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Ethereum Scaling May Arrive Too Late, According To JP Morgan

Though Ethereum is currently the undisputed king of Defi, its dominance may not be absolute. Multinational investment bank JP Morgan recently argued that the network will face stiff competition from other chains in the coming years. They say Ethereum’s scaling difficulties are a primary market vulnerability, and that its development solutions may arrive too late.

Hurry Up, Ethereum!

Nikolaos Panigirtzoglou – analyst for JP Morgan – published his opinion on the matter in a note on Wednesday. He acknowledges sharding – a scaling solution that partitions transaction confirmations into different node groups – as something Ethereum is working toward.

However, as this development is not likely to be a reality for years, he suggests many more scalable blockchains could usurp it in the meantime. For instance, Solana – a Proof-of-History chain that can support 50 000 tps – grew over fifty-fold across 2021.

Ethereum currently dominates 70% of the Defi market. While this seems high, its down from nearly 100% at the start of 2021, showing burgeoning competition from other networks. For instance, Terra currently has $17.4 billion in TVL on Defi, while BSC and Avalanche hold $15.6b and $11.3b respectively.

The analyst believes the shift to other chains could dent Ether’s price. The cryptocurrency saw steller growth next to Bitcoin in 2020 and 2021, but has grown relatively stagnant against it in the past month. It holds roughly half of the dominant coin’s market cap.

“Ethereum is currently in an intense race to maintain its dominance in the application space with the outcome of that race far from given, in our opinion,” reads the note.

Ethereum’s Sluggish Scaling

In a recent interview, Vitalik said he believes that Ethereum is halfway to total completion as a protocol. While the development process could take several years, he believes the upgrade to Ethereum 2.0 will be ready by July.

He has admitted that the proof-of-stake transition has taken several years longer than he initially expected. Also, he concedes the numerous delays to it. Also, he grants that sharding is years away. Lastly, the layer-two solutions will be necessary in the medium-term to support scaling. Among these are rollups – a payment processing method similar to Bitcoin’s lightning network.

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At the moment, Ethereum’s fees are far higher than those of competitor chains – including Bitcoin. According to Ycharts, average network gas fees are currently over $100.

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