Exploring The Future Prospects of Ethereum Blockchain

In the cryptocurrency space, Ethereum is the leading blockchain by most considerable metrics, including volume, market capitalization and the number of platforms available to use. 

Being the first blockchain to introduce smart contracts, developers have been building applications on Ethereum since its inception in 2016, and have since developed innovative products including Decentralised Finance (DeFi) and non-fungible tokens (NFTs).

Now it’s established itself as the leading blockchain network in the cryptocurrency space, attention now turns to its future, with talking points such as its scalability, use cases, network efficiency and applications into the mainstream the most prominent.

In this article, we’ll examine some of the latest Ethereum forecasts.

Ethereum is a decentralised blockchain network powered by its native cryptocurrency, ether (ETH). The blockchain was designed to be a more scalable, programmable, secure, and decentralised solution to building financial products, and uses smart contracts to enable developers to build them.

Decentralised finance (DeFi) has since become extremely popular on the Ethereum blockchain. DeFi products enable users to earn rewards on their holdings through staking and lend and borrow assets without an intermediary or middleman, whilst also enabling the decentralised trading of assets using decentralised exchanges (DEXs). 

As well as DeFi apps, another major volume driver with Ethereum has been the launch and trading of non-fungible tokens (NFTs).

According to the most recent calculations, the Ethereum blockchain Ethereum is close to 670 GB in size. As Ethereum is the largest and most widely-used blockchain, it’s reported that it’s the largest within the cryptocurrency space.

The blockchains size is recorded as users would have to download all of this data to fully sync with the blockchain database.

Proposed a few years ago and eventually actioned in 2022, an event called the ‘Merge’ took place. This was the new future for Ethereum as a blockchain and a digital currency.

The network abandoned its previous traditional proof-of-work (PoW) consensus mechanism. It moved over to a much more energy-efficient proof-of-stake (PoS) system.

The switch not only made Ethereum greener but it also democratised mining.

Mining new coins now was more about holding and staking (explained below) Ethereum. Having the biggest rigs didn’t deliver a massive advantage anymore. This means that people could get involved in mining without having to buy very expensive equipment.

The Merge also permitted yield farming and staking easier which gave users a chance to earn passive income. With yield farming, you lend your crypto assets to other users via DeFi platforms. Some DeFi pools offer an impressively high 10-20% annual return to yield farmers. 

DeFi platforms offer these high rewards because your crypto provides extra liquidity to their pools, and often incentivise users further by offering other bonuses like governance tokens and more crypto.

Switched-on traders can make big profits from crypto market swings. That’s according to crypto content expert, Douglas Turner. The benefits extend to yield farmers too, as he explains:

“[They] can earn both interest (passive income) and more cryptocurrency coins — often the real value to the deal. If the price of those additional coins appreciates, the investor’s returns rise as well.”

Staking, on the other hand, involves locking up digital assets. If you stake ETH, for example, that ETH provides liquidity to the market and helps support blockchain operations and security. Users get rewarded with additional tokens, proportional to the amount they have staked, earning them a passive income. 

The enthusiasm for staking is evident. Users have already committed significant volumes of ETH to staking contracts. The consensus mechanism shift to POS was significant on its own but there was even more to the Merge

Other developments include “roll-ups” and sidechain solutions such as Arbitrum and Optimism.

“Roll-ups” are like transactional ZIP files. Every crypto transaction requires a file that takes up space and resources on the Ethereum blockchain. Roll-ups zip multiple transactions up and compress them into a smaller, single file.

The blockchain then processes the zipped file and allows it to handle multiple transactions at once. This reduces costs and speeds up transaction times, addressing two common criticisms of the ETH blockchain.

Sidechains are separate, smaller private networks that run alongside the Ethereum blockchain. There is less congestion on these sidechains meaning quicker and cheaper transactions. They’re like safety nets for the Ethereum blockchain when it gets too busy.

These developments allow Ethereum to support more decentralised applications (dApps) and services. This will further establish the blockchain’s ecosystem.

Ethereum has had a foundational role in decentralised finance (DeFi) and non-fungible tokens (NFTs). Together with other new advances, Ethereum could underpin a wider decentralised digital economy. This would make it more accessible not just to crypto enthusiasts but also to mainstream businesses and users.

Despite concerns about such a big change to the network, the transition following the merge went smoothly. There were many positive aspects to the change, one of which was the implementation of EIP-1559. This affected the fee market for Ethereum.

It introduced a base gas fee that gets “burned” with every transaction, and set in motion a deflationary effect in the volume of coins available to trade with.

According to Ultra Sound Money, the supply has shrunk by 0.21% per year since the Merge. This is not just due to the volume of trading in Ethereum coins but also the use of the blockchain for DeFi, NFT, and smart contract transactions.

There has been a reduction in energy consumption by the Ethereum blockchain of 99.95% in two short years. Many analysts, when making an Ethereum price prediction for 2024 at the time of the Merge, did not expect much movement in the coin’s price.

However, the price of Ethereum has more than doubled in the time since the Merge. There may be many reasons for this, one of which might be this new constraint on supply.

There was a further important update in April 2023 – the Shanghai Update.

The main two highlights were:

EIP-4895: This allowed validators to unlock and withdraw their staked ETH, along with any rewards they had earned.

A validator is a user who stakes their ETH to help secure the network. They do this by validating transactions and creating new blocks. This further improved the liquidity and functional flexibility of the blockchain.

Beacon Chain’s Capella upgrade: Ethereum’s PoS consensus, the Beacon Chain, received an upgrade.

This upgrade helped ensure the smoother running of EIP-4895. That means that validators could update their withdrawal credentials. This assists them in managing their staked ETH effectively.

Dankshanding, a new development, is getting investors and users excited. The advent of blockchain roll-ups and “zero-knowledge” (ZK) protocols built on top of Ethereum also show that the demand is there for faster transactions and scalability on the network.

We’ve seen how rolling up compresses data across multiple transactions and how it reduces traffic on the ETH blockchain. The purpose of dankshanding is to widen the road so there are more lanes for transaction data to travel through.

It does this in a far more economical way than adding extra computing or infrastructure like fibre lines. It achieves this by sharing traffic loads across lots of smaller paths. This makes it more efficient and easier for the blockchain to manage the extra transactions.

Before danksharding can happen, a process called proto-danksharding needs to take place first. That’s like the initial construction phase that needed to add the new lanes. It also increases the number of transactions Ethereum can handle at once, just like danksharding does.

One reason why predicting its future is so difficult is the presence of its competitors like Solana, Avalanche, and Cardano. Ethereum has been through many changes lately but it needs to continuously innovate to maintain its leadership.

With danksharding around the corner and a commitment to continually improve, it’d be tough to bet against it staying out front.

For now, Ethereum’s prospects appear bright as a blockchain. Two years of falling demand also bodes well for Ethereum’s future price.

If you think the price of ETH is going up or you want to get started with yield farming and staking, investing in Ethereum is easy and simple with Kinesis.

Simply head to the Kinesis exchange, select Ethereum and choose the amount you want to buy. 

You can also withdraw it to an external software or hardware wallet to interact with DeFi, NFTs, and to stake your Ethereum.

This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not digital asset or cryptocurrency trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.