Investing in turnaround plays can be as lucrative in cryptocurrency as it is with stocks. Especially when sentiment about an investment has been so bad for so long that nobody will even recognize when real progress is being made, there's sometimes a lot of upside for those who perceive the possibility of better times ahead and bet accordingly.
On that note, after a handful of major technology upgrades over the years and a leadership shake-up recently, are Ethereum's (ETH 0.95%) bad days finally over? After all, there's reason to believe that it's closer than ever to solving one of its most burdensome annoyances for investors and developers on its chain.
Let's examine what it has accomplished on that front and see if it signals a turnaround is approaching.
CRYPTO: ETH
Key Data Points
The chain is much cheaper than it once was
As of noon on March 14, gas (user) fees on Ethereum were about $0.52 to perform a swap of tokens, and transactions took roughly 30 seconds to close. Compared to the cost of the same transaction five years ago, that is nearly 85% lower, indicating that the chain's technology and ability to handle loads are better than ever.
To accomplish that impressive cost decrease, the network underwent multiple improvements, including most recently its Dencun upgrade, which is now just over a year old.
Slashing gas fees by that much doubtlessly makes the chain a more attractive place to invest and develop decentralized finance (DeFi) applications. There isn't really any situation in which people would prefer a transaction that's pricier or slower when there's a better alternative. But during the past three years, the coin's price is down by 32%.
Part of the issue may stem from Ethereum's original -- but seemingly now abandoned -- approach to controlling gas fees and transaction times before it was able to reduce them directly. In general terms, the solution was to encourage the development of other, smaller blockchains called Layer-2s that essentially function as lower-traffic networks where volume is handled somewhat more efficiently than on the main chain.
The idea was that by diverting some of the traffic from the main chain onto a Layer-2, the main chain wouldn't be as congested but could still capture at least some of the value being generated on the smaller chains.
If this sounds somewhat confusing, it's because it is. And that's one of the major pitfalls. For every investor who successfully struggles to understand what an L-2 is or why it was needed, there are probably another few who found it to be overly technical and subsequently gave up, investing their capital elsewhere. Now that the main Ethereum network is more capable, it's having trouble luring those investors back.
The improvements could continue and still not matter
Separately from the confusion generated by the implementation of Layer-2s, there is one big reason most of Ethereum's progress on reducing gas fees doesn't really matter much. Its biggest competitor, Solana, (SOL 0.39%) had, has, and will continue to have dramatically cheaper and dramatically faster transactions than Ethereum ever did and perhaps ever will.
CRYPTO: SOL
Key Data Points
Making a swap on Solana's chain costs a few pennies at most, and a transaction takes just a few seconds to close under normal circumstances. It doesn't have the baggage of formerly high gas fees or have the convoluted solutions to reducing them. That makes it less complicated for investors to understand, and friendlier for developers.
For some growth segments, like meme coins, the difference is tremendous. Investors looking to gamble aren't going to want to do so on the chain where pulling the lever of the slot machine costs more despite offering similar upside.
That's why Solana is winning that segment. And more serious segments that could have far higher growth potential, like infrastructure for artificial intelligence (AI) agents, may follow a similar pattern. After all, if a developer is creating an AI agent to operate on a blockchain, it's a big detriment to the agent's success if basic swaps and transfers cost much more.
Therefore, while it's true that Ethereum's sticky problem with high gas prices is less problematic than it ever has been, the big picture is that the chain is still trailing far behind the competition. If you haven't considered selling it or not investing in it, it's well past the time to at least think about it.
