What Is the Future Outlook for Ethereum?
Ethereum is celebrating its ninth birthday on July 30, 2024.
For this occasion, we have created this article, which will introduce you to the most significant events in the smart contract blockchain's recent history and future potential.
Let's get started!
Laying the Foundation for Future Upgrades With the Merge
The Merge is the most significant event in Ethereum's recent history. On September 15, 2022, ETH developers joined the smart contract blockchain's original execution layer (which was known as the Ethereum mainnet from genesis) with the new consensus layer called the Beacon Chain.
Launched on July 30, 2015, the Ethereum mainnet before the Merge was based on the mining-based Proof-of-Work (PoW) consensus mechanism. While the PoW algorithm and the network's massive hashrate enhanced the blockchain's resilience and security, it was energy-intensive and posed a challenge for future upgrades.
On the other hand, the Beacon Chain was the network's Proof-of-Stake (PoS) consensus layer that ETH developers launched in 2020. Prior to the Merge, it ran alongside the Ethereum mainnet and empowered validators with the ability to stake ETH. However, all the staking activity took place on the Beacon Chain, and stakers couldn't withdraw their deposits and rewards until a few months after the Merge.
Finally, as a long-awaited hard fork, the Merge took place on September 15, 2022, uniting Ethereum's mainnet and Beacon Chain. Consequently, the smart contract blockchain transitioned from PoW to the PoS consensus mechanism, laying the foundation for future upgrades and significantly reducing the network's energy consumption.
In terms of future upgrades, the current phase of Ethereum's post-merge roadmap (the Surge) focuses on enhancing the network's scalability through data sharding and rollups, aiming to achieve 100,000 transactions per second (TPS) on rollups.
DeFi and dApps Ecosystem Growth
As the pioneer smart contract blockchain, Ethereum has been serving as the hotbed for numerous major market trends, creating new sectors within the broader crypto industry. Examples of such include decentralised finance (DeFi), non-fungible tokens (NFTs), Web3 games, and tokenised real-world assets (RWAs).
Due to its established history and active blockchain, Ethereum has remained among the top chains for most of these sectors. For example, it continues to dominate the DeFi space with a nearly 60% share of the total value locked (TVL) across all chains, despite competitors like Solana, Tron, and BNB Chain offering lower transaction fees with faster block times.
In addition to maintaining its current market share (give or take 5%) since May 2022, Ethereum's DeFi TVL has been on the rise since October 2023. As of July 8, 2024, the blockchain's total value locked surged from $20 billion on October 19, 2023 to $52.25 billion, representing a 161% growth in less than a year. Interestingly, Ethereum's TVL growth rate surpassed the DeFi market's (136%) in the same period.
According to DAppRadar, 4,699 decentralised applications (dApps) are running on top of Ethereum, accounting for 28% of all dApps across all blockchains (16,631).
In terms of the NFT market, a CoinGecko report revealed Ethereum's leading position with a market share of 73-89% between January 2023 and October 2023. However, Bitcoin started to challenge its dominance in November and December, with the BTC blockchain surpassing Ethereum in the last month of the year with a 42% market share.
In Web3 gaming, Ethereum has taken the lead with a $6.3 billion market cap and a 76% market share, according to Chainplay's data.
Ethereum's Future Potential
Currently, many see Ethereum as the most established smart contract blockchain. However, since developers put the emphasis on security and decentralisation, it features limited scalability and throughput, which provides a worse overall user experience than most of its competitors due to increased fees and slower transaction confirmation times.
That's why ETH developers are focused on improving Ethereum's scalability in the current Surge phase of the roadmap. Through rollups and sharding, the network will be able to process thousands of transactions without sacrificing security or decentralisation.
When this happens, Ethereum will be expected to grow its market share even further in crucial crypto market sectors. Moreover, with enhanced user experience, the smart contract blockchain will be able to onboard more individuals and organisations outside the crypto space, increasing digital asset adoption.
At the same time, the upcoming (potential) launch of spot Ethereum exchange-traded funds (ETFs) in the United States will likely have a similar effect as the approval of spot Bitcoin ETFs earlier in 2024. As Gemini expects spot ETH ETFs to see $5 billion of net inflows in the first six months of trading, the launch of such regulated financial products will likely come with a significant spike in institutional demand and activity for Ethereum.
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Frequently Asked Questions
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The stars are aligning for Ethereum's future success, with multiple factors in its favor:
Ongoing development: Ethereum is continuing to upgrade its network, with recent major changes like The Merge and future plans for scalability improvements.
Ecosystem growth: Ethereum remains dominant in key areas like DeFi, NFTs, and Web3 gaming, showing its continued relevance and adoption.
Scalability efforts: The current focus on improving transaction speed and capacity (aiming for 100,000 TPS) addresses one of Ethereum's main limitations.
Institutional interest: The potential launch of spot Ethereum ETFs could bring significant new investment and attention to the platform.
Market leadership: Ethereum is described as "the most established smart contract blockchain," indicating its strong position in the industry.
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Whether Ethereum is "better" than Bitcoin depends on specific use cases and individual perspectives. Both have significant roles in the cryptocurrency ecosystem, with strengths in different areas.
Purpose:
Ethereum: A platform for smart contracts and decentralized applications (dApps)
Bitcoin: Primarily a digital currency and store of value
Functionality:
Ethereum: Supports a wide range of applications beyond simple transactions
Bitcoin: Focused on peer-to-peer financial transactions
Market position:
Ethereum: Leads in DeFi, NFTs, and Web3 gaming
Bitcoin: Dominant as a cryptocurrency and store of value
Risk Disclosure
Trading or investing in crypto assets is risky and may result in the loss of capital as the value may fluctuate.
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Disclaimer: Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
