Morgan Stanley Warns Ethereum Could Lose Ground To Competitors

By Kevin • February 18, 2022 7:10 pm • Comments

Morgan Stanley released in a new investors report that Ethereum could be at risk of losing ground to other competitors due to high transaction fees and volatility.

The investment bank explains in the report that many decentralized apps run on Ethereum which means that there will be transactions in the network that are for running these decentralized systems.

This is different from Bitcoin which is primarily used as a currency or a storage of wealth and has no decentralized applications built on top of it.

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As a result, investors of Ethereum should keep a sharp eye on Ethereum being able to reduce and resolve these issues such as changing the model of the blockchain to something more scalable as soon as possible.

Otherwise, other blockchain networks will likely surpass it sometime in the future such as XRP and Cardano which excel in these areas.

Fortune.com reports:

But because Ethereum is used as a building platform, rather than just for the trade of a single cryptocurrency, the blockchain carries a significant amount of data—much more than Bitcoin, which is just used for processing transactions.

Carrying extra data increases the cost of running Ethereum, and those costs will increase as Ethereum grows.

“Over time, Ethereum’s storage demand, unless changed, will likely outstrip its resources,” Morgan Stanley says.

The network’s founder, Vitalik Buterin, has promised for years that Ethereum will shift from a “proof of work” method of validation to a “proof of stake” model, which he says could reduce Ethereum’s energy consumption by 99% and cut costs.

But moving Ethereum to a proof of stake model has proved difficult, and the transition has been plagued by months of delays. Ethereum zealots are optimistic the transition will be complete in the first half of this year but, meanwhile, Ethereum alternatives are gaining ground on the incumbent.

Alternatives like XRP and Cardano are specifically designed for smarter and cheap transactions that are easily scalable.

XRP in particular is attracting large institutional adoption due to the advantages of the Ripple network and is the most bullish in terms of surpassing Ethereum in the future.

Morgan Stanley did warn in the report though that blockchain technology is still something that needs to be further developed as it seemed that no blockchain is scalable enough for smart applications as there will always be increasing costs with more transactions.

The release of this report has turned investor attention into the key Ethereum competitors, especially as the overall crypto market is starting to recover from the recent decline.

Benzinga reports:

The researchers also pointed to an evolving regulatory landscape as it pertains to Ethereum and how applications such as DeFi could conflict with existing laws.

“If regulation or legislation reduces demand for these transactions, demand for Ether could drop,” the report said.

Notably, Ethereum developers shrugged away a previous warning from JPMorgan that the network may not scale up fast enough to ward off competition.

With that being said, Ethereum is still the #2 blockchain network by a far margin and currently has a total market capitalization of $372 billion at the time of this writing.

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