Ethereum’s Fees May Have Some Turning to Its Competitors

Most consider Ethereum (CCC:ETH-USD) to be an established presence in the world of cryptocurrency. It’s one of the pioneering crypto projects and the second-largest cryptoasset by market capitalization. Furthermore, its blockchain-based platform has allowed developers to build and deploy all sorts of decentralized applications.

A concept image of a virtual coin based on the Ethereum logo.
Source: Filippo Ronca Cavalcanti / Shutterstock.com

Just because it’s established, though, does not mean it’s stable. Despite the fact that ETH trades above $4,600, its price is subject to wild swings. And I’d assert that this volatility acts as a detractor to its long-term prospects, opening the door for its competitors who often have lower fees. 

More Competitors Pop Up to Challenge Ethereum

There are many contenders to Ethereum’s throne. Most recently, Avalanche (CCC:AVAX-USD) has emerged as another in a sea of digital assets chipping away at ETH’s position.

AVAX had a strong November, shooting up more than 90%. Ethereum investors, on the other hand, went on a bumpy ride. When all was said and done, ETH advanced just 8% in November.

I won’t go into depth about Avalanche. It has been identified as showing potential in non-fungible tokens (NFTs), DeFi and more environmentally sustainable transactions. Those factors make it a viable contender to Ethereum. However, it’s Ethereum’s high transaction fees that have many looking for alternatives. 

Major Crypto Investor Threatens to Jump Ship

Ethereum’s high gas fees have been getting it the wrong type of media attention lately. Those fees are part of the reason one high-profile investor recently said he was abandoning Ethereum

Three Arrows Capital is a venture capital fund with a significant presence in the cryptocurrency space. It’s run by CEO and crypto billionaire Zhu Su, who earlier this month tweeted that he had “abandoned Ethereum despite supporting it in the past,” based on its transaction fees. The fees, he colorfully argued, were so high they kept newcomers out. 

He added, “Ethereum culture suffers massively from the Founders Dilemma. Everyone is already far too rich to remember what they originally set out to do.”

A few hours later, Zhu backtracked a bit, saying, “I love Ethereum and what it stands for.”

Regardless of the fact that Zhu softened his position, the issue of high gas fees is likely to continue to be a problem for Ethereum. And Three Arrows Capital is a big backer of competitor Avalanche.

The Bottom Line on Ethereum

A major upgrade to the Ethereum network went live in early August. Among the changes was the Ethereum Improvement Proposal (EIP) 1559. In addition to requiring that part of every transaction fee be removed from circulation, creating deflationary pressure, it also changed the way transaction fees are estimated.

While the goal of the upgrade was to reduce gas fees, this chart indicates that has not been the case. 

As long as transaction fees remain sky-high, making it prohibitively expensive for new users, Ethereum will continue to face criticism. Those critics could easily turn to one of Ethereum’s many competitors, such as newcomer Avalanche. It’s that simple. 

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.


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