The thirst for speed and better-built blockchains

Decentralized finance, or DeFi, and non-interchangeable tokens, or NFT, have grown significantly in 2021. Both technologies need efficient blockchains to work at high speed and with low costs for the user.

The Ethereum (ETH) network is experiencing difficulties as growing demand makes it more expensive for users, stimulating the wider adoption of alternative networks such as Solana and Cardano. That’s why watching this trend can pay off for investors in the long run.

The Ethereum network is the industry standard for DeFi and NFT — the two largest emerging markets in the blockchain industry this year. But being the largest and most popular network has a serious drawback: everyone wants to use it.

The cost of using the Ethereum network is determined by how many transactions pass through it, and how quickly its miners can convert them into new blocks in their chain. When user demand creates a load on the network, for example, when a DeFi project launches an incentive to grow a crop, or when a new NFT collection is released, these transaction costs can increase dramatically.

The average cost of an Ethereum transaction rose to an all-time high of $70 in mid-May, and recently prices have risen again, reaching an average of $60 per transaction on September 7. This makes small microtransactions economically unprofitable for most Ethereum users.

Growing popularity among competing networks

This week, Cardano launched a long-awaited update that introduces smart contract functions to the network. Smart contracts are programs that run on the blockchain, executing commands under pre-defined conditions. Developers use them to create decentralized applications (dApps) and protocols for decentralized financing, new ways to send, receive and earn cryptocurrency or conduct financial business on the Internet.

Solana is another competitor of Ethereum, which offers an enterprise-level blockchain with high bandwidth. The founder of Solana and FTX, Sam Bankman-Fried, also announced the launch of the NFT platform, which will work on it and Ethereum, and will also be integrated into the FTX exchange for US clients, which will give users another way to buy, sell or trade unique art objects.

It will take a lot of effort to knock Ethereum off its position, especially after a large-scale update of Ethereum at the beginning of next year. Right now, the Ether can process about 15 transactions per second, the update will increase this capacity by an order of magnitude. Although initially it will provide from 2000 to 3000 transactions per second, according to its co-founder Vitalik Buterin, this figure may eventually grow to 100,000.

Thirst for speed

The daily number of transactions of Ethereum alone has almost tripled since the beginning of 2020. The same is likely to happen with many of these alternative networks, as users will look for faster and more cost-effective ways to transfer tokens and participate in DeFi activities.

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