The World’s Computer
Considering the fact that a number of projects yet to launch mainnets are sitting on the top 10 list of cryptocurrencies, it can be argued that being a top cryptocurrency these days does not mean much. Ethereum is the cryptocurrency platform, other than Bitcoin, that is being widely used for purposes other than speculation. It is the second largest by market cap and the largest when it comes to blockchain size. Will this continue to be the case in the fast-paced cryptocurrency world? Will Ethereum remain relevant in coming years or lose out to its numerous upcoming competitors?
There are quite a number of smart contract platforms that have use cases similar to that of Ethereum. EOS, Cardano, Ethereum Classic, NEM, NEO, Bitshares, and Waves are some of the already existing ones. More and more cryptocurrency platforms are also launching and proposing smart-contract platforms. For instance, Monero plans to come out with a smart-contract enabled second layer know as Tari.
Some of these projects, even the ones that are yet to launch their mainnets have a very huge following and market caps. EOS, which is on course to launch its mainnet in a couple of weeks is a top 5 ranked cryptocurrency by market cap. Others have working platforms with applications running smoothly. Waves, Bitshares and NEM have well-functioning platforms with DApps.
An advantage most of these relatively newer platforms have over Ethereum is that they have had the opportunity of studying Ethereum, taken note of its problems and made attempts to avoid such problems on their own platforms. These new platforms can handle a larger number of transactions per second, are simple and easy to use, and come with arguably better governance systems. For instance, users of the Waves platform can very easily create their own tokens without possessing any special computer programming skills.
Problems with Ethereum
The size of the Ethereum blockchain has already gone beyond 1 terabyte. This isn’t great news because users who wish to run full nodes would have to find space on their devices to download the entire blockchain. The huge size of the blockchain, therefore, becomes a disincentive for running a full node and leads to less decentralization of the network.
The scaling problem on Ethereum becomes more obvious each time a popular decentralized application with lots of transactions sees massive adoption. For instance, the popular digital cat breeding and trading game, Cryptokitties, clogged the network after it gained popularity after its release in late November 2017. On the other hand, smart contract platforms like the Graphene-powered Bitshares have demonstrated the capability of processing 100,000 transactions per second.
An important feature of blockchains is that they are immutable. Ethereum disqualified itself from being considered immutable after a change was made to the protocol to reverse the “hack” or exploitation of a vulnerability that led to the loss of millions of dollars’ worth of Ether. For many in the cryptocurrency space, this was a serious problem since it went against the whole point of having cryptocurrencies.
The DAO hack is not the only case of a vulnerability being exploited on the Ethereum network. There is quite a long list of similar cases over the years. The Parity hack of July 2017 and the Classic Ether wallet hack of June 2017 are well-known cases. Even though attempts were made to resolve all these issues, the network has often been criticized for not being secure considering the value it holds.
The plans to move from proof of work to use the proof of stake consensus mechanism on Ethereum has also drawn some criticism and concerns. The concerns are that the proof of stake consensus mechanism is not as secure as proof of work even though the latter is wasteful in terms of energy consumption. The argument is that with proof of work, electricity, which is an external resource is used whereas the staking of tokens or coins requires no external resource and is, therefore, less secure albeit more cost-effective and efficient. The debate on which of the two systems is the better is still on. However, many are of the view that PoW is more secure and with better incentives for good behavior because it requires the use of an external resource for mining.
What Really Matters
The Ethereum network has over 1500 decentralized applications based on it. This indicates that it is very widely used. It is not just the huge market cap and following but real applications being built on the platform that makes Ethereum the top platform for decentralized applications. This is what separates Ethereum from its competition. As a matter of fact, the main reason for Ethereum being more successful than Ethereum classic is that there are more applications being built and used on Ethereum. The network effect takes time and is not very easy to achieve. So far, from all indications, it’s not very easy to overtake a cryptocurrency platform that already has the network effect.
With respect to having problems, Ethereum is not alone. The competing platforms do have similar problems as well as problems of their own from time to time. Measures are also being put in place to upgrade the system and tackle the networks’ problems.
It is not impossible for Ethereum to be unseated from its position of number one platform for decentralized applications. It is however improbable considering its network effect.