Ethereum Usage Will Drop if the Blockchain Doesn’t Increase Its Throughput: Bank of America

The Ethereum blockchain remains the dominant operating system for decentralized finance (DeFi) because few alternatives existed until recently, Bank of America (BAC) said in a research report Tuesday.

The bank says it expects Ethereum adoption and usage to decelerate if the blockchain is not able to increase its throughput, adding that application developers will probably choose other networks on which to build.

“We view Ethereum’s long-term viability as dependent on its ability to fulfill the vision laid out in its roadmap, which includes implementing sharding architecture to expand its throughput capacity significantly,” analysts Alkesh Shah and Andrew Moss wrote.

Bank of America notes that Ethereum’s smart-contract enabled platform gave it a first-mover advantage as app developers gravitated to the platform, which led to network effects as the number of decentralized apps (dapps) and users grew.

That early success, however, was a “double-edged sword” as the large number of transactions resulted in network congestion and surging transaction fees, the note said.

A dapp is an application that uses blockchain technology to keep users’ data out of the hands of the organizations behind it. Smart contracts are computerized blockchain protocols that execute terms of a contract.

“As in prior tech cycles (PCs, software, internet), new projects are likely to emerge and poorly positioned projects will exit,” the note added.

Read more: Next Evolution of Blockchain Software Has Only Just Started: Bank of America

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