- Katie Talati is the head of research at $600 million crypto investment firm, Arca.
- The exec breaks down potential barriers and catalysts for success in Ethereum’s network.
- According to Talati, layer-2s can “turbocharge” the Ethereum blockchain’s growth.
Ahead of Ethereum’s Merge, investors and industry participants are looking for ways to both make sense of and capitalize on the network’s highly anticipated technical upgrade.
Despite harsh macroeconomic conditions, ether – the native token of ethereum – experienced a mini rally on speculation around the Merge, jumping to a two-month high on August 11. The cryptocurrency has since toppled back down presumably on inflation woes, however, leaving investors cautious of risky bets.
Billed as a way to cut the network’s energy usage by more than 99%, the Merge will transition the network from an energy-intensive Proof of Work (PoW) to Proof of Stake (PoS) model.
The upgrade will be the “most ambitious thing that’s ever been done” in the industry, long-time blockchain developer Ben Edgington recently told Insider. The Merge, per Edgington, is like “fundamentally reengineering a chain which has hundreds of billions of dollars of value so we are swapping out the engine mid-flight.”
To some, it’s the single-most important event in the history of crypto, right after the invention of bitcoin and ethereum.
Ethereum as the current ‘market leader’
Just weeks ahead of the upgrade, Katie Talati, the head of research at $600 million crypto investment firm, Arca, broke down both the bull and bear cases for ethereum in an interview with Insider.
Ethereum is currently beating out most other layer-1 blockchains in market capitalization and also its ability to keep developers on its network. (Bitcoin was the highest-valued crypto at $19,758, according to data from Messari on Tuesday, whereas ethereum was trading at $1,502.)
Talati says that if you think crypto can upend the internet then the industry needs “to see some layer-1 blockchain rise up from the masses, and differentiate itself.”
“Ethereum has been that market leader,” she said, adding that this may not “stay the case forever.”
Ethereum, whose introductory paper was released in 2014, also has a first-mover advantage in the nascent space. This is in comparison to other layer-1 blockchains like Solana and Avalanche, whose white papers were published in 2017 and 2018, respectively.
“If you’re a new developer coming into the space and you’re trying to learn a smart-contract coding language or trying to understand how to deploy an app on a blockchain, there’s just a lot more information and support in the Ethereum ecosystem than there are in other systems overall,” she added.
Time isn’t the end all be all for a blockchain’s success, Talati says. There’s still space for another layer-1 to capture market share and “crack the code” on growing pains commonly associated with smart-contract networks.
What’s holding ethereum back?
Relative to broader technology companies, Talati says, there’s a lack of technical talent in crypto at-large. As soon as the industry onboards the “highest quality engineers,” then it can further grow and onboard more users.
More technical experience can separately fix often-cited deterrents for using Ethereum’s network like scalability issues and hefty gas fees as well. For clarity’s sake, the Ethereum Foundation has plans to address these issues in future upgrades.
“It not only impacts fees, but it impacts user experience too,” she said of using Ethereum’s network “Have you ever tried to use the blockchain when it’s really congested? It’s a mess.”
Yuga Labs, the company behind popular NFT collection Bored Ape Yacht Club, for example, had a sale for Ethereum-based virtual land deeds, which resulted in record-high costs, congestion on its network, and even failed transactions.
“We’re sorry for turning off the lights on Ethereum for a while,” Yuga Labs tweeted after chaos ensued.
Moving forward, Talati says her concern for Ethereum’s network is that its roadmap, or plans for upgrades, won’t be clearly outlined “in terms of what the next goals are.” She added that the Ethereum Foundation has already done a lot of research on this, however.
Layer-2s, frameworks or protocols built on top of Ethereum’s network, can propel the blockchain’s success as well, according to Talati. Developers can build decentralized apps, or DApps, on these layer-2s, along with minting NFTs and other functions.
Optimism, Arbitrum, Polygon, and Immutable X are all popular layer-2s that have lower gas fees and faster transaction times than the smart-contract network they’re associated with. Polygon, for example, has $5 billion in assets secured, hosted more than 37,000 DApps, and recorded 154 million unique user addresses, Insider previously reported.
Talati says the layer-2 market is “very fragmented” but can onboard more participants in Ethereum’s ecosystem over time.
“Layer-2s are definitely going to be the thing that can really turbocharge Ethereum’s growth,” she added.