A recent research report by Bank of America (BAC) pointed out that although Ethereum was the first to introduce the concept of a blockchain operating system compatible with smart contracts and decentralized applications, despite benefiting from this first-mover advantage, the platform’s Throughput is still limited.
Analysts Alkesh Shah and Andrew Moss pointed out that the Shapella upgrade doesn’t completely solve the scalability problem, but as a precursor to future upgrades, it is a small step forward. Ethereum may struggle to increase its throughput in the short term, while increased competition from alternative blockchains may hinder its adoption and usage.
A major concern surrounding the Shanghai liquidity event is that validators can withdraw and sell staked ETH, which accounts for 16% of the total ETH supply. However, the exit process is intended to “prevent a short-term mass exodus of validators and the resulting security risks”.
The Bank of America analysis highlighted the ongoing challenges Ethereum faces in scaling its blockchain to accommodate the growing demand for smart contracts and decentralized applications.
Despite being a pioneer in the field, Ethereum has struggled with scalability issues that lead to network congestion and high transaction fees during peak demand periods. According to the Bank of America report, the recent Shapella upgrade was expected to improve the scalability of the platform, but fell short of expectations.
The report further highlights that Ethereum faces stiff competition from alternative blockchains that are increasingly popular in the market. As more blockchains with improved scalability and performance emerge, they pose a significant challenge to Ethereum’s dominance in the space. This competition could limit Ethereum’s ability to attract and retain users, as well as developers looking for more efficient and cost-effective blockchain solutions.
One of the main concerns raised in the report was the recent liquidity event in Shanghai, where validators were able to withdraw and sell staked ETH. This has raised questions about the security and stability of ethereum’s proof-of-stake (PoS) consensus mechanism, which relies on validators to secure the network. While the withdrawal process was designed to prevent large outflows and security risks, it raised concerns among market participants and highlighted potential vulnerabilities in Ethereum’s PoS model.
Despite these challenges, Bank of America acknowledged that the Shapella upgrade is a step in the right direction for ethereum. As a pioneer in the blockchain space, Ethereum has been at the forefront of innovation, driving the development of smart contracts and decentralized applications that have the potential to revolutionize industries such as finance, supply chain management, and gaming. However, the report suggests that Ethereum needs to continue to address its scalability issues in order to keep up with the changing needs of the market.