Ethereum (ETH) is the second-largest coin by market cap, which is over $314 billion at writing. There has been a lot of talk and media hype over the past few months of various cryptocurrencies being dubbed “Ethereum killers” regarding the major players within the cryptocurrency smart contract space.
Those “killers” are collectively supposed to beat ETH because they can handle more transactions per second than the Ethereum network and lower processing fees than Ethereum’s current average cost of roughly $30 per transaction.
However, rumours of Ethereum’s demise are overblown, and ETH could be a surprise reveal this year.
ETHEREUM KILLERS ARE NOT AS DEADLY AS THOUGHT
The main cryptocurrencies displacing ETH tend to be Cardano, Solana, EOS and Polkadot. However, each of these projects has its respective problems. Cardano had recent update issues that prevented Coinbase trading and were not fully fixed. Solana’s recent popularity has caused several network outages and many angry users. Polkadot’s interest-earning gambling feature is reportedly risky, expensive, and turns users away. Meanwhile, EOS seems to have been overtaken by competitors.
While Ethereum is trading at 46% of its peak, each of the projects mentioned above is doing much worse respectively according to CoinMarketCap, at the time of writing: Solana is down 62%; Cardano is down 65%; Polkadot was down 66%, and EOS is down 90%. Thus, the competitive threat to Ethereum’s smart contract dominance is largely diluted at this point.
ETHEREUM TRANSACTION FEES ARE ON A DOWNTREND
Two weeks ago, Ethereum transaction fees were down 35% as developers upgraded the network under their ETH2.0 development plan. That plan will increase transactions per second to more than 100,000, intended to reduce transaction costs and settlement delays further.
ETHEREUM CONTINUES TO REDUCE ACTIVE COIN SUPPLY TO INCREASE VALUE
According to Ethereum tracking website UltraSound.money, a total of $1.079 billion of Ethereum (ETH) fees were burned during January, setting a single-month record. A “fee burn” is an automated “self-destruct” mechanism that removes a certain percentage of ETH from the circulating coin supply. These fees were previously used to pay ETH miners as a reward for their “proof of work” protocol while validating transactions on the Ethereum blockchain.
Fee burning began on August 5, 2021, as a key first step toward upgrading the Ethereum network to a more efficient “proof-of-stake” consensus model following the activation of EIP-1559. The burn feature is an intentional effort to reduce the overall circulating supply of Ethereum as a way to make that particular coin more and more valuable, using basic principles of supply and demand.
Until the end of last year, the project had withdrawn more than 1.5 million ETH from circulation, the equivalent of $4.5 billion US dollars.
ETHEREUM IS THE BACKBONE OF POPULAR NFT AND DEFI ACTIVITY
It is worth noting that the more than $1 billion worth of Ethereum burned last month was fully transactional gas fees, meaning a lot of transactions took place. The overwhelming majority of those transactions took place on the leading NFT marketplace OpenSea. OpenSea set a new single-month revenue record in January of over $5 billion in NFT transactions, the majority of which occurred on the Ethereum network.
OpenSea’s revenue record reinforces that Ethereum remains the premier network for decentralized finance (DeFi) and non-fungible token (NFT) exchanges and transactions. DeFi currently has $100 billion in assets locked on the ETH blockchain, with more pouring into this automated banking system. And NFTs continue their explosive growth with historical sales of $20.8 billion according to nonfungible.com at the time of this writing.
COULD ETHEREUM HIT $10,000 THIS YEAR?
The ETH project is well-positioned to continue to benefit from these trends this year. It is currently trading at $2,635, a 46% discount to its all-time high, and could double or triple that price this year. Last year, it had a 450% return, so it’s certainly possible given its use cases and positive outlook. However, reaching $10K per coin is unlikely given the current macro conditions within the space and the potential over-regulation of crypto.