Key Points:
- Ethereum’s transactions are slower than newer blockchains.
- Layer 2 solutions are reducing Ethereum’s income.
- Solana and Aptos are attracting Ethereum’s users.
Ethereum (ETH) is having a hard time in 2024. VanEck, a major asset manager, explained why in its August 2024 report. The report highlights three main problems for Ethereum: slow transactions, strong competition, and lower earnings. These issues are causing Ethereum to fall behind other blockchains.
Ethereum’s Slow Transactions
Ethereum’s biggest issue is its slow transaction speed. It can only handle around 15 transactions per second (TPS). In comparison, newer blockchains like Solana and Aptos can process thousands of TPS. This makes Ethereum much slower, especially when the network is busy. Because of this, many developers are choosing faster blockchains instead.
VanEck’s report also shows that Ethereum’s share of blockchain fees has dropped. In 2022, Ethereum made up 86% of all blockchain fees. By 2024, that number had fallen to just 33%. Its share of decentralized exchange (DEX) volumes also dropped from 42% to 29%. This shows that faster, cheaper blockchains are taking users away from Ethereum.
Layer 2 Solutions Cutting Into Ethereum’s Earnings
To solve its speed problem, Ethereum introduced Layer 2 blockchains (L2s). These help process transactions off the main Ethereum network, making things faster. However, L2s also take away fees that would have gone to Ethereum. Since 2022, Ethereum’s share of its own ecosystem’s fees has dropped from 98% to 89%.
A recent Ethereum upgrade, EIP-4844, created a new data lane for L2 transactions. This made fees lower across the network, but it also reduced Ethereum’s revenue. Over the last six months, Ethereum’s fees dropped by 89%, while blockchains like Tron and Solana saw their fees rise by over 100%.
Competition from Solana and Aptos
VanEck’s report highlights the growing competition Ethereum is facing. Blockchains like Solana and Aptos are faster and cheaper. This is making them more appealing to developers and users. Solana had some problems in 2024, such as a 21% price drop due to fraud in memecoins. But Solana also had success, with the launch of new ETFs in Brazil and more use of PayPal’s PYUSD stablecoin.
Since the 2023 bull market, Ethereum has seen a 62% return. But this is far below Bitcoin’s 138% return and Solana’s huge 624% growth. The main reason is Ethereum’s slower speed and higher fees, which are driving people to look for better alternatives.
Looking Forward
Ethereum is facing big challenges in 2024. VanEck’s report shows that its slow transactions, tough competition, and lower earnings are hurting its performance. While Ethereum is still important, faster blockchains like Solana and Aptos are taking its users and revenue. Ethereum will need to fix these problems to stay competitive in the changing blockchain world.
