AdLunam

Formerly darling among cryptographic investors, Ethereum suddenly fell into a meticulous examination by some of his most ardent supporters.

The reason? A late assessment and a feeling that perhaps his best days are behind.

However, the developers of Ethereum have quietly solved some of the most thorny problems of the second most precious blockchain. Take network fees.

At the top of Defi Summer in 2021 – where budding decentralized financial applications distributed millions of tokens for all those who used the applications – it cost $ 6 to make a simple exchange.

Now it costs a nickel.

Advances

This is not the only advance in Ethereum – the developers have rendered the transaction costs more predictable and reduced the energy consumption of the network by more than 99%.

And Ethereum reformed its $ 196 billion network without any stoppages, hacks or major bugs.

“The irony here is that we have considerably reduced the risk of execution,” said Kain Warwick, founder of the Decentralized Infinex Funding Request DL News.

“But people allocating capital, who will put a slug of $ 50 million in the ETH, they look at the margins that drop, as” when it stops? “”

Indeed, Ethereum now faces another type of problem – perhaps its most existential to date: a lack of story.

Bitcoin has become known on the market as a “value store”.

And Solana, one of the very first so-called Ethereum killers, has become a rapid alternative to developers who seek to deploy new types of cryptographic applications.

“This has left ETH taken in an average clumsy place, without a clear advantage of differentiation to highlight,” said Carlos Guzman, GSR market analyst DL News.

Flexible alternative

Vitalik Buterin, the Russian Canadian programmer who co-founded the network, shared a similar point of view during an industry event in 2024.

“Bitcoin has a simple story, which is digital gold,” he said. “But with Ethereum, is it like” Whoa, what is Ethereum? “”

Launched in 2015, Ethereum was presented to developers as a more flexible alternative to Bitcoin on which everything, from musical applications to art insurance, could be built.

It was not just a new way to send money; Ethereum donors said it was a new substrate to build a decentralized internet.

“We have cut our legs economically.

– Kain Warwick, Infinex

But moving the whole online experience towards a blockchain was intimidating. In the meantime, similar blockchains emerged which targeted Ethereum’s weaknesses, namely speed and cost.

Ethereum can send around 15 transactions per second for an average cost of $ 0.05 per transaction.

Solana authorized 4,400 transactions per second on April 14, according to Solana Explorer. The average cost per transaction on the network since January is $ 0.0034, according to the TOKEN terminal.

“Solana has kept his spirit of mind for a while because he had the performance to support a few hundred thousand to a few million users using the channel,” said Ashwath Balakrishnan, analyst of the Crypto Delphi Digital Research Company.

Costly congestion

Unlike Solana, Ethereum has never officially crushed or stopped producing blocks.

This does not mean that it was not, sometimes, unusable.

Ethereum increases the costs to send transactions whenever users begin to accumulate in the network.

The first time that the expensive congestion has raised its head was in 2017 via a curvy digital card game called cryptokitties. While the bettors stood up to collect photos of onchain cats – and “raise” them to make even rare derivatives – network costs have skyrocketed.

During the summer of 2020, DEFI took off while users began to flock to cryptographic applications that promised rewards for lucrative tokens, a process known as yield farming, on Ethereum.

While farmers rushed to the network, Ethereum completed under the charge.

“Defi Summer was the first time that gas has increased, and Ethereum has become unusable for almost everyone,” said Warwick. “It did not fall. But, functionally, it is the same for the average user.”

2S layer

Meanwhile, a decentralized team of Ethereum developers in the world had worked hard to execute Buterin’s vision of a roadmap and Ethereum centered on the Rollup to solve the growing pain of the network.

The co -founder posed in 2020 that Ethereum could evolve by a moving activity – whether cats or coins – outside the main network on a certain number of subsidiary networks called Rollups or Networks of layer 2.

These networks would always be attached to Ethereum, of course, and would even pay a tax to take advantage of the safety features of the main network.

Each key upgrade to Ethereum in the following years would strengthen Buterin’s vision.

The proposal to improve ethereum came for the first time in 2021, which destroyed a small quantity of Ethereum in each transaction, including the costs that layer 2 networks paid to use Ethereum.

With sufficient use, the network could destroy more Ethereum it has created, creating a deflationary active ingredient – music to the ears of cryptographic investors.

When Ethereum has executed its first major upgrade, nicknamed the merger in 2022, it removed the Herculean task from passing from a work proof system for the treatment of transactions to a “consensus mechanism”.

Crunch of the offer

The upgrade has not been designed to treat transaction speeds or costs on the Ethereum network; Instead, he presented the technical bearings of a flourishing ecosystem of layer 2 networks.

Thought went that with sufficient activity on these layers of layer 2, the tax that these networks pay in Ethereum would be sufficient to support the deflationary economic model of the network.

While activity is strengthened on these subsidiary networks, more ether will be destroyed than struck, creating a supply crisis and increasing the price.

In theory, at least.

There may be more than 60 different layers of layer 2 with a collectively value of more than $ 27 billion, according to L2Beat data.

It is still not enough to light a fire under ether.

The active ingredients underlying other Blockchains in layer 1, such as Solana and BNB Smart Chain, have all managed to nake fresh summits in the last six months.

As for Ether, it is still 67% compared to its record of $ 4,874 set in 2021.

Ironically, many point to outsourcing to these fast 2 layer 2 networks – the solution even to solve Ethereum growth problems – as a key reason.

“We have cut our legs economically,” said Warwick DL News.

Cash raking

Others say that it was a mistake to encourage users to move to these mass subnets.

“A potential error in the Ethereum community was that we said that layers 2 are the only place where you should interact,” said Declan Fox, the product of the layer of layer 2 Linea, said DL News.

And while Ethereum is late, many layers of layer 2 ract in cash.

Since the arbitrum and optimism, two of the most popular layers 2, have respectively collected $ 152 million and $ 86 million.

Investors may also have chosen to buy native tokens for these networks instead of buying ether, which has diverted a huge investment.

The total market for all layers of layer 2 is more than $ 7.4 billion.

If this money was rather invested in ether, investors would probably tell a very different story on the network, says Warwick.

The course corrections are already underway.

“It is time for the L2 to pay fair value for the services they receive!”

– Dean Eigenmann, Project White

In April, Jerome de Tychey, CEO of Crypto Development Outfit Cometh and the President of Ethereum France, and Dean Eigenmann, founder of the Crypto Project White research company, proposed layer 2 to use Ethereum whenever the gas costs are low.

“It is time for the L2 to pay fair value for the services they receive!” said Eigenmann on X.

Fox and Warwick rather promote a different tactic: maximize demand at all levels.

“Damn, let’s induct a certain request, as if we had a job here to make,” said Warwick DL News.

Tokenization

For him, this means accelerating the tendency to tokenization and move purchases of large trucks such as the money market funds on Ethereum.

Blackrock, Fidelity and Franklin Templeton have already deployed similar funds on Ethereum and other layer networks. Warwick says that the network needs many more institutional players to move the needle.

“On what planet can you build something as incredible as Ethereum and not feel good to sell it to people like that,” he said DL News. “Someone must be the seller and sell this thing.”

FOX said that as payments and sending of funds on layer 2 networks such as Linea pickup vapor and hit the visa scale – 20,000 transactions per second – there will be a lot of money that will take place in Ethereum.

Stories

At that time, Fox, ironic, criticism can return to praise the sprawling network of layer 2 and hard work of the Ethereum community.

After all, the price leads to a story.

“We will see that as the price of the ether is appreciated again, these stories will late, like” Oh, in fact, layer 2 is additive of value to layer 1, and the roadmap centered on the bearing was clearly the right decision. “”

“It’s a chicken and the problem of eggs.”

Liam Kelly is a journalist based in Berlin for DL ​​News. Do you have a tip? Send him an email to liam@dlnews.com.