Ethereum, the second-largest cryptocurrency by market capitalization, faces significant challenges. Despite technological advances and an active developer community, Ether (ETH) has underperformed recently. JPMorgan analysts identify two main reasons: increasing competition from alternative blockchains and the lack of a clear, memorable narrative for Ethereum compared to Bitcoin.
Challenges for Ethereum: Fees, Scalability and Competition
High transaction fees and scalability issues
Ethereum can currently only process a limited number of transactions per second. When the network is busy, this causes bottlenecks and increased transaction fees. Although the “Deneb-Cancun” upgrade in March 2024 significantly reduced transaction costs by introducing new data types (“blobs”), activity is increasingly shifting to layer 2 networks that offer lower fees and greater scalability.
Growing competition from alternative blockchains
Blockchains such as Solana, Avalanche and Cardano are taking different approaches to outperform Ethereum. Solana, for example, has attracted more new developers than Ethereum in the last year and serves as a platform for launching new tokens. These networks are characterized by lower transaction fees and improved scalability, making them attractive to developers and users.
Lack of a clear narrative
While Bitcoin has a clear and memorable narrative as “digital gold”, Ethereum lacks a similarly simple positioning. This lack of a strong narrative could contribute to Ethereum underperforming.
Etherealize: Bridging the Gap between Ethereum and Institutional Investors
In January 2025, Etherealize was launched, a project that aims to make Ethereum more attractive to institutional investors. Supported by the Ethereum Foundation and Vitalik Buterin, Etherealize is focused on making it easier for financial institutions to access the Ethereum blockchain and promoting the adoption of Ethereum in the traditional finance sector.
Strategies to promote institutional adoption
Etherealize plans to provide research, content and products tailored to the needs of financial institutions. This includes developing tools that facilitate the integration of Ethereum into existing banking systems, as well as providing educational resources to promote understanding of the benefits of the Ethereum blockchain.
Ethereum as a Platform for Tokenized Real-World Assets (RWAs)
The tokenization of real-world assets makes it possible to transfer physical assets such as real estate, bonds or works of art into digital tokens on the blockchain. Ethereum offers an established infrastructure for this with smart contracts that enable secure and transparent transactions.
Market potential and current developments
The market for tokenized assets is growing rapidly. Ethereum remains the leader in stablecoins and tokenization, with over $130 billion in stablecoins and nearly $4 billion in tokenized assets circulating on the platform.
Future Upgrades and their Significance for Ethereum
Ethereum has become the leading platform for smart contracts since its launch in 2015. It powers numerous applications including decentralized finance (DeFi), non-fungible tokens (NFTs) and a host of other blockchain projects. Despite this dominance, it faces challenges including:
- High transaction fees that deter many users
- Limited scalability that often overburdens the network
- Limited user-friendliness, especially for beginners
The Pectra upgrade, scheduled for April 8, 2025, is designed to solve these problems and take Ethereum to the next level of mass adoption. Combining scaling improvements, more efficient staking mechanisms, and a better user experience, this upgrade marks a decisive step in the development of the Ethereum blockchain.
By increasing the number of “blobs” per slot from three to six and integrating layer 2 technologies, network performance could be increased to up to 100,000 transactions per second.
Impact on transaction costs and network performance
This upgrade aims to further reduce transaction costs and increase network efficiency, which would be beneficial for both private and institutional users. Higher transaction capacity could also make Ethereum more attractive for various use cases.
Review – Previous Ethereum Upgrades and their Impact
Ethereum has steadily evolved through continuous upgrades. Each of these updates has brought significant improvements:
- The Merge (2022):
- Transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS)
- Reduced energy consumption by over 99%
- Strengthened the sustainability of Ethereum
- Shapella upgrade (2023):
- Enabled the withdrawal of staked ETH
- Increased liquidity and made staking more attractive to investors
- Dencun upgrade (2024):
- Introduces proto-Danksharding to make layer-2 transactions cheaper
- Reduces transaction costs, especially for rollups
The Pectra upgrade is now the next big step and combines several planned improvements from previous development phases.
The core Improvements of the Pectra Upgrade
1. Increase of the staking limit: More efficiency for institutions
One of the most important new features is the increase of the maximum staking limit per validator.
- Previously: A validator could stake a maximum of 32 ETH.
- After the upgrade: The upper limit will increase to 2,048 ETH per validator.
This is particularly important for institutional investors and professional staking providers. The increase in the staking limit means that fewer validators have to be operated, which optimizes network capacity and simplifies the infrastructure. At the same time, the network becomes less fragmented, improving security and efficiency.
2. Introduction of account abstraction: increased user-friendliness
With the Pectra upgrade, Ethereum is introducing account abstraction, a feature that makes interacting with the blockchain much easier.
- Users will be able to pay gas fees with various tokens, not just ETH.
- This improves accessibility for new users, as they do not need to buy ETH to execute a transaction.
This innovation could make Ethereum more attractive to a wider audience, as the barriers to entry for newcomers are lowered.
3. Reduction of storage requirements: More efficient blockchain
Ethereum node operators currently have to store large amounts of data to synchronize the network. This leads to rising costs and increasing technical complexity.
The introduction of Verge trees, a more efficient storage structure, will optimize data storage.
- Expected effects:
- Lower storage requirements for node operators
- Faster synchronization of new nodes
- Improved decentralization, as more users can operate nodes
This development will help to make Ethereum more scalable and accessible in the long term.
4. Improving transaction speed and reducing fees
The Pectra upgrade brings several technical improvements that aim to further increase the scalability and efficiency of the network:
- • Reduction of gas fees: Optimizations in the network are designed to reduce transaction costs.
- • Faster transaction speed: Faster block times and more efficient processing will result in fewer delays and a better user experience.
Ethereum gas fees (Image: Etherscan)
DeFi protocols and NFT marketplaces in particular will benefit from these changes, as users can expect cheaper and faster transactions.
Impact on the Crypto Market and Institutional Adoption
1. Growing DeFi sector
With lower fees and faster transactions, Ethereum will become more attractive to DeFi users. This could further increase the volume in DeFi applications such as lending, staking and trading.
- The DeFi sector had a total volume of over $100 billion at the end of 2024 – this figure could grow further as a result of the upgrade.
2. NFT market boom
So far, high gas fees have been an obstacle for many users to buy or trade NFTs. With lower fees, the market for digital collectibles could experience a new phase of growth.
- Gaming projects and metaverse platforms, in particular, will benefit from cheaper transactions.
3. Increasing institutional participation
Large investment firms such as BlackRock, JPMorgan and Franklin Templeton have already shown interest in Ethereum-based financial products.
- The increase in the staking limit will make it even more attractive for institutions to hold ETH and invest in the network.
- This could strengthen the stability of the ETH price in the long term.
How Ethereum can Compete
Ethereum may be the leading smart contract platform, but the competition is not sleeping. Rivals like Solana, Avalanche, and Polkadot offer powerful alternatives with faster transaction speeds and lower fees.
However, the improvements of the Pectra upgrade will enable Ethereum to maintain its lead as the most decentralized and secure platform. Especially in the areas of DeFi, RWAs (real world assets) and institutional financial products, Ethereum remains the preferred choice.
What comes after Pectra?
The Pectra upgrade is not the last major update for Ethereum. Further developments are already in the pipeline:
- Verke Trees: Further storage optimizations for nodes
- Glacier upgrade: Further reduction of transaction costs
- Advances in layer 2 technologies: Optimism, Arbitrum and other scaling solutions will be further expanded
In the long term, these upgrades could enable Ethereum to process over 100,000 transactions per second, making it a serious competitor for centralized payment systems.
Institutional Interest and its Influence on Ethereum
Large financial institutions such as BlackRock are showing increasing interest in Ethereum. BlackRock operates the largest Bitcoin ETF and has created “BUIDL”, a platform for institutional digital liquidity on Ethereum.
Potential impact on the ETH price
Increased institutional adoption could lead to increased demand for ETH, which could have a positive impact on the price. Analysts predict that Ethereum could experience significant value increases if planned upgrades are successfully implemented and institutional adoption increases.
.
Ethereum price (Image: Tradingview)
Conclusion
Ethereum faces significant challenges, including high transaction fees, strong competition and a lack of a clear narrative. However, initiatives such as Etherealize and planned upgrades such as “Pectra” offer opportunities to overcome these hurdles and establish Ethereum as the leading platform for decentralized applications and tokenized assets.
The Pectra upgrade represents a significant milestone in the evolution of Ethereum. The combination of higher scalability, improved staking mechanisms and better usability could take Ethereum to a new level of adoption in the long term.
- Lower transaction costs and higher speed will make Ethereum more attractive for developers and users.
- The increasing institutional participation could provide more stability in the market.
- The competitiveness against Solana, Avalanche & Co. is strengthened.
Whether Ethereum can further expand its status as the leading smart contract platform through the Pectra upgrade will become clear in the coming months. However, one thing is certain: the foundation for a successful future has been laid.
Author
Ed Prinz serves as the chairman of https://dltaustria.com, the most reputable non-profit organization in Austria specializing in blockchain technology. DLT Austria is actively involved in educating and promoting the value and applications of distributed ledger technology. This is done through educational events, meetups, workshops, and open discussion panels, all in volunteer collaboration with leading industry players.
Disclaimer
This is my personal opinion and not financial advice.
For this reason, I cannot guarantee the accuracy of the information in this article. If you are unsure, you should consult a qualified advisor you trust. No guarantees or promises of profits are made in this article. All statements in this and other articles are my personal opinions.