Ethereum (ETH), the second-largest cryptocurrency by market cap is been consolidating around $2590 since the beginning of this month. However, recent analysis highlights some critical mistakes made by Ethereum (ETH) over the years.
While Ethereum has made significant strides in the blockchain space, there are several areas where it could have performed better
Ethereum’s Focus on ‘Sound Money’
One of the main critiques is that Ethereum has concentrated too much on its ‘sound money’ principles, which involved altering tokenomics rather than improving Layer 1 (L1) scaling.
This decision slowed down transactions and made them more expensive, directly opposing market demand for faster and cheaper transactions. This oversight gave rise to competitors like Solana, which offered the quick, low-cost transactions that users were seeking.
Because of this focus, Ethereum faced criticism from Bitcoin supporters, who saw Ethereum as trying to compete with Bitcoin’s status as ‘hard money.’ At the same time, this strategy ignored a crucial market need for more affordable and quicker transactions.
A better approach might have been to improve the main network’s speed and reduce transaction costs, aligning more closely with user expectations.
Lack of Support for DeFi
Another point of criticism is that the Ethereum Foundation did not prioritize decentralized finance (DeFi) enough, which slowed down its growth in that area. This lack of support may have pushed investors towards other tokens and Layer 2 solutions, drawing attention away from Ethereum itself.
These alternatives promised higher returns and innovative features, diverting the buying interest that might have otherwise supported $ETH.
Challenges with Layer 2 Solutions
Although Layer 2 solutions have made transactions cheaper, the lack of regulation over their launch has created complexity and spread out liquidity. The introduction of ‘blobs’ made transactions even cheaper, weakening Ethereum’s fee system.
This change has reduced the network congestion needed to keep fees high, making it harder for Ethereum to control inflation from PoS rewards.
Rising Concerns About Ethereum’s Inflation
Another major issue Ethereum faces is its growing problem with inflation. Even with low gas fees, the burning of tokens through EIP-1559 isn’t enough to counteract the rewards given out through its Proof of Stake (PoS) mechanism. This means that Ethereum is not deflationary as intended, which could harm its image as a reliable store of value.
Additionally, the Ethereum Foundation’s need to sell large amounts of ETH to fund its operations is creating consistent sell pressure, which could increase as Ethereum’s market capitalization grows.
What’s Next for Ethereum?
Looking ahead, Ethereum might need to rethink its strategies. By focusing more on user experience, making transactions faster and cheaper, and simplifying its ecosystem.
