Ethereum’s big year in spotlight: Q4 2021 report – The Average Joe

    Ethereum’s big year in spotlight: Q4 2021 report

    Victor Lei — Head of Research

    January 18, 2022

    January 18, 2022

    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.

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