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Ethereum (Crypto: ETH), the second largest cryptocurrency by market capitalization, has mapped a diametral opposite route compared to its older brother or sister, Bitcoin (Crypto: BTC), the past year.
Consider this. Bitcoin has risen 32% in a year and has reached a record high of $ 109,000. The share in the total cryptocurrency market has been expanded from 52% to 60%.
Ethereum, on the other hand, rose 39% at the same time, reducing the market share from 16% to 8%.
The growing gap has led conversations about the role of Ethereum in the cryptocurrency hierarchy and the future Benzinga course spoke with some analysts to understand the factors that contribute to the continuous decline of the ecosystem.
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Jeffrey Hu, Head of investment research at Digital Asset Manager Hashkey Capitalbelieved that the error lies in the economic model of Ethereum.
“The activation of EIP-1559 makes it possible to burn more ether for deflation when etheractivity is high on Ethereum, but Ethereum must further support chain applications,” explained Hu.
The Ethereum London Hard Fork, called by the EIP-1559, introduced a token fire mechanism for the network. According to this mechanism, the basic reimbursement, ie the minimum reimbursement per transaction, is removed to add deflatory pressure to ETH and to stimulate its value.
So what exactly is the problem?
HU claimed that the rise of Layer-2-block chains and the dencun upgrade, which cut the reimbursements on L2S through orders of size, led the activity on the chains away from the basic Ethereum chain, which resulted in inflation.
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According to ultrasound, the deflation percentage of ETH began to delay in May 2024, and since the beginning of February the supply of the currency has increased net.
Source: Echo -money
Trever KoverkoWeb3 investor and co-founder of Sapien, repeated these observations.
“Ethereum is struggling to establish a story about how L2’s accretief are and are not extractive for the main chain,” he added.
However, L2’s were not the only competition that Ethereum encountered.
