Second only to Bitcoin (BTC), Ethereum (ETH) is one of the top and most trusted cryptocurrencies, differentiated as a blockchain platform that allows for smart contract functionality. The technology provides strong infrastructure for the crypto ecosystem by allowing decentralized applications, or dApps, to run automatically on a blockchain without a third party.
But as Ethereum continues to thrive, a crop of new blockchain investments have emerged to challenge its position, most notably Polygon, Solana and Cardano. How successful will they be in dethroning Ethereum? To find out, we will address these points:
- Ethereum today.
- Ethereum challenges.
- Polygon (MATIC).
- Solana (SOL).
- Cardano (ADA).
- Future collaboration with Ethereum?
Ethereum is considered to be the foundation of the blockchain functionality that has helped many of today’s businesses flourish. Its native cryptocurrency is Ether (ETH).
Ethereum can be a great crypto investment for those who want exposure to decentralized finance, nonfungible tokens and stablecoins. As the crypto space grows and more users come into the market to access crypto assets, the level of Ethereum adoption is likely to increase, making it a favorable long-term investment.
Ethereum has a market cap of more than $360 billion in the $2 trillion-plus crypto market, as of Feb. 11. There’s a lot of activity on the Ethereum network, with more than 1 million transactions per day. But things can change rapidly in the crypto space, and today’s leader can be tomorrow’s laggard.
There are drawbacks to being the world’s second-largest crypto. The increases in people using the Ethereum platform result in transaction bottlenecks, high fees, inefficient energy consumption and slow processing.
Ethereum’s flaws ultimately could hurt its scalability and its ability to create a competitive crypto landscape. As more users come on Ethereum’s platform, the problems are expected to increase. High transaction costs, known as gas fees, are also a problem for users who cannot afford volatile fees and for businesses that depend on a reliable blockchain network.
“For every transaction that goes through the Ethereum network, (the fee) can go up all the way to $100 to $1,000, depending on how congested the network is, because the more transactions that happen at the same time, the higher the transaction fees in order to allow transactions to go through,” says Jacky Goh, CEO and co-founder of Rewards Bunny, a crypto cashback platform.
These high costs, Goh says, can prevent newcomers from investing in crypto and push them toward Ethereum alternatives.
As newer blockchains start to ramp up their projects and attract more users, they will continue growing and competing with Ethereum, experts say. These upstarts are gaining popularity every day as new users get into the crypto market.
“We’re moving away from one single chain to rule the world and into a multi-chain world,” says Gritt Trakulhoon, lead crypto analyst at asset management startup Titan.
Ethereum alternatives offer various solutions to the problems that plague the Ethereum blockchain. In fact, many of Ethereum’s competitors were created to directly address its scalability issue.
Competitors want to be seen as more affordable, energy-efficient and usable networks compared with Ethereum.
But especially with the rise of nonfungible tokens, or NFTs, which run on the Ethereum blockchain, the veteran will keep much of its dominion. And rumors of a rollout of Ethereum 2.0 sometime in 2022 point to an Ethereum upgrade that will address its challenges.
While Ethereum is not going away, new blockchain cryptos are growing in popularity and eating at Ethereum’s market share. These are the top three blockchain cryptos offering investors a chance to diversify their holdings:
After Ethereum, Polygon is the most adopted blockchain. Polygon is designed to support the scaling of Ethereum, bringing in new users and offering similar activities with lower transaction fees. The network prides itself on its low-fee infrastructure to help provide users and developers with cheap, quick transactions.
“Polygon is a layer 2 blockchain designed to extend a layer 1 blockchain, (like) Ethereum,” says Mitchell Amador, the founder and CEO of Immunefi, a security services platform.
“What’s driving Polygon’s growth is the users who are tired of paying $500 to send a transaction,” Amador explains. Polygon is designed to enhance the Ethereum blockchain, rather than compete directly with it, but experts say it still has room to grow.
Amador says Polygon “could become competitive with time, as it gets bigger and becomes an independent ecosystem.”
Polygon hosts some of the most popular decentralized finance and NFT projects on its platform, including Aave, SushiSwap and Opensea. Polygon’s adoption is quickly growing in popularity. More than 7,000 dApps have used Polygon to scale on their platforms.
One of the largest cryptocurrency exchanges, Coinbase Global Inc. (COIN), is among them. Coinbase announced plans to integrate Polygon as a scaling solution for its platform, which will provide more investing opportunities for its users.
The sports betting company DraftKings Inc. (DKNG) also collaborated with Polygon on NFT collectibles. DraftKings’ millions of customers in the U.S. and Canada now have the ability to purchase NFTs on the platform, thanks to Polygon’s technology.
Polygon’s market cap is nearly $14 billion and counting, and the associated cryptocurrency Matic goes for about $2.
Solana, a decentralized computing platform, offers some technological improvements over Ethereum.
This “Ethereum killer” plans to address the scalability issue by using a mix of the proof-of-stake, or PoS, consensus mechanism and a proof-of-history, or PoH, protocol. PoH enables the blockchain to work faster by more efficiently managing the speed and volume of transactions. Ethereum plans to switch to a PoS protocol in Ethereum 2.0.
PoH places a time and date on each block of information, so there is a sequence of validators. Most blockchains have to agree on the time transactions take place before submitting a block, and this process can take up a lot of time. Solana solves this problem by using PoH to agree on the organization of the blocks, which helps improve processing times on the blockchain.
Through the PoH method, Solana helps manage the volatile fee structure seen in the Ethereum blockchain. Solana contends that the network can support 50,000 transactions per second.
Solana also claims to be more energy-efficient than Ethereum. With its proof-of stake method, Solana is not dependent on energy usage, making it a more environmentally friendly option. To put it in perspective, one Ethereum transaction using the proof-of-work method uses the same amount of energy as 100,000 Visa transactions. On an annual basis, Ethereum uses 91.4 billion kilowatt-hours per year, while Solana uses 3.2 million kWh per year, according to recent data from Digiconomist. Solana’s energy consumption is equivalent to the energy used by 986 U.S. houses per year.
While Solana is a fast-growing network, it has its own drawbacks. “The whole network is experimental,” Amador says. “Whereas Ethereum has been battle-tested over many years, the Solana network has frequent outages,” Amador explains. For everyday users and businesses, this can be seen as an unstable or unsafe service.
Solana was launched in 2017 and has had a meteoric rise since then. Its coin is valued at about $105, up more than 10,000% since its inception. With an increasing number of applications launching on the network, Solana has a promising future as a notable competitor in the lineup of blockchains.
Cardano is a proof-of-stake blockchain platform that prides itself on validating transactions minus the high energy costs. The protocol’s ultimate goal is to be the most environmentally sustainable blockchain option, a key selling point for investors.
What sets Cardano apart from its competitors? Cardano’s blockchain is split into two layers. The first is the Cardano Settlement Layer, which manages the ledger of accounts and balances, and the second is the Cardano Computing Layer, where all the computations for the applications on the blockchain are carried out. Separating the blockchain could help Cardano achieve as many as 1 million transactions per second.
Cardano is built to scale its speed as more users come on the platform, so as the platform becomes larger, the transaction speed increases. This will help address the congestion that’s seen on the Ethereum network.
Cardano’s native cryptocurrency is called ADA and can be bought and sold on many cryptocurrency exchanges. It has a market cap of more than $38 billion, making it one of the most in-demand blockchain investments.
A disadvantage for Cardano, Goh explains, is it is “still very new in the blockchain.” Much more development and a marketing plan to make it attractive to developers are needed, Goh says.
Future Collaboration With Ethereum?
Although new blockchains mean new competition, they may end up working together in the future, Trakulhoon says. “These projects have a symbiotic relationship to Ethereum,” he says. As Ethereum grows and evolves, so will these other blockchain projects, and vice versa.
Looking into the future, experts believe Ethereum will capture the most attention from users, developers and businesses compared with other blockchains.
“Ethereum is still going to be the anchor of the whole decentralized layer, because there’s still a lot of trust in the blockchain,” Trakulhoon says.