Ethereum is the second most popular blockchain in the crypto industry, and it’s acclaimed as one of the biggest Bitcoin competitors. Although it’s not really considered a store of value, its features are much more complex. This is why the Ethereum price is also affected by media coverage because the fame of the blockchain is mainly boosted by smart contracts and the ability to build NFTs on it.
However, like any other decentralized solution that’s not completely developed, Ethereum has its limits as a network. Although it undergoes frequent updates, the blockchain is known for scalability concerns that are sending users to its competitors, such as Solana or Cardano.
But one of its biggest problems is the increasing transaction costs that discourage investors from approaching the cryptocurrency and the blockchain, which has numerous coin-based features and applications.
If you’re interested in using the Ethereum blockchain, here are some of its challenges and proposed solutions for the future.
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The lack of scalability is the most evident
In blockchain, scalability is an important factor that contributes to efficient transaction processing as well as data storage. Without proper scalability, blockchains are not able to maintain the increasing load of transactions on the network and also the quality of the nodes handling these operations.
Unfortunately, Ethereum is one of the decentralized solutions that faced increasing demand and wasn’t prepared for it, leading to its inability to scale without increasing transaction fees and slowing down its execution. The network had its moments when prices became hard to afford, reaching highs of $81 per transaction.
This happens because every node on the network has to process every transaction from the blockchain, which leads to congestion. This problem made users compare Ethereum with Visa, concluding that the blockchain can barely process 30 transactions per second while the centralized solution is able to process 45.000 TPS.
Luckily, Ethereum has developed plenty of scaling solutions to prevent multiple points of failure, such as sharing, rollups and sidechains. At the same time, the creator of the blockchain created updates that could eliminate congestion issues, such as the Merge, that resulted in the switch from the old PoW to PoS.
The fears of centralization are knocking at the door
Ethereum is completely decentralized, which is one of its biggest advantages. But amidst regulations and guidelines imposed by governments, some may fear that the network will sometimes become centralized and therefore lose its main feature of not being controlled by official institutions.
Centralization is also a problem considering that some mining pools are considerably more powerful than others, which leverages more consensus power on the blockchain. Ethereum started showing considerable signs of centralization in 2022 when over 40% of the network’s blocks were a contribution of Coinbase and Lido, which makes these two digital exchanges own a considerable part of the network’s stake.
Staking cryptocurrencies already had their risk triggered by the crypto market, the liquidity and the loss of assets. At the same time, staking activities are custodial, so the ether is managed by the exchange or service used rather than being locked in your private wallet. This further implies that staking is susceptive to hacks and government control.
The privacy matter is still poorly managed
Ethereum wants to be one of the safest decentralized solutions, but the truth is that it’s far from being secure. There are many factors that led to the blockchain’s vulnerabilities. For example, the emerging blockchain exploit tactics that are recently hitting the internet will become more powerful, which is something blockchain solutions must also be wary of.
At the same time, the cybersecurity talent crisis represents a major challenge for the network that needs constant maintenance. Few cybersecurity professionals are prepared to handle the crypto sector, while the industry’s quite new, so knowledge and data might not be as easy to understand.
Finally, privacy issues are a result of a lack of regulation, which is discussed by plenty of countries, but it isn’t easy to implement. Regulating blockchain and cryptocurrencies means creating a new legal system that doesn’t interfere with the financial framework of the said country. Let’s take the example of El Salvador, whose president made Bitcoin legal tender without a second thought. We can see that cryptocurrency and similar technologies are useless in a country that’s not fairly developed.
The competition is hard to overcome
Although Ethereum is one of the most solid blockchain technologies and a force on the market, its competition is challenging for it to develop. That’s because other blockchains simply have more affordable fees and process transactions faster but are not that known, and that is their single disadvantage.
For example, Solana uses a proof-of-history consensus mechanism, which allows it to process around 65.000 TPS, and it also has low gas fees. However, these come at a price of less decentralization and few validators on the network that put the ecosystem at risk of DDOS attacks.
There’s also Polkadot, which is one of the most scalable blockchains but works differently compared to Ethereum. Its ecosystem achieves scalability through a system in which it spreads transactions across parallel blockchains, which is set to make the ecosystem reach one million transactions per second.
In terms of interoperability, blockchains like Cosmos and Cardano have impressive technologies and strategies that approach multiple parallel blockchains powered by algorithms like BFT or Tendermint. Solana and Osmosis are blockchains that thrive for security, and they introduced concepts like threshold cryptography and the lack of mempools that prevent sandwich attacks. Finally, Panther and Secret Network are among the networks that aim for privacy by enabling encryption protocols like the Programmable Privacy and the Trusted Execution Environment, which is opposed to Ethereum’s, which seemed to struggle with maintaining user anonymity.
Final considerations
Ethereum is the second leading cryptocurrency on the market, and its blockchain solutions are some of the best ones provided by current technologies. However, due to its inability to scale, the blockchain is hardly handling other challenges, such as maintaining privacy or keeping gas fees low.
