Ethereum in agony as rivals nibble at market share
Ethereum’s smart-contract compatible blockchain aided the universe of crypto applications right from DeFi to NFTs and beyond. But Ethereum is losing market shares to Avalanche and Solana. Why?
The total value of the NFT market reached and surpassed $12 billion, with Ethereum struggling to keep up with new users barging in huge numbers. In addition, the coin is facing struggles with high transaction costs, but you need not count it out just yet.
Ethereum is still leading the market cap, total value locked, developers, and users; the Ethereum Foundation is scaling up efforts on the fundamental scaling solution formerly called ETH2. Now “Consensus Layer”, it possesses the potential to speed up Ethereum’s transactions and lower costs for users.
Ethereum so far went by the “proof-of-work” consensus mechanism, which uses mining to verify transactions and generate ETH. But developers are now shifting the blockchain to a “proof-of-stake” consensus mechanism that is faster, cost-efficient, and more energy-efficient.
Why change the name of the update from ETH2? Because it created confusion among users. They were worried that their current ETH holdings would be lost when the new ETH was finished. The name change is aimed to convey that Ethereum is simply upgrading and not replacing anything.
The most popular application on the Ethereum blockchain is the NFT marketplace OpenSea, which recorded a record high of $4.9 billion monthly trading volume in January. Unfortunately, with the traffic surging, the processing transaction fees were also impacted. This diverted the leading users and developers, and they started to explore alternative solutions.
OpenSea is allegedly considering supporting Solana’s Phantom wallet. Solana is growing to become an “Ethereum-killer” with its speedier and cheaper transactions. The Phantom wallet of Solana raised $109 million this week and reported nearly 2 million monthly users. But Solana is not short of challenges; it has a recent string of prolonged network outages to combat.
Avalanche and Flow are the alternative chains gaining NFT market share even though Ethereum’s volumes are much higher than all of these upstart competitors combined. Ethereum witnessed billions of dollars worth of NFT sales in January, and Solana’s NFT market crossed $180 million. Avalanche touched the $45 million mark, and Flow reached $60 million.
Will Ether be able to grow fast enough to support the surging interest in NFTs, gaming, and other crypto applications? The Consensus Layer upgrade promises lower fees and faster transaction times, but Ethereum is not alone. According to current estimates, the upgrade should be finished in a year to two, which is more than enough for alternative chains like Solana, Avalanche, and Flow to refine their offerings and chip away at Ethereum. Ethereum Layer 2 solutions like Polygon are also gaining market share and are a potential option that may help Ethereum retain its edge.