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    Ethereum Could Hold Lead as Dominant Smart-Contract Blockchain: Coinbase Analysts

    What is Ethereum?

    Ethereum is a blockchain-based platform best known for its native cryptocurrency, ether, or ETH, or just ethereum. The Ethereum network is secure due to the distributed nature of blockchain technology, and this security allows ETH to gain value.

    The Ethereum infrastructure enables both ether and a network of decentralised apps, or dApps. Smart contracts, which emerged on the Ethereum platform, are an important part of the platform’s functionality. Smart contracts and blockchain technology are used in many Decentralized Finance (DeFi) and other applications.

    As of January 2022, Ethereum is the second most valuable cryptocurrency, trailing only Bitcoin in terms of market capitalization.

    Don’t Write off Ethereum just yet

    After Bitcoin, the second-largest blockchain network by market capitalization has emerged as the primary platform for some of the most exciting cryptocurrency ideas, ranging from decentralised finance (DeFi) to non-fungible tokens (NFT).

    The popularity of the network – and the hefty fees associated with transacting on it – has prompted a slew of competitors to try to undercut Ethereum with lower prices, faster speeds, and higher throughput. The possibility that up-and-coming “ETH killers” or layer 1 blockchain alternatives like Solana, Binance Smart Chain, and perhaps Cardano could one day overtake the market leader has pushed the rivals’ token values surging.

    However, researchers at Coinbase Institutional, which provides cryptocurrency analysis to large investors, believe Ethereum will be able to hold off the challengers.

    Ethereum layer too

    Other layer 1, or base layer, protocols may face competition from Ethereum’s layer 2, or companion system, which operates alongside the main blockchain to speed transactions at a cheaper cost. Upgrades to Ethereum itself, such as a full transfer from the existing proof-of-work system to a proof-of-stake blockchain and the inclusion of sharding, may also help.

    Users of decentralised applications, or dapps, may stop hunting for faster and cheaper alternatives to Ethereum as the ecosystem’s scalability improves, according to a recent analysis by Coinbase Institutional.

    Although Coinbase Institutional expects “several chains to coexist in the crypto world in the short term,” Ethereum may retain its throne. According to the Coinbase Institutional study, “we do think that the confluence of [layer 2] scaling solutions paired with enhancements like the Beacon Chain merging and sharding could limit progress for alternative [layer 1s] in their current form.”

    Proof of stake transition

    The Ethereum Blockchain is about to switch from the Bitcoin blockchain’s energy-intensive proof-of-work consensus methodology to a proof-of-stake consensus model. This will be accomplished by combining with the Beacon Chain, which is essentially a beta version of the future proof-of-stake blockchain that is now live.

    The tweaks should help Ethereum use less energy and compute more efficiently. While the presence of layer 2 solutions such as zero knowledge (zk) rollups does not guarantee speedier transactions or reduced gas fees, it can attract developers and encourage capital to stay in the ecosystem.

    According to Coinbase analysts, this change will likely reduce the chances for layer 1 alternatives in the second half of 2022.

    Zk-Rollups combine transactions and execute them off-chain before returning the revised transaction data to Ethereum. According to Coinbase Institutional, the scalability that may be obtained if rollups become more widely used could be critical to the success of Ethereum 2.0.

    According to the research, “this would be critical for allowing the network to possibly scale to billions of users in the long term, processing tens of thousands of transactions every second.”

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