Ethereum’s big year in spotlight: Q4 2021 report

If Ethereum was a company, it would be the fastest-growing corporation at its size. The second-largest cryptocurrency grew 5x in 2021 — peaking at a $550B market cap — surpassing Visa, the largest US payments company.

The biggest thing since the internet

ELI5: Think of Ethereum as an operating system similar to Android or Apple iOS — but instead of powering mobile apps, it powers applications built with blockchain technology. And like Apple and Android, Ethereum takes a cut of transactions on its network.

Unlike public companies, crypto projects aren’t required to report earnings — but blockchain data is readily available. In the fourth quarter of 2021 (data via Bankless):

• Network revenue grew 1,777% from $234M to $4.3B.
• Daily active addresses (i.e. daily active users) grew 35% from 426K to 573K.

Use cases for blockchain applications exploded in 2021 with the growth of NFTs, crypto gaming and decentralized finance — many relying on the Ethereum network.

Ethereum’s growing pains…

Ethereum’s biggest problem? Scalability — it is getting more expensive as it grows.

The more people on its network, the higher the fees — the average transaction fee grew 6.5x to $26.89.  Paying 30% in fees on a $100 transaction isn’t feasible. As a result, several projects have launched to help — and to hinder it:

• Solutions: Polymatic ($MATIC) and Skale ($SKL) are building on top of Ethereum to help it scale.
• Competitions: Other protocols (a.k.a. Ethereum killers) built similar operating systems.

Solana ($SOL), Avalanche ($AVAX), Terra ($LUNA) are all similar projects with cheaper transaction fees — i.e. transactions on Solana costs $0.00025.

Investors: What we’ve all been waiting for…

A big upgrade to Ethereum is coming — expected in the second half of 2022 — which should solve its scaling problems. This has big implications for investors…

• Lower transaction fees — allowing more people to transact on Ethereum — leading to higher demand.
• Expected fall in token supply — meaning price should theoretically go up as supply falls.
• Decrease in energy use by ~99.5% — solving one of crypto’s biggest criticisms.

The upgrade is one of the biggest known catalyst for Ethereum — but one this size won’t be easy — which is why it’s been delayed several times for testing. If everything goes smoothly, Ethereum could be one step closer to beating sliced bread.