Is Ethereum rightly the largest Altcoin? A comprehensive analysis »Crypto-insiders

In our Discord community for members, we have received several analysis requests for Ethereum (ETH) in the last few days. So we thought it would be a good idea to put this project in the spotlight and dedicate a premium series of articles to it. In this series, we dive into the basics behind crypto projects and will return at regular intervals to monitor developments. As you are used to from us, we analyze various statistics to draw a clear and realistic picture. If you still have questions after reading this article, you can easily ask them in our Discord community, here our analyzes are usually shared 48 hours earlier, and you can easily get in touch with experienced analysts and traders.

Ethereum (ETH)

Ethereum is an open source platform that facilitates decentralized applications on the blockchain. Through so-called smart contracts, developers can write code that has access to the Ethereum blockchain. These dapps (decentralized apps) are publicly available and transparent at all times. Examples of dapps on the Ethereum blockchain are tokens (alt-coins on the Ethereum blockchain) such as Chainlink and non-fungible tokens (NFTs) such as Bored Ape Yacht Club NFT and DeFi (decentralized economy) such as the decentralized stock exchange Uniswap. Smart contracts are expected to further develop their disruptive potential in the future in virtually all other markets where intermediaries are present. Ethereum is the largest all-currency in terms of market value and has been solidly in 2nd place for several years now.

Basic measurements

In this section, we look at important basic metrics. Fundamentals focuses on the underlying technology, development, and number of users of a blockchain network to provide an idea of ​​a project’s long-term potential. This forms the basis for assessing risk and making investment choices.

Ethereum is the largest altcoin in terms of market value and has been an established order in the crypto community for some time. That is why we use Basic analysis (FA) of Ethereum as a reference frame for FA for other tokens.

Scalability

Project Ethereum 1.0 Ethereum 2.0 Visa
Volume of transactions 15 – 30 rps 100,000 tps 1,700 rpm
Transaction costs $ 4 – $ 21 0.2 – 1.5%
Consensus mechanism proof of work Proof of effort Centralized

Figure 1: Source; Solwealth & towardsdatascience.com & finance.yahoo

* Transaction costs for Ethereum fluctuate a lot due to strong network demand. In some cases, transaction fees in the direction of $ 100 are not unheard of.

Scalability is an important long-term indicator of a blockchain project. To become mainstream, Ethereum must be able to handle high demand. In general, it is difficult for blockchain projects to grow and achieve great market value. Important indicators of scalability are transactions per second (tps), transaction costs and the consensus mechanism.

Ethereum currently has a relatively low capacity in the form of transactions per second of 15 – 30 tps. This is significantly lower than current transaction processors like Visa, which process over 1,700 transactions per second. This has been a strong criticism of Ethereum for a while now. With the sharp increase in activity (due to the advent of DeFi and NFTs) this has resulted in very high transaction costs. As a result, the Ethereum community and developers are developing Ethereum 2.0.

As can be seen in Figure 1, Ethereum 2.0 is potentially a strong improvement in terms of transactions per second. By moving to Proof of Stake, Ethereum 2.0 is not only more environmentally friendly, but also faster. With an estimated 100,000 transactions per second, Ethereum 2.0 is over 3000 times faster than Ethereum 1.0.

But with Proof of Stake, there are concerns about the security and decentralization of the network. Proof of Work networks are harder to “hack” as a hacker has to control 51% of all nodes. Criticism of the Proof of Stake and the degree of decentralization stems from the fact that the Proof of Stake draws power to the highest net worth. The number of notes and voting rights is related to the amount of Ethereum you bet. This makes it difficult for small parties to exert influence.

Depending on the Ethereum price and blockchain activity, transaction costs can vary widely. Ethereum has a lot of activity and together with the low number of transactions per second often has extremely high costs (higher than almost all other blockchains). Ethereum 2.0 promises to significantly reduce these costs by introducing a new gas fee system where part of the gas charges will be “burned”. This means that a small part of the used transaction costs is “burned away”, with a lot of blockchain activity, this can result in a reduction in the circulating Ethereum supply and thus deflation.

Developers on the network

The number of developers is important metric to determine the growth of a network. Many developers also believe that a project is flexible because it can grow better with the market through updates and innovations. A good example of such innovation is Ethereum 2.0. Figure 2 shows the overall developer growth of different blockchains.

With more than 4,000 developers, Ethereum is the largest blockchain project in terms of number of developers. Polkadot (DOT) is number two with 1400 developers. Ethereum’s developer growth is very strong, as can be seen from the chart’s strong exponential growth line. This is positive and shows that Ethereum is still growing fast despite the advent of many other all-coins. It is clear that Ethereum is head and shoulders above the rest in terms of developer numbers (almost as many developers as all other alt-coin projects combined) and is expected to continue to grow strongly based on the trend in Figure 2 and the rise of Ethereum 2.0.

Project cardano Ethereum Polka dot Solana
Developers December 2020 ~ 190 ~ 3000 ~ 850 ~ 200
Developers December 2021 ~ 375 ~ 4000 ~ 1400 ~ 900

Figure 2: Source; Electric capital

Users on the network

The number of users on the network and its growth / trend is a good reflection of the network’s demand and possible future demand. With heavy use, the demand for the underlying token itself will also increase to fulfill the blockchain features, which will eventually lead to a rising price of the token.

Figure 3 shows the number of unique wallet addresses on the Ethereum blockchain. Please note that many people have several or even dozens of ethereum wallet addresses, so each unique wallet address does not equal 1 person. The amount of unique addresses has grown significantly over the last few years in just 6 years, Ethereum has grown to almost 200 million addresses. Despite the current market crash, Ethereum is still growing. If the trend continues, Ethereum could have well over half a billion unique addresses in 5 years.

Figure 3 – Source; Etherscan.io

Total value locked

That total value locked shows how much value of the specific token is locked on the network. This is a good indicator of demand for network functionality (such as DeFi) and long-term trust, because the coins are locked in the chain and can not (always) be traded directly.

With the increase in efforts in Ethereum 2.0 and Decentralized Finance, where users can lend their tokens and, for example, provide liquidity to (decentralized) exchanges such as Uniswap, the total value locked has increased significantly. Figure 4 clearly shows how Ethereum has risen sharply in the last 2 years in total value locked. Very positive is the fact that the total value locked (expressed in Ethereum) despite the recent crash has remained relatively stable. This shows that users are generally positive about Ethereum’s long – term strength.

Figure 4 – Source; DefiLlama

Recent developments

As described earlier in this article, Ethereum 2.0 has been underway for a while. Ethereum 2.0 promises to solve many of Ethereum’s problems. Of Proof of effort (and cutting) will greatly improve the scalability of Ethereum 2.0. However, the project has recently been postponed again, from June 2022 to Q3 2022. The hope is that Ethereum 2.0 will go live in 2022, then we can really see if the network issues are resolved.

Risks

Low trades per. second

At present, Ethereum still has very low transaction capacity. This increases costs and users move to other projects. For example, for blockchain games, where many small transactions are required, developers and users move (sometimes) to other blockchain networks.

Delayed Ethereum 2.0

Ethereum 2.0 is still delayed. June 2022 appeared to be the start date for Ethereum 2.0, but expectations have now been revised to Q3 2022. With Ethereum 2.0 postponed, there remains uncertainty as to whether Ethereum 2.0 can meet its promises. In addition, competition threatens to ease projects that might otherwise have been built on Ethereum 2.0.

Criticism Proof of effort

With Proof of Stake, Ethereum is moving away from proof of work. With Proof of Stake, Ethereum 2.0 promises to solve many problems in the Ethereum network, but there is also criticism of Proof of Stake (as mentioned earlier). The transition to Proof of Stake may favor the more affluent Ethereum holders and make the network less decentralized.

Conclusion

Despite criticism of Ethereum’s transaction costs, Ethereum remains the largest smart contract platform with head and shoulders. The large number of users and developers and the continued growth is a positive indicator for the future. With the advent of Ethereum 2.0, it is promised that many of the issues with Ethereum will be resolved, with the continued delay here still being a risk. Likewise, it is still unclear whether Ethereum 2.0 will actually live up to its promises.

Buy or Sell Ethereum?

For answers to the question of buying or selling, we would like to refer you to our Discord group for members. Our analysts and experienced traders discuss their own entry and exit points on a daily basis. We also regularly share additional course analyzes and updates of projects that we have discussed earlier in this section. Through Discord, we can share knowledge with each other 24/7, and we try to be at the forefront of the market with our members.

Investment involves risks. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips on this website are based on our analysts’ own insights and experiences and are for educational purposes only.

Disclaimer: Investment involves risks. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips on this website are based on our analysts’ own insights and experiences and are for educational purposes only.

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