Ethereum had a difficult time last year but has been slowly rebuilding its strength since the beginning of 2023. Although the values are still not back to their former levels, particularly after the all-time high levels of 2021, things have been on the mend for a while now, and it’s clear that the coin is more resilient than it was last year. Investors are looking at the marketplace with renewed engagement and interest and are starting to buy Ethereum with bank transfers again to diversify their portfolios.
However, the environment remains challenging, and staying attentive is crucial for a successful outcome. Otherwise, you might discover that you lose more money than you earn. Here are some of the most noteworthy changes and shifts happening within the Ethereum blockchain, as well as how they could potentially impact the marketplace in both the short – and the long term.
NFT Gas Usage
Non-fungible tokens created a legitimate craze during the mid to late 2010s. Everyone was talking about them at the time, even the people who had never interacted with the blockchain or traded cryptocurrencies before. The hype was mainly because the prices for digital tokens were often substantial. Many outsiders simply couldn’t understand why anyone would spend hundreds of thousands, if not millions, of dollars to purchase a digital artwork.
Since then, Bitcoin has created a similar technology by developing Ordinals. They are essentially the same non-fungible tokens, only on the BTC blockchain. While many looked at them with derision, saying that it wouldn’t be long until they faded into obscurity and even going as far as to say that they could be detrimental to the health of the blockchains, others took a more positive view. To them, the Ordinals were the nudge Bitcoin needed to become a more vibrant and engaging market.
Now it appears that the NFT gas fees are going through a downward trend. On the 3rd of August, data shows that NFT consumption only amounted to 1.85% of the total power used on the Ethereum platform. Projects related to or backed by NFTs are not even listed anymore, which is essential considering that they were among the top-rated on the blockchain not long ago.
The decline isn’t sudden. Instead, it has been gradually happening over the past two years. This indicates that a shift in NFT usage is underway, and it might be that the users choose to hold onto the assets they own instead of redistributing them to other marketplaces. Actively trading seems risky for many in the current landscape when the Ethereum price has still not gained a firm foothold that could allow it to find support and reach the $2,000 milestone.
Back in 2021, when cryptocurrencies had the best year in their history, NFTs were leaders in gas usage. Only two years later, things look starkly different, and non-fungible tokens have only made up 3% of use in May. Even when the prices were higher, some speculated that this was primarily due to excess liquidity rather than a product of natural engagement.
Data Economy
However, that doesn’t mean there’s no more usage for non-fungible tokens. Data NFTs have shown potential in creating a decentralized economy based on transparency and offering users more control. These NFTs that have been specifically backed by data represent either total ownership or exclusive license for information stored on the blockchain. This allows users to earn royalties and have better control over their assets by limiting distribution. Any subset of information can be turned into a data NFT and later used for advertisement on a data marketplace.
These tokens allow data to be completely traceable within marketplaces, and users can see earnings if it is resold. Data brokerage has become significantly more important over the past years, becoming a multi-billion-dollar industry. The latest predictions show that the figures will reach $462 billion by 2031. Implementing Web3 is also a step forward from the murky waters of data ownership of the Web2 world. Data possession has become significantly more important, and transparency and traceability have become paramount. The use of NFTs can potentially introduce new methods that are more user-centric and can distribute personal data in accordance with the wishes of the one who owns it.
Liquid Staking
Recently, liquid staking has become more visible within the blockchain. Some believe that LSTs, the liquid staking tokens, could potentially replace the native currency on the ETH blockchain sooner or later. Their ease of use and the constant stream of income are among the most often cited reasons. However, others are certain that there’s no way that this could ever happen because investors value the safety and relative stability of Ethereum too much. As one of the most popular crypto coins in the world and arguably the most essential altcoin on the market, it’s unlikely that it could be ousted from the market so quickly.
However, the importance of liquid staking for the environment cannot be denied. The derivatives market has recorded a considerable surge, with over $22 billion locked in total value in 2023. The market capitalization of the projects has achieved the $18 billion milestone as well. This is undoubtedly good news for the communities as it signals considerable growth, which in turn shows that the marketplace is attractive for the users.
However, some aspects are somewhat concerning for researchers and market analysts. One of them is the fact that liquid staking could pose threats to decentralization. Only a few operators are in charge of a considerable number of nodes, which could potentially result in centralization.
That could be a problem, especially because the blockchain has been created with decentralization as a fundamental principle. The centralized stakers can later be motivated to go against the decentralized ethos for profits and contribute to the development of problematic factors such as MEV extraction or frontrunning.
Yet, other researchers believe that it is still too early to determine whether or not LSTs could damage the blockchain, especially since the protocols will likely change in the future to improve decentralized features.
The Ethereum blockchain navigated a difficult path in 2022, and it has still not recovered completely in 2023, so investors need to be cautious in the meantime.
