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Will Ethereum Be Flipped in 2022?
Could Ethereum be overtaken as the number one smart contract platform next year?
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Hey DEFI TIMES community,
Ethereum has always been the dominant smart contract platform out there.
There are two main reasons for this:
Ethereum was the first blockchain to enable Turing-complete smart contracts, which means that we can do whatever we want to do on Ethereum. Because it was the first, people got used to it. Metamask, Uniswap, etc… It's the Ethereum experience. In addition, Solidity and the EVM are Ethereum’s moat. Most developers program in Solidity and are not willing to switch to other languages. We are still living in an EVM world!
Ethereum is the most decentralized blockchain out there. Most investors are comfortable storing large amounts of money on Ethereum because nobody can take it away from them.
Both reasons have contributed to the fact that Ethereum has a market cap of almost $500 billion - insane!
However, we’ve seen a lot of flippening talks lately on Crypto Twitter.
And the question now is: Are these two reasons enough for Ethereum to stay the number one blockchain?
Or are we about to see a great repricing of L1 chains in 2022?
Let’s find out!
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Ethereum’s USP Today
Okay, so Ethereum is still the king today. So the question is: Will Ethereum keep its lead as the number one smart contract platform in the long term?
The best way to explore possible scenarios is by asking ourselves if Ethereum’s two main advantages are enough to keep it on top.
Okay, Ethereum was the first smart contract blockchain out there and therefore has the greatest variety of applications (DeFi, NFTs, etc.). Ethereum’s money lego effect allows applications to build on top of each other, which makes the ecosystem even more valuable. No doubt, Ethereum’s landscape is way bigger than all other L1s combined. There are more teams building on Ethereum than on Solana, Avalanche, etc.
This is what we have today - but of course, things like that change fairly quickly in crypto.
That’s why I don’t think that Ethereum’s first-mover advantage is enough for it to stay number one. Most developers and teams are not loyal and will switch if they can make more money somewhere else. In fact, it’s not even difficult for them to start building on Avalanche, Harmony, and co because it’s the same programming language (Solidity).
So we have one USP left: Decentralization.
Will Ethereum’s decentralization be enough for Ethereum to remain the most valuable blockchain besides Bitcoin?
It’s the same question all over again: decentralization vs. scalability - What’s worth more? What’s more important?
Well, in the end… the market will decide!
Decentralization vs. Scalability - What’s Worth More?
Buying ETH is basically a bet that decentralization is the most valuable asset in crypto. Betting on Solana is basically a bet that scalability is more important than decentralization.
Read that twice.
Which one are you betting on?
The blockchain trilemma describes it very well. We can only choose two out of three:
Decentralization: we can create a blockchain that does not depend on a central party.
Scalability: we can build vertically scalable blockchains that can scale for millions of people.
Security: Is your money safe? Is the blockchain resistant to hacks?
Today, we choose only two out of three. And as long as we haven't solved the blockchain trilemma, Ethereum’s dominant position is threatened.
Ethereum is choosing decentralization and security. Other L1s are choosing scalability and security.
Blockchains need to be secure. But do they really have to be decentralized?
That’s the ultimate question… and the only way to answer the question is to battle test both belief systems.
The Bull Case For Scalability
What if users really don’t care about decentralization? We have seen first hints that this is the case throughout 2021.
It started with Binance Smart Chain taking over Ethereum in daily transactions in March 2021.
It happened for a very simple reason: Most users were unable to pay for a single Uniswap transaction. Imagine the average user - a person with maybe $1,000 in total investment size. One single Uniswap trade will wipe away 5% or more of his total holdings. Most people just couldn’t afford Ethereum anymore and switched to BSC.
If you ask average crypto investors if they care about decentralization, they will probably say “yes.”
But then you ask them: “What’s more important: Decentralization or their personal finances?”
Well, most people will just prefer to keep their money instead of religiously believing in a decentralized future. And once people have opted out of Ethereum and adopted BSC, Solana, and other L1s, the decision has been made.
This is the bull case for scalable blockchains… and the bear case for Ethereum…
Will Ethereum Be Flipped in 2022?
So what does this all mean to Ethereum? Well, there are a few things that are almost certain to me:
Ethereum’s blocks will continue to be congested
Gas fees will remain sky high
In my opinion, most users, who join the crypto ecosystem, will start their journey somewhere else. Avalanche, Cosmos, Terra, Solana, BSC will onboard them. And to answer the question: Will Ethereum be flipped in 2022?
Yes, I think there’s a possibility that other chains flip Ethereum in market cap if users turn out to favor scalability over decentralization.
I’m sure that if we are going to see a flippening, it’s going to happen next year. And it’s going to be highly interesting to see who’s going to turn out to be the winner.
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DISCLAIMER: All information presented above is meant for informational purposes only and should not be treated as financial, legal, or tax advice. This article's content solely reflects the opinion of the writer, who is not a financial advisor.
Do your own research before you purchase cryptocurrencies. Any cryptocurrency can go down in value. Holding cryptocurrencies is risky.