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These few days were rough for Ethereum, the cryptocurrency revolutionizing the market. Although the majority of cryptocurrencies present a bullish trend, Ethereum’s price is considerably behind Bitcoin and other altcoins, leaving investors wondering if they should really continue with ETH.
A few reasons stand behind the sudden change, and despite Ethereum having a lower volatility than Bitcoin, the asset has a lot of work to do to develop. Indeed, it provided a unique blockchain where smart contracts became a game-changer for many developers and investors. At the same time, the vast methods of how to buy Ethereum are one of the best things for creators since they now have more opportunities to showcase their creativity from DAOs, dApps and NFTs.
Still, Ethereum must get over these challenges that are holding it still when the entire market is in development.
Regulatory difficulties continue
Regulating cryptocurrencies has always been a challenge for official bodies and governments, even if they’ve been pushed by investors to provide a specific legal framework. Of course, Bitcoin was the first to receive some sort of regulations regarding taxes and usage, but only in a few countries and with additional limitations.
When it comes to the rest of digital assets, things get more complicated. It was somewhat easy for institutions to see Bitcoin as a commodity, while the rest of altcoins are seen as securities. However, this only poses further challenges because an anti-money laundering policy and illicit financial procedures must be settled before anyone can actually use the cryptocurrencies.
Ethereum went through serious regulatory uncertainty recently due to the SEC’s unusual approach and lack of understanding of it. If Bitcoin barely passed its requirements, for now, it seems impossible for Ethereum to be the next regulated asset.
The recent controversy with ETH EFTs made the SEC even more against its adoption, leading to their market failure, which was considerably worse than Bitcoin’s ETF market penetration. This might’ve been among the reasons why the current Ethereum price is experiencing a poor performance.
Centralization risks pose future uncertainties
The discussion of centralization has been around for a while since it was revealed that two massive mining pools own almost half of the total global hash rate. This means that the two ecosystems can influence the market in accordance with their development.
This phenomenon was also noticed in Ethereum, believed to have enhanced centralization risks since the Merge. That’s because, as some experts pointed out, liquidity providers and even node operators might become a single point of failure, which automatically attracts the common interests of a single community. Even the stake increase might have considerable effects on the rising yield of the Ethereum cryptocurrency. From this perspective, investing in Ethereum poses certain dangers that have been overlooked through the years since the platform is entirely decentralized. Still, when it comes to community forming, things are pretty different.
However, the risk of centralization is present in other blockchain-based assets, such as chains or DeFi. This situation is an ongoing struggle to make cryptocurrency and networks safe and genuine that has to be solved in time through better policies and developments.
High gas fees are still a significant issue with Ethereum
Ethereum had many problems with its high gas fees in the past, making most investors drop it for other better alternatives, such as Solana or Cardano. Indeed, Ethereum was always pricier and slower compared to its competition, but no other networks could compete with its vast environment.
The asset was patched with plenty of updates to lower gas fees and make the blockchain more sustainable. After restoring layer-2 rollups like Optimism upgrades like the Merge and the Surge, the problem still persists. The truth is that the blockchain can’t hold the increasing number of users on the blockchains, while nodes and validators are overwhelmed by the number of transactions required to verify every day.
This might be why the number of active addresses on Ethereum has slightly decreased recently. Compared to other applications from competitors like Solana, it seems like investors are moving towards better products and services for cheaper, faster and improved solutions.
Ethereum’s development roadmap might solve these problems
The creator of Ethereum, Vitalik Buterin, proposed a development roadmap for the network architecture to change in order for the cryptocurrency to be used more easily and more efficiently. The Merge was the first, and it made a considerable change from the old PoW to PoS, which had a serious impact on the blockchain.
The Surge follows closely, and it’s expected for the update to expand over a period of a few years because it’ll deal with improving scalability and data sharding. If Ethereum’s scalability problems are solved, they might propel the cryptocurrency into overturning Bitcoin.
Then, the Scourge will handle issues of censorship resistance, another centralized-related problem. Hence, it’s also forecasted that decentralization will be enhanced during this update, which might wipe off the majority of centralization dangers.
Following, the Verge will make the validator’s job easier since verifying blocks will include faster policies and methods so that congestion won’t happen that often. This phenomenon is known for increasing gas fees considerably, so that the update will handle more challenges in one go.
Then there’s the Purge, the upgrade meant to reduce computational costs for nodes, which can be quite expensive in order to face all the transactions and software requirements. Unfortunately, computational prices for hardware and other necessities have increased recently, especially for Bitcoin, because mining is more competitive.
Finally, Splurge will handle all remaining updates and issues not included in previous ones simply because they’re less important or have the finishing touches until Ethereum is a brand-new cryptocurrency. It is expected for the roadmap to change in accordance with new difficulties, and the approximate period for it to end is about ten years.
Final considerations
Ethereum prices suffered considerable losses recently, although the entire market is going in the opposite direction. It also seems like other altcoins, like Ethereum, are performing well enough, and Bitcoin is the same. However, some specific causes of this occurrence include Ethereum’s regulation challenges, its high gas fees and centralization risks.