Ethereum, the world’s second-largest cryptocurrency by market value, has recently undergone significant upgrades. These improvements are all aimed at making it a little faster, more efficient and scalable. Changes such as the impactful Merge in 2022 and introduction of layer 2 networks have sent shockwaves through the industry. Investor excitement remains tepid. While Ethereum has successfully reduced transaction costs, increased transaction speeds, and drastically cut energy consumption, its price still lags significantly behind its 2021 peak. This begs the question of why these unprecedented technical achievements haven’t resulted in a more positive market outlook and level of investment.

The Merge and its Impact

In 2022, Ethereum successfully deployed its first major upgrade, the Merge. This upgrade moved the entire network from an energy-intensive proof-of-work (PoW) model to a more sustainable proof-of-stake (PoS) consensus model. This transition significantly reduced Ethereum's execution risk. The upgrade reformed the $196 billion network without any downtime, hacks, or major bugs, marking a significant milestone in the blockchain's evolution.

Of course, both The Merge and The Merge achieved tremendous gains in energy efficiency. Ethereum’s energy consumption dropped by over 99%, significantly negating one of the top criticisms of blockchain technology. Additionally, transaction fees started to become more stable, which significantly improved the user experience.

In fact, since January, the average cost per transaction on Ethereum has been just $0.0034, Token Terminal reported. The network is currently capable of handling around 15 tps with an average transaction fee of $0.05. These numbers are a clear picture of the progress Ethereum has made towards being more efficient and cost-effective.

Layer 2 Networks and Scalability

Vitalik Buterin, Ethereum’s co-founder, has been staunchly advocating for scaling solutions since the early days. His starting point is moving transactions off the main Ethereum network onto secondary networks known as rollups or layer 2 networks. That dream, first laid out in 2020, is now here, with many layer 2 solutions already deployed.

These layer 2 networks make transactions faster and cheaper. They do this by processing transactions off-chain and then batching them onto the main Ethereum network. At last count, there are over 60 distinct layer 2 networks out there, all combined are worth over $27 billion. This data from L2Beat illustrates just how much excitement and investment is pouring into these scaling solutions.

As is often the case with layer 2’s rapid proliferation, this has added some complication. Some would go as far as to say that the Ethereum community has done a disservice, and misdirected users away from the original main network.

“A potential mistake from the Ethereum community was we said that layer 2s are the only place you should interact,” - Declan Fox

This change surely contributed to the feeling that Ethereum isn’t being used or valuable. It is, nevertheless, the bedrock base layer on which all of these layer 2 solutions are built.

Market Perception and Competition

Even with all the technological innovations, Ethereum’s price is still 67% off of its all-time-high of $4,874 reached back in 2021. This gap between technical advancement and commercial execution has led to skepticism about investor enthusiasm and rivalry from other blockchain platforms.

Solana has quickly become the go-to fast chain for developers. They have proven to be just as eager to deploy the new crypto applications. On April 14th, Solana hit a staggering 4,400 TPS, according to Solana Explorer. This performance far exceeded Ethereum’s paltry 15 transactions per second.

Over the past half year, the assets backing other layer 1 blockchains such as Solana and BNB Smart Chain have skyrocketed to all-time highs. In the meantime, Ethereum hasn’t been able to stay competitive. This implies that investors are perhaps more attracted to the appearance of promise that comes with these other, non-TREC platforms.

Back in 2021, the Ethereum Improvement Proposal (EIP) 1559 went into effect. This proposal added a new deflationary mechanism as every time an Ethereum transaction occurs, a small amount of Ethereum is burned, including the fees layer 2 networks (that use Ethereum) pay. This complex mechanism was meant to turn Ethereum itself into a deflationary asset. It may not have had the intended impact on slowing price appreciation. Others have asserted that layer 2 networks ought to pay Ethereum a greater share of the value they are extracting in services rendered.

“It’s time L2s pay a fair value for the services they receive!” - Dean Eigenmann

The Need for Promotion and Demand Generation

Some Ethereum members are pushing the ecosystem to do more. They feel it’s important to continue pushing the network and demonstrating what it can do. They argue that we must focus on and prioritize technological development just as much. Simultaneously, we need to create demand and bring in new users.

“On what planet can you build a thing that’s as amazing as Ethereum and not feel okay selling it to people like that,” - Liam Warwick

“Someone has to be the salesperson and sell this thing.” - Liam Warwick

The general feeling being that Ethereum’s value proposition just isn’t being articulated well enough to the rest of the market.

“Let’s fucking induce some demand, like we’ve got a job here to do,” - Kain Warwick

…without a doubt, Ethereum is the most reliable blockchain out there. It has never officially crashed, nor has it ever stopped producing blocks, a testament to its technical architecture and passionate community.