Ethereum 2.0: Scalability Solved?
The recent spring bull run has seen ether along with ERC-20 tokens dominating the market cap charts, however it has also revealed Ethereum’s underlying weakness which could have preemptively resulted in the quick demise of the run: scalability. The high volume of transactions ultimately led to a congested network, with transaction fees breaking all time records. The NFT market ultimately suffered as well as a result of the all-time high transaction fees, which turned users away, and put in doubt the pricing structure of the fees. The ultimate question is can Ethereum 2.0 rescue the network?
The Ethereum foundation announced the a set of EIP’s that will accompany its transition from proof-of-work to proof-of-stake. The first and major one of these proposals is the EIP-1559 that was recently released on August the 5th. This proposal is aimed at burning the base fees, which previously went to the miners. Since the inception of the EIP-1559, also known as the London Hard Fork, nearly 100 million dollars worth of Ether were burnt by the network. Users still have the capability of prioritizing their transaction by opting for a “priority fee”, which can be viewed as a tip sent to the miners along with the transaction in order to incentivize the miner, resulting in a faster transaction. On another note the London Hard Fork may have just eliminated the “bidding war” scenario by determining an appropriate transaction fee, which often times intimidated new-comers as it resulted in a guessing game. Some users reported spending hours and even days waiting for their transaction to be included in a block as a result of sending a low transaction fee. In essence with the presence of a pre-determined fee, Ethereum has taken the route of fixed fee scheme. It’s interesting to note that since August the 5th, the transaction fees on the Ethereum network are down by over 50%, offering an optimistic forecast on the move towards Ethereum 2.0.
The other aspect that is brought into account with a congested network is that
Ethereum is still a proof-of-work ecosystem. In context, proof-of-work requires an enormous amount of computing power from the miner to validate a block, and results to low transactions per second. As a comparison, the giant payment processor Visa, is able to process nearly 1500 transaction per second, while Ethereum network is currently only processing 15–45 transaction per second. The underbelly of the issue is that in essence Ethereum is clearly a victim of its own success, and needs the fortification brought forth by the initiative of Ethereum 2.0 in order to scale.
Phase 2 of Ethereum 2.0 is the network’s ultimate and final move to proof-of-stake, and this certainly does bring forth key advantageous features. With miners no longer part of the equation the validator’s who are chosen by an algorithm will essentially validate the transaction in a block, which is significantly less time consuming than the exhaustive process of miner’s solving a nonce. As a result the network projects that it will be able to process over 100,000 transaction per second.
The semantics that justify the increase in transaction per seconds, can also be attributed to the implementation of sharding to Ethereums ledger data processing. Sharding will permit the network to “share” the handling of data, by dividing the network into “shards”, in where by each shard is responsible for handling a defined set of data. This will ultimately de-allocate the responsibility for a node to record the entire copy of the blockchain, and rather allow it to only record a prescribed set.
It’s only with the full release of the EIP’s and the final implementation of proof-of-stake, that the community will be able to assess the scalability potential of the Ethereum network. Noting that this ecosystem is the building ground for ERC-20 and ERC-721 tokens that contribute an overwhelming portion of tradable assets on the market. As a result, the successful implementation of Ethereum 2.0 is bound to affect the market as a whole, setting a new benchmark to the potential capabilities of ever improving and evolving blockchain ecosystems.
