Ethereum Usage Will Drop If the Blockchain Doesn’t Boost Speed: Bank of America

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The Ethereum blockchain remains the dominant operating system for decentralized finance, or DeFi, because few alternatives existed until recently, Bank of America said in a research report Tuesday.

The bank, however, said it expects Ethereum adoption and usage to decelerate if the blockchain is not able to increase its "throughput," adding that application developers will probably choose other networks to build on. In crypto, throughput refers to the number of transactions a blockchain can complete per second.

“We view Ethereum’s long-term viability as dependent on its ability to fulfill the vision laid out in its road map, which includes implementing sharding architecture to expand its throughput capacity significantly,” analysts Alkesh Shah and Andrew Moss wrote.

Bank of America noted that Ethereum’s smart contract-enabled platform gave it a first-mover advantage as app developers gravitated to the platform, which led to network effects as the number of decentralized apps (dapps) and users grew.

That early success, however, was a “double-edged sword” as the large number of transactions resulted in network congestion and surging transaction fees, the note said.

A dapp is an application that uses blockchain technology to keep users' data out of the hands of the organizations behind it. Smart contracts are computerized blockchain protocols that execute terms of a contract.

“As in prior tech cycles (PCs, software, internet), new projects are likely to emerge and poorly positioned projects will exit,” the note added.

Read more: Next Evolution of Blockchain Software Has Only Just Started: Bank of America