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Ethereum (ETH) Must Convert “Superior Lead” – New Crypto Report by a16z

 


Leading venture capital fund Andreessen Horowitz (a16z) concludes in a new analytical report that development activity and demand on the Ethereum network is “unrivaled.”


However, the analysts of the big investment firm warn that the "popularity [of Ethereum] is a double-edged sword", because the lively use of the network inevitably means that it is often overloaded and invokes high transaction fees.


According to a16z, this is because the smart contract platform has so far preferred decentralization – in the form of the Proof-of-Work (PoW) consensus process – to scalability. This in turn means that competing blockchains can take market share from the network "with the prospect of better performance and lower fees".


The venture capitalist has presented the corresponding results on the company’s blog in the “State of Crypto” report for the year 2022 . The authors of the research report, analysts and investment experts Daren Matsuoka, Eddy Lazzarin, Chris Dixon and Robert Hackett, have formulated five important key points about the "state of the crypto industry".


In addition to Ethereum, the report also deals with topics such as Web3, adoption of cryptocurrencies, decentralized financial services (DeFi) and stablecoins.



Regarding Ethereum, the authors note that the blockchain network is miles ahead of its competition in terms of demand and development activity. The smart contract platform has almost 4,000 active developers per month, whereas the closest major competitor, Solana, only has 1,000 developers. Bitcoin and Cardano have 500 and 400 active developers per month, respectively.


The analysts attribute Ethereum's lead to the fact that the network "started first and is supported by a healthy community". In this context, the report also praises the fact that this development lead is being expanded despite comparatively high transaction costs:


“Ethereum's overwhelming market leadership in terms of developer capability (“Mindshare”) partly explains why users of the network are willing to pay an average of more than $15 million per day in transaction fees just to use the blockchain to use at all. That is impressive for such a young project.”

How high the demand on the Ethereum network is can be seen, among other things, from the average transaction fees mentioned over a period of seven days. According to the report, these are currently just under 15.24 million US dollars. In contrast, transaction fees over the same period across BNB Chain, Avalanche, Fantom, Polygon, and Solana add up (!) to just $2.5 million.



Seven-day transaction fees on different blockchains. Source: a16z

However, the report also points out that there are Layer 2 solutions already making efforts to make transactions on Ethereum faster and cheaper, and some long-awaited upgrades are on the way that will make the network more efficient and cheaper at a fundamental level should do.


According to the experts at a16z, these upgrades - which are intended to enable the important switch from PoW consensus procedure to proof-of-stake - cannot come fast enough, because the 30-day average shows that the active addresses and transactions are on competing Blockchains such as Solana, BNB Chain and Polygon now have a clear advantage over Ethereum.


ETH has 5.5 million active addresses and 1.1 million daily transactions on the tableau, while Solana clearly has a leading position of 15.4 million active addresses and 15.3 million daily transactions. Meanwhile, BNB Chain has 9.4 million addresses and 5 million transactions, while Polygon has 2.6 million addresses and 3.4 million transactions.


The good news for everyone involved is that analysts believe there won't be just one winner:


“Blockchains are the new pinnacle of a new computing age, just as PCs and broadband internet were in the 90s and 2000s, and smartphones in the last decade. There is a lot of room for innovation, which is why we believe there will be multiple winners.”

The other findings of the report include that Decentralized Financial Services (DeFi) with invested assets (Total Value Locked) of almost USD 113 billion would already rank 31st among all American banks. With regard to Web3, the authors predict that the next stage of development of the Internet will break the magic mark of 1 billion users as early as 2031. The report also notes that Non-Fungible Tokens (NFTs) have created a total of $3.9 billion in value.

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