, it does not mean that the upgrade to ETH 2.0 is completely meaningless. Increasing throughput and significantly lowering gas fees and energy consumption are a large part of the upgrade but there are also gains to be seen in terms of the monetary policy of the network.
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ETH 2.0 will use a proof of stake mechanism. This means that users will have to stake their ETH in order to act as validators for the network. With the move, the number of validators could rise exponentially, meaning that there could be more ETH being staked on the Ethereum network than is being created.
If so, Coinbase analysts note that this could reduce “the supply on exchanges and thus creating upward pressure on price from a supply-demand perspective.”
Featured image from CCnews24, chart from TradingView.com
