The latest crypto winter is thawing as we speak. From cryptocurrency-based exchange-traded funds (ETFs) driving interest from institutional investors to planned technology upgrades for many major crypto platforms, investors have found many new reasons to once again pay close attention to this space.
As a result, smart contract leader Ethereum (CRYPT: ETH) has enjoyed a 46% price rise since the market's most recent low in October 2023. Cardano (CRYPT: ADA) and Algorando (CRYPT: SOMETHING) almost tripled in the same period of time, and the promising avalanche (CRYPT: AVAX) more than triple.
Does Ethereum have the right moves to counter these high-risk tactics from its competitors on the grand chessboard of public opinion and developer interest? Let's see how the next three years will play out for the world's second largest cryptocurrency.
How Ethereum echoes the melody of the Bitcoin market
First, let me point out that Ethereum tends to follow the price trends of the sector giant. bitcoin (CRYPT: BTC) long term, sometimes amplified and sometimes muted compared to its larger cousin, but almost always moving in the same direction. In other words, the two graphs are strongly correlated.
So when Bitcoin prepares to halve the rewards given to your minersAs it happens about once every four years, that event is expected to push both cryptocurrencies higher over the next year or so. That trend played out in 2016 and 2020, although Ethereum lagged behind Bitcoin's big gains in the previous cycle. Therefore, the Bitcoin halving, scheduled for the end of April 2024, should add fuel to the fire of most cryptocurrencies, including Ethereum.
The Journey Ahead: Planned Ethereum Upgrades
The halving event should provide a rising tide to lift all crypto boats, but how will Ethereum address the growing competition? Would investors be better off in speed-focused rivals like Avalanche, Cardano and Algorand in the long term?
Well, let's see. Ethereum is in the middle of a multi-year platform upgrade. formerly known as Ethereum 2.0 or Eth2. The change to a proof of stake The system is already on the books, to be followed by several gradual technical pushes over the next five to ten years. The precise order of these updates will vary depending on many external factors, but the process should look like this, according to the official Ethereum development roadmap:
- Sharding will divide the workload of validating transactions into smaller, more manageable batches. This speed boosting update is rolling out ahead of schedule, as a first pass turned out to be more useful than expected.
- Instead of waiting 15 minutes for validation, the same processing batch could address both the creation and validation of the same transaction. This may be the next step and a significant improvement in Ethereum transaction speed.
- Several security updates are being prepared with the aim of protecting the blockchain from different types of attacks. For example, hardening the blockchain against quantum computing attacks is currently considered a low priority, but could move up the chain if quantum hardware makes a sudden jump in performance. Stay tuned.
- Currently, Ethereum executes all smart contracts by referencing externally owned accounts (EOAs). This architecture helps developers extract real-world data from so-called oracle networks as Link of the chain (CRYPT: LINK), resulting in sophisticated contracts linked to stock prices, exchange rate trends, weather patterns, moon phase, etc. But it also adds complexity to the smart contract system, slowing it down and exposing the platform to more errors. Therefore, the Ethereum community is exploring different ways to replace this approach with a simpler and faster alternative.
- Finally, mastermind Vitalik Buterin wants Ethereum to be a stateless system in the long term. This next-level twist on sharding would allow each processing node to manage only a small portion of the total blockchain data, reducing participation costs and dramatically increasing processing speeds. However, this is a true long-term goal that requires dramatic changes to Ethereum's technical platform, and should not be expected to happen anytime soon.
Ethereum is therefore taking steps to match the ultra-fast transaction processing speed of Avalanche and Cardano while building a more robust and flexible platform for developing blockchain-based applications. Only time will tell to what extent the Ethereum project will stick to its stated long-term plans, but so far there have been more positive surprises than unexpected drawbacks.
Ethereum Looks Ready to Rumble
In my opinion, the ball is in the court of the so-called "Ethereum killers". The leading smart contract platform seems prepared to face its challenges in the coming years.
Of course, the upstarts are not sitting on their digital hands. Cardano, Algorand, and Avalanche are also increasing their already fast processing speeds while seeking greater stability. Any of them could one day come up with a game-changing innovation.
However, rivals are fighting an uphill battle. Ethereum gained a leg up on the rest of the field, setting industry standards and piquing the interest of developers several years before the other names existed. The sheer inertia of the existing preferences of an established developer group makes it difficult for other platforms to steal Ethereum's smart contract throne.
But the presence of several healthy rivals should also take Ethereum to greater heights in the long term. I can't wait to see how this battle between Gulliver and Lilliput will play out over the years. These four cryptocurrencies may have bright futures, but Ethereum has the clearest path to sustained success. The giant is not on his knees yet.
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Anders Bylund has positions in Bitcoin, Cardano and Ethereum. The Motley Fool has positions and recommends Avalanche, Bitcoin, Cardano, Chainlink, and Ethereum. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
