Ethereum’s Dominance is Under Mounting Scrutiny

When crypto investors discuss dominance, I’m willing to bet two names immediately pop into mind: Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD). They are the pioneering forces in the space, after all. But their positions in the market differ drastically. While Bitcoin accounts for nearly 40% of the market, Ethereum controls less than 20%

A concept image of mining an Ethereum (ETH) token.
Source: Shutterstock

The idea that Etehreum’s dominance is waning is not a new one. I can recall having at least mentioned it in passing perhaps a dozen times in 2021. I read about the idea dozens of times more. 

Those calls only seem to be getting louder in the new year. Articles are being published that seem to suggest that 2022 could spell trouble the No. 2 crypto.

Potential Usurpers Growing Faster Than Ethereum

Ethereum remains the largest developer ecosystem in the cryptocurrency space and is still the dominant player. But one of the most important factors for crypto growth is simply the number of active developers working within a given ecosystem.

The more people there are who direct their efforts toward a project, the more likely it is to be a better system. So, if you measure how many developers there are for two different projects at an equivalent point in time, that’s a great proxy for how “strong” a project is. 

A recent report from crypto investment firm Electric Capital noted that six Web3 projects have protocol ecosystem growth that bests Ethereum’s. Those projects are Polkadot (CCC:DOT-USD), Solana (CCC:SOL-USD), NEAR Protocol (CCC:NEAR-USD), Binance Smart Chain (CCC:BSC-USD), Terra (CCC:LUNA-USD) and Avalanche (CCC:AVAX-USD). 

I’ve written about Cardano (CCC:ADA-USD) in relation to ETH dominance for obvious reasons, but it is far from the only legitimate contender worth discussing. 

That said, the news for Ethereum wasn’t all bad. On the one hand, each ecosystem with the exception of Avalanche and Terra had more full-time developers than Ethereum at similar points in time. However, Ethereum does boast the lowest levels of attrition in relation to its developer staff.

So, the news is a mixed bag, but perhaps the most interesting tidbit is that there was higher developer growth for many ecosystems. 

Wall Street Also Questioning Ethereum’s Future

It’s not only crypto investment firms questioning Ethereum’s continued dominance. Wall Street giant JPMorgan (NYSE:JPM) reported similar concerns

According to a JPMorgan strategy team led by Nikolaos Panigirtzoglou, Eterherum is in a race against time to scale its network. The final sharding, in which network infrastructure is split into smaller pieces, won’t happen before next year. By the time it occurs, Panigirtzoglou and his team hypothesize it may be too late. Eterherum’s competitors may have eroded its lead to a critical degree. 

Given that six other ecosystems have shown greater growth than Ethereum at an equivalent point in time, concerns seem valid. The users Ethereum loses may not return. 

The Bottom Line on Ethereum

This is a classic case of first-mover advantage followed by the slow erosion of that position. There are multiple ecosystems that are as attractive, if not more so, at this time. As the growing chorus of concerns will only amplify scrutiny.

Investors considering whether to invest in Ethereum now should exercise caution. 

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 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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