2024 presented a paradox for Ethereum: a year of consistent technological strides overshadowed by financial underperformance. From one perspective, the long-awaited Dencun upgrade went live, catalyzing a fourfold surge in Layer 2 network activity and marking a milestone in scalability. On the other hand, Ethereum’s financial performance lagged other major coins like Bitcoin, Solana, and even some major memecoins. Ethereum also lost ground to layer 1 rivals like Solana in developer engagement and use case, especially with Solana meme coins dominating much of the 2024 crypto landscape.
Nevertheless Ethereum’s architectural strengths—its security, decentralization, and thriving Layer 2 ecosystem—anchor enduring optimism for its future. The protocol now boasts the tools needed to craft faster, cheaper, and more accessible solutions. The critical hurdle lies not in innovation but in execution: bridging the gap between technological capability and mass adoption. Ethereum’s ability to translate its technical infrastructure into tangible user growth will define its trajectory in the years ahead. This piece will examine several of the layer 1 network’s short-term challenges and opportunities which may hold significant influence over its long-term prospects.
Controversy for the Ethereum Foundation
On-chain data for January 20, 2025 revealed that the Ethereum Foundation (EF) offloaded 100 ETH, valued approximately $336,475 at the time. It marked the second time that the foundation had sold Ether this year. Such transactions reignited debates within the Ethereum community about the EF’s treasury management and asset allocation strategies.
Critics question whether selling ETH reserves signals a lack of confidence in the asset’s short-term prospects, especially from the non-profit entity that most closely resembles an “authority” for the network. Instead, they argue that the Ethereum Foundation should continuously stake all of its ETH to enjoy yields and signify confidence. The debate led Ethereum co-founder Vitalik Buterin to publicly comment on EF’s activities. He cited regulatory uncertainties and the risk of hard forks as reasons for the decision to sell rather than stake.
All this comes in the midst of leadership restructuring for the Ethereum Foundation itself. In a January 18 post on X, Buterin detailed key priorities for Ethereum’s evolution which included empowering dApp developers and advancing decentralization, censorship resistance, and user privacy. He emphasized that EF would refrain from political lobbying, avoid ideological pivots, and resist assuming a more centralized role in the ecosystem’s development. His words may have reaffirmed Ethereum’s commitment to a community-driven, neutral governance model but the personnel changes were partly prompted by conflicts of interest driven by EF researchers taking roles in adjacent projects like Eigenlayer. It seems that 2024 ended with the Ethereum community at a crossroads with both internal and external critiques of the current direction.
Scaling Woes - Layer 2 Cannibalization
Ethereum’s waning dominance is reflected not only in its stagnant price performance but also in the stark decline of on-chain transaction fees—a key metric of network demand. Despite high hopes that Layer 2 scaling solutions would resolve congestion and drive adoption, the opposite has occurred: average gas fees have paradoxically plummeted to five-year lows, frequently dipping below 1 gwei, a sign of diminished activity.
This downturn underscores a troubling disconnect between Ethereum’s technological advancements and real-world usage. While L2s like Arbitrum and Optimism have expanded capacity, their growth has not translated into sustained on-chain engagement for Ethereum itself. Critics argue that low fees, once a rallying cry for scalability, now signal waning utility as users gravitate toward faster and cheaper alternatives like Solana. Furthermore, the rapid expansion of the Layer-2 ecosystem sparked concerns that these scaling networks have instead siphoned fee revenue away from Ethereum’s base layer. On-chain data showed that Ethereum layer 1 revenues plummeted by 99% during the summer of 2024 but later recovered to pre-Dencun levels by year-end.
Upcoming Pectra Upgrade
Not all is doom and gloom for Ethereum, as it still stands as the bedrock of blockchain development activity and base layer upgrades have continued steadily. Due to enter the testing phase in February 2025 is the Pectra upgrade. This upgrade aims to enhance scalability, efficiency, and staking flexibility. It increases storage capacity for Layer-2 solutions while lowering transaction fees.
One of Pectra’s most user-friendly upgrades is flexible gas payments. Traditionally, Ethereum users must pay gas fees in ETH, but with account abstraction, Pectra allows users to cover fees using various ERC-20 tokens like USDC. This would greatly simplify transactions by making wallets function similarly to smart contracts, giving users greater control over how transactions are processed. Pectra will also introduce Peer Data Availability Sampling (PeerDAS), which enhances scalability by allowing nodes to verify transaction data without storing it entirely. This improves network efficiency yet does not sacrifice security. Additionally, Pectra incorporates Verkle Trees, a new data structure that merges Vector Commitments with Merkle Trees to improve data storage. Verkle Trees streamline storage and verification, reducing the data burden on validators while ensuring fast and secure access to network information. The Pectra upgrade will occur in two phases, the first of which is planned officially for March 2025 and the second for late 2025 or early 2026.
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