Ethereum Dominance is Growing

Since Ethereum was founded in 2015, its dominance and market cap have continually increased. By 2018, Ethereum became the second largest cryptocurrency behind Bitcoin and has continued to maintain that relative position ever since. In this article we will be discussing Ethereum’s dominance and why it has been increasing more quickly than ever.

Ethereum Background

Understanding why Ethereum has been gaining Dominance more quickly than every other cryptocurrency project at the moment, begins with understanding the value and simplicity of the project. Ethereum has an exponentially greater number of use cases than Bitcoin, and it achieves these use cases in a relatively simplistic fashion, compared to some of the newer cryptocurrency projects. Vitalik Buterin created Ethereum based on his proposals to the Bitcoin core developers, regarding how Bitcoin could benefit from other applications besides money. Buterin proposed that Bitcoin needed a more robust programing language which would allow users to attach real world assets, like stocks and property to the blockchain. Ethereum was the first cryptocurrency project to deliver these types of ideas through the utilization of a turing-complete, computationally universal programing language. There were other cryptocurrencies created before Ethereum and after Bitcoin, however Ethereum’s greater degree of modern world usefulness quickly ranked the project as the second largest cryptocurrency by market cap. In this case, Ethereum’s technological advancement triumphed over the first mover advantages of several other cryptocurrencies.

Adoption of DeFi

One of the most significant changes Ethereum has gone through in recent months has to do with where the majority of the ETH tokens are being used. Currently the amount of supply of ETH tokens locked in Ethereum smart contracts has increased to two or three times the amount of ETH being held in centralized exchanges. For quite a while this was exactly the opposite, with the majority of ETH tokens being held in centralized exchanges, until September of 2020, when we saw a radical shift in the other direction. This is directly related to the growth of the DeFi space. As the Ethereum blockchain hosts the largest number of decentralized applications - over 3,000 Dapps to be exact – this growing interest in transitioning away from more centralized services, into their decentralized counterparts has had a pronounced and highly evident impact when looking at where most of these ETH tokens are being used.

Scaling Solutions and Sidechains

Another factor which is contributing to the increase in Ethereum dominance can partially be attributed to the growing number of layer-two protocols which interact with Ethereum. Many of these sidechain scaling solutions have seen record-high transaction volumes in the last few months. This is significant because these layer-two protocols are taking pressure off the Ethereum blockchain, which is keeping network gas fees lower and attracting more growth in the DeFi space as a result.

Ethereum Improvement Proposals

The Ethereum Improvement Proposals (EIPs) which were implemented in accompaniment to the Berlin and London Ethereum hard forks have also contributed to the increase in Ethereum dominance. EIP 1559, released on August 4th of this year incited some valuable public interest surrounding Ethereum, which led to a dramatic increase in the price of ETH. As EIP 1559 was released at the end of the last mini bear market, Ethereum was able to dramatically gain a greater degree of dominance, as the cryptocurrency markets were just beginning to wake up from a several month lull in bullish price action. We will likely see yet another spike in Ethereum dominance in December of this year, as we will then see the release of EIP 3554. This next EIP release may even attract more attention to Ethereum than some of the previous EIPs, as this EIP will begin Ethereum’s transition to the Ethereum 2.0 Proof of Stake network.

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