Ethereum Usage Will Drop If the Blockchain Doesn’t Boost Speed: Bank of America

The network has had a first-mover advantage thus far as a platform developers could build apps on, a report from the bank said.

AccessTimeIconMar 23, 2023 at 11:47 a.m. UTC
Updated Mar 23, 2023 at 3:24 p.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

The Ethereum blockchain remains the dominant operating system for decentralized finance, or DeFi, because few alternatives existed until recently, Bank of America said in a research report Tuesday.

The bank, however, said it expects Ethereum adoption and usage to decelerate if the blockchain is not able to increase its "throughput," adding that application developers will probably choose other networks to build on. In crypto, throughput refers to the number of transactions a blockchain can complete per second.

“We view Ethereum’s long-term viability as dependent on its ability to fulfill the vision laid out in its road map, which includes implementing sharding architecture to expand its throughput capacity significantly,” analysts Alkesh Shah and Andrew Moss wrote.

Bank of America noted that Ethereum’s smart contract-enabled platform gave it a first-mover advantage as app developers gravitated to the platform, which led to network effects as the number of decentralized apps (dapps) and users grew.

That early success, however, was a “double-edged sword” as the large number of transactions resulted in network congestion and surging transaction fees, the note said.

A dapp is an application that uses blockchain technology to keep users' data out of the hands of the organizations behind it. Smart contracts are computerized blockchain protocols that execute terms of a contract.

“As in prior tech cycles (PCs, software, internet), new projects are likely to emerge and poorly positioned projects will exit,” the note added.

Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is an award-winning media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. In November 2023, CoinDesk was acquired by Bullish group, owner of Bullish, a regulated, institutional digital assets exchange. Bullish group is majority owned by Block.one; both groups have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary, and an editorial committee, chaired by a former editor-in-chief of The Wall Street Journal, is being formed to support journalistic integrity.

Author placeholder image

Will Canny is CoinDesk's finance reporter.


Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.