30s Summary

Katalin Tischhauser, a research boss at crypto bank Sygnum Bank, disputes concerns that Ethereum’s ‘layer 2″ scaling strategies are diminishing main network profits. She argues it’s too early to determine the impact and suggests that layer 2s, which can handle more transaction types, could boost Ethereum’s Layer 1 network. Ethereum’s revenues have dropped, fueling anxiety over profits. Analysts predict scaling to layer 2s could impact Ether’s price growth. Despite facing stiff competition and doubts over its performance, Ethereum’s scaling plans have been commended for maintaining its relevance as the top ‘layer 1’ blockchain.

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Worries that Ethereum’s ‘layer 2″ scaling strategies are cutting into the profits of the main network may have been jumped the gun a bit, claims an industry expert.

Katalin Tischhauser, a research boss at crypto bank Sygnum Bank, says it’s way too soon to decide if Ethereum’s plan to grow via layer 2s is hurting its own progress or actually helping the network grow.

By ‘hurting its own progress’, Tischhauser means that layer 2s might be taking away too much action from Ethereum’s main network – this would contribute to Ethereum fees dropping quite a lot in recent years. But while the main Ethereum network was bound to lose a bit of profit to layer 2s, making layer 2s more capable could mean that the base network rakes in profit in new and exciting ways, adds Tischhauser.

“The long term view is that layer 2s, being cheaper, can bring in more types of transactions that weren’t previously possible, and this could really help Ethereum’s Layer 1 network grow,” she explains.

Different data shows that Ethereum fees typically fluctuate between $1 million to $5 million per day — a lot less than the $30 million it regularly pulled in throughout 2021 and 2022.

People started worrying about Ethereum’s profits again on Oct. 10 when Uniswap, a large Ethereum fee generator, mentioned it would switch to its new layer 2, Unichain. This complete switch could see Ethereum validators lose between $400 million and $500 million in yearly revenue.

Matthew Sigel, the Head of Digital Asset Research at VanEck, suggests ongoing scaling to layer 2s could halt Ether’s price growth. Matthew adjusted VanEck’s Ether price prediction from $22,200 by 2030 to $7,300 considering the recent dip in transaction revenue between Ethereum and layer 2s.

Tischhauser mentions that people are feeling pretty negative about Ethereum partly because of the drop in revenue. Also, Ether’s pretty weak performance when compared to Bitcoin, Solana and other cryptocurrencies.

Ethereum is still dealing with a lot of competition from other ‘layer 1’ blockchains with cheaper fees and quicker finality, says Leena ElDeeb, a research analyst at crypto management company, 21Shares.

Yet, Henrik Andersson, Chief Investment Officer at Apollo Capital, thinks Ethereum’s scaling plan has actually helped it stay the top ‘layer 1’ blockchain. He believes Ethereum’s improvements to layer 2 have saved it from losing relevance.

By continuing to improve Ethereum, it will ultimately earn way more money in the long run since would-be users wouldn’t go to other chains, believes Andersson.

He also thinks Ether has a shot at becoming the juicier crypto option over the next six months and reduce its falling price ratio with Bitcoin. He even predicts Ether might hit a new all-time high sometime in 2025 or not too long after that.

Right now, Ether is trading at $2520, 48.4% off its all-time high price of $4,878 from Nov. 10, 2021.

Source: Cointelegraph