Anytime you talk about blockchain or cryptocurrency, you’ll be parried at every corner with talk about all the wonderful use cases of blockchain technology in everything.
Blockchain is great for the supply chain. Tokenized transactions are the wave of the future. Every musician needs to mint an NFT. Smart contracts will revolutionize real estate and law.
This could all be true – all of these things require technology, and that technology could very well be blockchain based.
But it doesn’t have to be Ethereum. It doesn’t require anybody to learn Solidity. As much use as the Ethereum blockchain may have, it’s not guaranteed enterprise nor consumer adoption.
Ethereum currently has a market capitalization of about $400 billion. That makes it equivalent to a $400 billion company, except its shareholders don’t have the same rights, powers, nor protections.
There are about 1 million daily transactions on Ethereum. That’s not a lot for a $400 billion company. It’s not a lot for a revolutionary blockchain based ecosystem that’s meant for app development.
By comparison, Clubhouse is a $4 billion company with 12 million installs, 1 million daily active users, and 600,000 rooms created daily. It’s losing money.
Discord is a $7 billion company with 13.5 million servers, over 150 million users, and about 20 million active each week. It’s earning income.
Telegram has 500 million users and is valued between $3-$5 billion. It does not generate revenue yet.
Meanwhile, Facebook is a $1 trillion company with 2.85 billion monthly active users. It generated $86 billion in revenue in 2020, compared to under $10 billion generated by Ethereum miners.
As an investment, Facebook is better. It has better market penetration, and both businesses and consumers actually use its suite of apps. It can develop its own blockchain and crypto, and it has cloud servers. You’re also granted shareholder rights that Ethereum lacks.
A lot of projects originally built on Ethereum, like EOS, inevitably migrated off Ethereum in favor of their own blockchain. It was too expensive to run, and why would you pay to build someone else’s technology when you can run your own?
NEO/GAS and others do the same thing just as well. All are struggling with mass adoption.
While blockchain is a great idea and Ethereum was a great proof of concept for it, the writing is on the wall. It may have more utility and technical capability than Dogecoin, but Ethereum is not guaranteed success because of that.
I’d trust an Eth Layer 2 like Polygon over Solana personally. Also some things to keep in perspective: there are less than a million DAU on Ethereum with about 71 million wallets personally, I’m at least 10 of those wallets and maybe 1/2 a DAU at best. This compares to 2 billion people using mobile payment apps like Apple Pay and Google Pay while Google Chrome has 2.65 billion users. For perspective, over 2 million people still get DVDs from Netflix and 4.5 million people visit MySpace every month.
That makes Ethereum and Polygon about as popular as MySpace and Netflix DVDs by mail today.
I support crypto, but it’s naïve to think everyone has to use Ethereum to accomplish any of the use cases it proposes. After a decade on the market, NFT art is the most successful use case. It’ll take more than that to earn its keep.
Blockchain is long on promises and short on deliverables, except for evading laws and doing extortion. NFTs are fine if you want to buy and collect signed ledger entries. They don’t convey property rights and artists have monetized digital works without NFTs.
Cryptocurrency is interesting…
I’ve been working on crypto as a journalist and media relations specialist since 2017, and I still wouldn’t necessarily recommend buying any particular crypto assets.
The bull case for Ethereum is that it’s less about the tokenomics and more about the underlying blockchain technology. Smart contracts can perform automated “if/then” statements to a torrent-like network to supposedly perform unimaginable feats.
Personally, I can’t think of anything Solidity (Ethereum’s proprietary programming language) does that can’t be accomplished just as elegantly in a more widely used language like Java or C++. And there are only 21 million total unique wallets on the network, which shows just how slowly the network is growing.
Of course that number is deceiving and doesn’t account for duplicates. Personally, I have probably a dozen Ethereum addresses. The active user count peaked at around 1.1 million back in 2018. It’s below one million in 2022.
To put that in perspective, Ethereum launched in 2015 And has a market cap around $300 billion in Jan 2022. It’s been in the market for 7 years, and that’s a long time for an online tech company.
Clubhouse launched in 2020 and crossed 10 million unique accounts created by the end of 2021. It was last valued at $4 billion. Discord launched the same year as Ethereum and has nearly 400 million registered accounts and about 150 million monthly active users. It’s a $15 billion company.
Neither Clubhouse nor Discord is an entire ecosystem like Ethereum, although the latter is much closer. Both have actual revenue-generating business operations. So, how exactly is it that Ethereum has a 20x higher market cap with fewer active users?
Much if it is hype, and it’s important to understand the friction that keeps Ethereum from growing:
- Gas fees are stupid expensive. When it was at its peak price above $4,000 in November, I had friends paying $80-$200 in gas fees just to claim a $12 ENS domain and then again to reverse register it and yet another to claim the ENS airdrop. I don’t know a single rational human being who would pay $240-$600 in transaction fees for a $12 domain. Today, the ether price is half what it was three months ago, and it still costs the same $80+for gas. Anyone with .Eth in their Twitter name makes terrible financial decisions. Personally, I got a lifetime domain at Unstoppable Domains on Polygon for zero gas that has more functionality than ENS. Neither is registered with ICANN, so both services are risky.
- The network is ridiculously slow. Quoting Visa’s 24k transactions per second (TPS) processing speed is one of the biggest lies in crypto. If Ethereum is meant as a blockchain used for a tech stack instead of a pure currency, then why don’t they compare it to Amazon Web Services’s (AWS) transaction speeds of 1 million TPS? Web2 services like Amazon and Netflix and Twitter all run on AWS, so Ethereum is competing with AWS, not Visa. It’s a web development ecosystem, not a currency.
- Back to the .Eth names, they’re the most laughably insecure and non-private feature I’ve ever seen. Web3 is promoted as giving you more control over your data and privacy, but it’s scary how easily you can stalk somebody on Etherscan or OpenSea.
- Speaking of AWS, Ethereum is touted as a replacement for cloud infrastructure (in which point 2 above already reveals the fallacy). Yet 70% of Ethereum nodes are on hosted cloud services, with a quarter of it relying on AWS specifically. OpenSea, Etherscan, and Metamask all rely on web2 cloud infrastructure. Even decentralized exchanges go down with AWS, as we saw in December 2021.
- Don’t even get me started on how wallets and private keys and seed phrases are not in any way user friendly. If I lose my debit card or forget my password, both my traditional bank (actually a credit union, but you get the point) and my fintech service like PayPal can help me. They’ll reset my password and replace my card so I always have access to my money. But nobody can help you recover a seed phrase. This keeps consumer adoption low.
- Solidity is complicated. Developers don’t want to learn a new programming language, and enterprises don’t want to pay someone else for something they can do in-house. This keeps enterprise adoption low.
Few of these problems are unique to Ethereum though. And I’ve been hearing the rumors of an alleged “Ethereum killer” for five years now, nearly as long as the project has been around. None ever succeeded.
First it was Cardano and NEO/GAS. These days it’s Solana and Avalanche.
There’s an old adage I attribute to Rick Flair but could’ve come from someone before him, “to be the man, you have to beat the man.” Ethereum is “the man” in crypto circles, but it generates zero revenue off a tiny user base. It’s sad when even a forgotten trend like Clubhouse is outperforming Ethereum in a fraction of the time. It’s not exactly sitting in an iron throne.
Solana touts a 50,000 TPS speed, and anyone with inside knowledge of blockchain knows that is a fallacy for two reasons. One is that TPS speeds are like thread counts in sheets or firmness measurements for a mattress. It’s all marketing fluff, and every company uses a different bar to measure what constitutes a “transaction.” This means Solana’s TPS is being calculated different than Ethereum to pump up its numbers.
The second fallacy is the bar used for comparison. While it may look great compared to both Ethereum and Visa, nobody is hosting Web2 apps on Visa servers (and no popular app you actually use is hosted on Ethereum). 50,000 TPS is dwarfed by AWS 1 million TPS, so they cheated and still look pathetic compared to existing services.
With all that said, I would buy $ETH before $SOL. It may be slower, but five years after I started on this industry, it’s still the closest to a real infrastructure and developer ecosystem. It came the closest to providing a useable UX for the average person. You can’t stake $SOL or even a layer 2 like $MATIC on a popular exchange like Coinbase. They may have exponentially lower gas fees than Ethereum, but even fractions of a penny are exponentially more expensive than the absolutely nothing you pay in transaction fees to post on Facebook or send an email. It’s like saying I’ll charge you $1 million for entry into a free public park but then I give you a deal for only $100. Sure, $100 is less than the $1 million I was going to charge you, but both are more than the $0 it actually costs.
I could go on an entire rant about the false crypto promises of web3, DeFI, the Metaverse, and blockchain. But this should be plenty enough to understand specifically why Ethereum and its supposed killers are overhyped marketing fluff with no business nor tech fundamentals in place.