Growing Institutional Interest Brings Ethereum's Technical Challenges To Light

May 11, 2021 03:00 PM
Crypto Story of the Day

Crypto Story of the Day




Crypto was lower this morning across the board. ETH and BTC spot volumes are above the 30-day average on the sell-off.

Crypto Story of the Day

Over the weekend, a Reuters article on Ethereum made reference to the network’s scaling challenges, while research firm Bernstein highlighted “execution risk” related to upgrades in a May research report.

The Reuters article, titled “Analysis: Cryptocurrency Ethereum is flourishing but risks linger,” explains that Ethereum has been “plagued by the network's inability to scale to meet demand without incurring high transaction fees as well as slow execution of transactions,” and that timelines on scaling have “consistently been delayed.” 

Reuters points to AVA Labs' Avalanche and Binance Smart Chain as examples of “stiff competition.” The Bernstein report concludes that “Ethereum's scalability remains fluid, but it is likely that Ethereum will be able to successfully scale in the next 1-2 years.” In regards to scaling tech, such as sharding, the report states “...these ideas are all still relatively new and there is some level of execution risk…” The report ends by speculating that once Ethereum is "usable,” the “real demand” for decentralized applications will be known. 

Ethereum’s next upgrade, EIP 1559, slated for July and co-authored by Vitalik Buterin, is aimed at reducing transaction costs and their volatility. Ethereum’s efforts to scale and other associated network upgrades have been marked by technical issues. Its most recent upgrade, Berlin, caused significant technical issues for some network users. 

Most recently, Beacon Chain, a crucial component of Ethereum’s proof-of-stake system, experienced technical issues, as well. The incident involved users of Prysm, a software for interacting with the Beacon Chain and staking on ETH 2.0, being unable to add blocks to the chain. The episode represents the first known technical issue involving Beacon Chain. 

The use of Ethereum can be prohibitively expensive (see Chart Of The Day). To-date, these types of issues have been obscured by the novelty of blockchain networks. However, the increased ability of institutions to gain exposure to ETH via products such as CBOE’s ETH futures may necessitate more sophisticated reviews of Ethereum’s risks. 

Beyond technical challenges, Ethereum’s use cases have also seen limited scrutiny when compared to new non-blockchain financial service applications, such as M1— billed as an all-in-one financial app for investing, saving, and other services— which has raised USD 173 million to-date. 

Until now, Ethereum has found popularity and support amid market sentiment that favors narratives over fundamental scrutiny. While ETH proponents welcome institutional attention, this attention could fall on some less-favorable topics for the network. 


Chart Of The Day

Daily Average Ethereum Transaction Fees In USD - The daily average transaction on the Ethereum network reached a 3-year record high of USD 52 on May 11.


Please sign up for a free trial of FRNT Financial Morning Note.

About the Author

FRNT Financial is a technology and sales layer that offers institutional and accredited investors access to various forms of exposure to crypto-assets. You can subscribe to FRNT Financial Morning Note at