The latest crypto winter is thawing out as we speak. From crypto-based exchange-traded funds (ETFs) driving institutional investor interest to planned technology upgrades to many of the leading crypto platforms, investors have found many new reasons to pay close attention to this space again.
As a result, smart-contract leader Ethereum (ETH +0.17%) has enjoyed a 46% price jump from the most recent market trough in October 2023. Archrivals Cardano (ADA 0.18%) and Algorand (ALGO +5.53%) nearly tripled over the same time span -- and up-and-comer Avalanche (AVAX 0.47%) more than tripled.
Does Ethereum have the right moves to counter these high-stakes gambits from its competitors on the grand chessboard of public opinion and developer interest? Let's see how the next three years might play out for the world's second-largest cryptocurrency.
How Ethereum echoes Bitcoin's market melody
First, let me point out that Ethereum tends to follow the price trends of sector giant Bitcoin (BTC +0.26%) in the long run -- sometimes amplified and sometimes muted in comparison to its larger cousin, but almost always moving in the same direction. In other words, the two charts are strongly correlated.
So when Bitcoin gears up for halving the rewards handed out to its miners, as it does roughly once every four years, that event is expected to drive both cryptocurrencies higher over the following year or so. That trend played out in 2016 and 2020 although Ethereum lagged behind Bitcoin's big gains in the former cycle. So the Bitcoin halving, scheduled for late April 2024, should pour fresh fuel on the fires of most cryptocurrencies -- Ethereum included.
The journey ahead: Ethereum's planned upgrades
The halving event should provide a rising tide to lift all encrypted boats, but how will Ethereum tackle the soaring competition? Would investors be better off in speed-focused rivals like Avalanche, Cardano, and Algorand in the long run?
Well, let's see. Ethereum is in the middle of a multiyear platform upgrade, formerly known as Ethereum 2.0 or Eth2. The switch to a proof-of-stake system is already in the books, to be followed by several stepwise technical boosts over the next five to 10 years. The precise order of these updates will vary depending on many external factors, but the process should look something like this, according to the official Ethereum development roadmap:
- Sharding will split the workload of validating transactions into smaller, more manageable batches. This speed-boosting upgrade is running ahead of schedule, as one early step turned out to be more helpful than expected.
- Instead of waiting 15 minutes for validation, the same processing batch could address both the creation and validation of the same transaction. This may be the next step, and a significant upgrade to Ethereum's transaction speed.
- Several security updates are in the works, aiming to protect the blockchain from different attack types. For example, hardening the blockchain against quantum computing attacks is currently seen as a low priority, but could move up the chain if quantum hardware makes a sudden performance leap. Stay tuned.
- Currently, Ethereum executes every smart contract by referring to externally owned accounts (EOAs). This architecture helps developers pull in real-world data from so-called oracle networks such as Chainlink (LINK 0.18%), resulting in sophisticated contracts tied to stock prices, currency exchange trends, weather patterns, the moon phase, and so on. But it also adds complexity to the smart-contract system, slowing it down and exposing the platform to more bugs. Therefore, the Ethereum community is exploring different ways to replace this approach with a simpler and faster alternative.
- Finally, mastermind Vitalik Buterin wants Ethereum to be a stateless system in the long run. This next-level spin on sharding would allow each processing node to manage just a small slice of the blockchain's total data, lowering the costs of participation while increasing processing speeds dramatically. However, this is a true long-term goal requiring dramatic changes to Ethereum's technical platform, and you shouldn't expect it anytime soon.
So Ethereum is taking steps to match the ultra-fast transaction processing speed of Avalanche and Cardano while also building a more robust and flexible platform for blockchain-based app development. Only time will tell how closely the Ethereum project will stick to its stated long-term plans, but there have been more positive surprises than unexpected snags so far.
CRYPTO: ETH
Key Data Points
Ethereum looks ready to rumble
In my view, the ball is in the court of so-called "Ethereum killers." The leading smart-contract platform looks ready to meet their challenges over the next few years.
Of course, the upstarts aren't sitting on their digital hands. Cardano, Algorand, and Avalanche are also boosting their already fast processing speeds while aiming for greater stability. Any one of them might come up with a game-changing innovation someday.
The challengers are fighting an uphill battle, though. Ethereum got a head start on the rest of the field, setting industry standards and gathering developer interest several years before the other names even existed. The sheer inertia of an established developer group's existing preferences makes it hard for other platforms to steal Ethereum's smart-contract throne.
But the presence of several healthy rivals should also drive Ethereum to greater heights in the long run. I can't wait to see how this Gulliver-vs.-Lilliput battle will play out over the years. All four of these cryptocurrencies may have bright futures, but Ethereum has the clearest path to sustained success. The giant isn't even on its knees yet.
