Morgan Stanley: Ethereum's dominance may wane as rivals emerge

Morgan Stanley's wealth management global investment office recently released a report on ethereum, saying that if there is strong market competition, the dominance of the ethereum blockchain may weaken.

The investment banking giant’s report is titled “Cryptocurrency 201: What is Ethereum?” It details the Ethereum ecosystem, as well as its strengths and weaknesses compared to Bitcoin.

“Due in part to its ambitious addressable market, Ethereum faces more competitive threats, scalability issues, and complexity challenges than Bitcoin. Additionally, Ethereum is less stable than Bitcoin,” the report reads.

Morgan Stanley believes that ethereum may lose the advantages of smart contracts and be replaced by cheaper and faster blockchains - a view often debated by proponents of ethereum's killer market, which includes Networks such as Cardano (ADA), Solana (SOL), Polkadot (DOT) and Tezos (XTZ):

“Ethereum faces more competition in the smart contract market than Bitcoin faces in the store of value market. Ethereum may lose market share as a smart contract platform to faster or lower cost alternatives.”

The investment bank also said that ethereum poses a greater investment risk than bitcoin because it faces more competition in the smart contract market than “bitcoin does in the store of value market.”

The report reads that "Bitcoin is similar to a decentralized savings account, with fewer transactions required per user to 'spend' Bitcoin. Ethereum demand is more closely tied to transactions. Therefore, similar scaling constraints are not applicable to Ethereum. Demand hurts more than it dampens demand for Bitcoin.”

Other concerns about the network include the changing regulatory landscape facing applications built on ethereum, such as decentralized finance (DeFi) and non-fungible tokens (NFT), which may come under strict regulation in the future , resulting in less demand for Ethereum transactions.

The report also highlighted ethereum’s centralization, noting that the majority of ethereum’s supply is held by a “relatively small number of accounts”:

“It’s less decentralized than Bitcoin, with the top 100 addresses holding 39% of ETH shares compared to Bitcoin’s 14%.”

On the bullish side, Morgan Stanley's report believes that Ethereum has greater market potential than Bitcoin, through its transaction-based burning mechanism, it has deflationary characteristics, and its performance after the eventual transition to the proof-of-stake consensus mechanism will significantly improve:

“Ethereum has a much larger addressable market than Bitcoin, and therefore may be more valuable than Bitcoin, which is just a market for savings accounts and stores of value like gold.”

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