Ethereum’s Scalability Issues: Is It Losing Its First Mover Advantage?

According to reports, Bank of America (BAC) stated in a research report last week that Ethereum was the first to introduce the idea of a blockchain operating system compatible with smart contracts and decentralized applications, but despite benefiting from this first mover advantage, the platform’s throughput is still limited. Analysts AlkeshShah and Andrew Moss wrote that the Shapella upgrade did not address scalability issues, “but as a pioneer in future upgrades, it took a small step forward. Ethereum may not be able to improve throughput in the short term, and the increasingly fierce competition from alternative blockchains will limit its adoption and use. The main concern surrounding the liquidity event in Shanghai is that validators can extract and sell pledged ETHs, which account for 16% of the total supply of ETHs. However, the extraction process aims to “prevent short-term significant outflows from validators and the resulting security risks

Bank of America: Ethereum Shapella upgrade did not address scalability issues

Introduction

The digital currency world is abuzz with the news that Bank of America has stated in a recent report that Ethereum, the second-largest cryptocurrency after Bitcoin, was the first to introduce the idea of a blockchain operating system compatible with smart contracts and decentralized applications. Despite benefiting from its first mover advantage, the analyst duo of Alkesh Shah and Andrew Moss wrote that Ethereum’s throughput is still limited. In this article, we will delve deeper into Ethereum’s scalability issues and evaluate whether the platform risks losing its first mover advantage.

What Is Ethereum?

To understand Ethereum and its scalability issues, let’s first define what Ethereum is. Ethereum is a decentralized, open-source blockchain platform that enables developers to build decentralized applications (Dapps) on it. Launched in 2015, it introduced the concept of smart contracts, which are self-executing contracts that execute and enforce the terms of an agreement without intermediaries.

Ethereum’s Scalability Issues

Ethereum’s scalability issues have been well-known for some time now. The platform can handle around 15 transactions per second, which pales in comparison to centralized systems like Visa, which can handle tens of thousands of transactions per second. The scalability issue has remained a hindrance to the wider adoption of Ethereum, as developers and users are drawn to platforms that can handle higher transaction volumes.

The Shapella Upgrade

The Shapella upgrade, released in December 2021, aimed to address scalability issues, but as the Bank of America report points out, it was only a small step forward. Ethereum may not be able to improve throughput in the short term, and the increasingly fierce competition from alternative blockchains will limit its adoption and use. The report warns that this could lead to a loss of the much-vaunted first-mover advantage.

The Liquidity Event in Shanghai

The Bank of America report also raised concerns about the liquidity event in Shanghai. Validators can extract and sell pledged ETHs, which account for 16% of the total supply of ETHs. However, the extraction process aims to “prevent short-term significant outflows from validators and the resulting security risks.”

Conclusion

Ethereum may have been the first to introduce the idea of a blockchain operating system compatible with smart contracts and decentralized applications, but its throughput is still limited, and its scalability issues are hindering its adoption and use. The Shapella upgrade may have represented a slight improvement, but the fierce competition from alternative blockchains means that the platform risks losing its first mover advantage. Furthermore, the liquidity event in Shanghai raises significant concerns about validation processes and ETH extraction processes.

FAQs

1. Is Ethereum still a sound investment despite its scalability issues?

Yes, Ethereum remains a sound investment, despite its scalability issues. It has a solid development team and a vast community of developers working on solutions to its scalability issues.

2. What is the future of Ethereum?

The future of Ethereum is still uncertain, given its scalability issues and the competition from other blockchain platforms. However, the platform has made significant strides in recent years, and there is still a significant community supporting it.

3. What is the purpose of smart contracts on the Ethereum platform?

The purpose of a smart contract is to execute and enforce the terms of an agreement without intermediaries. This can be used in a wide range of applications, including financial services, supply chain management, and digital identity management.