Hello, I am Shizaibiying! This year, Ethereum has not performed as expected, and its performance is disappointing. It has also led to a collective plunge in the value of altcoins! So what is the reason? Let's take a look! $ETH $SOL
🔶The impact of the development of the second layer network:
🔺 Reduced transaction fees:
🔸The second layer network aims to transfer transactions from the Ethereum main chain to a faster and cheaper network to expand Ethereum's processing capacity. With the introduction of "blob space" in 2024, the second layer network can settle transactions on the main chain at a lower cost, which reduces the fees paid by users on the Ethereum main chain (L1).
🔸Transaction fees are an important source of income for the Ethereum network and one of the factors supporting the value of Ether. The decline in L1 transaction fees has weakened the demand for Ether, which in turn has affected its price performance.
🔺The value support mechanism is disrupted:
🔸Originally, Ethereum established a connection between the consumption of transaction fees and the supply of Ether through the destruction mechanism of EIP-1559, which played a certain supporting role in the price of Ether.
🔸However, the development of the second-layer network has caused a large number of transactions to be transferred to L2, reducing transaction activities on the main chain, resulting in a weakening of the deflationary effect of the EIP-1559 mechanism and destroying the previous mechanism linking the value of Ethereum with its utility.
🔶Intensified market competition:
🔺Public chain competition:
🔸In the field of blockchain, new public chains continue to emerge. They are constantly optimizing in terms of performance, scalability, transaction fees, etc., which has had an impact on Ethereum's market share.
🔸Public chains such as Solana, which have higher transaction processing speeds and lower fees, have attracted some developers and users to transfer from Ethereum, which has to some extent distracted the market's attention and capital investment from Ethereum.
🔺Competition of Bitcoin's second-layer network:
🔸Bitcoin's second-layer solution continues to evolve. Although the positioning of Bitcoin and Ethereum is different, the maturity of Bitcoin's second-layer network provides users with more options.
🔸Some users who might have originally chosen Ethereum for smart contract development and application deployment may now consider using Bitcoin's second-layer network, which creates competitive pressure on the development of Ethereum's ecosystem.
🔶Influence of macroeconomic environment and market sentiment:
🔺The overall cryptocurrency market is sluggish:
🔸The current global macroeconomic situation is unstable, and investors are more cautious about risky assets. The cryptocurrency market is affected by the overall market sentiment, with reduced capital inflows and declining trading activity.
🔸In this environment, Ethereum is also difficult to remain immune, and its price performance is suppressed by the overall market trend.
🔺Regulatory uncertainty:
🔸Regulatory policies on cryptocurrencies in countries around the world are constantly changing, and regulatory efforts are also being strengthened.
🔸Some countries have restricted or banned cryptocurrency trading, mining and other activities, which has increased the uncertainty in the development of cryptocurrencies such as Ethereum and affected investor confidence.
🔶 Bottlenecks and challenges in technological development:
🔺 Scalability issues are still not fully resolved:
🔸Although Ethereum is constantly being upgraded and improved, scalability is still an important issue it faces. With the continuous development of blockchain applications, the requirements for network processing power are getting higher and higher!
🔸Ethereum's processing capacity for large-scale transactions still needs to be improved, which limits its development in some high-performance application scenarios.
🔺 Complexity of technology upgrades:
🔸Ethereum’s technical upgrade involves numerous technical details and complex network architecture adjustments, such as the transition from Proof of Work (PoW) to Proof of Stake (PoS)!
🔸As well as the subsequent hard forks and upgrades, technical failures, security vulnerabilities and other problems may occur during these processes, affecting the stability and reliability of Ethereum.
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The above content only represents personal opinions and does not constitute any investment advice!
