Vitalik Buterin says that Ethereum’s scalability problems will be a thing of the past with the launch of Ethereum 2.0
Ethereum, the second largest cryptocurrency by market capitalization, is currently in a transition phase from a proof-of-work-based mining consensus to a proof-of-stake-based network popularly known as Ethereum 2.0.
One of the main reasons for this significant shift is the growing scalability problems with the current system. While proof-of-work is seen as one of the safer and more decentralized mining consensuses, it cannot bear the burden of a diverse network like Ethereum.
Vitalik Buterin, co-founder of the Ethereum network, believes the transition would remove scalability issues the network is currently facing. He even predicted that the Ethereum 2.0 would be able to process around 100,000 transactions per second, compared to the current number of just 15 transactions per second.
Buterin tweeted on June 30th about the possible timetable for changing the current network and the transition to ETH 2.0. He said:
“ETH2 scaling for data will be available * before * ETH2 scaling for general computations. This implies that rollups will be the dominant scaling paradigm for at least a couple of years: first ~ 2-3k TPS with eth1 as the data layer, then ~ 100k TPS with eth2 (phase 1). Adjust this accordingly. “
Buterin claimed that data scalability for Ethereum 2.0 would be available well before general computation scaling. He also talked about a possible second-layer solution that builds on the basic Ethereum network before finally switching to ETH 2.0. Buterin claimed that Ethereum would process nearly two thousand transactions per second in the initial stages and eventually hit the expected 100,000 mark.
Scalability is still the greatest challenge for decentralized space
Bitcoin and later other cryptocurrencies have made a name for themselves for their decentralized aspect and the promise to offer better transaction speeds with minimal fees. Even after a decade, scalability seems to be one of the biggest challenges facing the cryptocurrency space.
While centralized financial instruments and institutions like VISA and MasterCard offer high scalability with thousands of transactions per second, the costs are quite high. On the flip side, top cryptocurrencies offer single-digit transaction speeds, and as the scalability problem increases, so does the cost of processing these transactions.
Bitcoin, the top cryptocurrency, has a transaction processing speed of 7 TPS, and other altcoins have a few hundred TPS speeds. Ethereum with its intelligent contracts and dapps tries to keep the network afloat and to make it usable. During the launch of the popular Cryptokitties-Dapp game, the entire Ethereum network almost came to a standstill. Hence, people have high hopes for Ethereum 2.0m, especially according to Buterin’s claims.
Ethereum’s growing gas fee is forcing developers to look for an alternative fee mode
The Ethereum blockchain has grown significantly as an ecosystem and supports hundreds of decentralized applications (dApps) as well as defi and smart contracts. However, this growing ecosystem is slowing the network down while increasing the average gas fee required to complete any task on the platform.
A recent analysis of Ethereum’s gas fees found that the average cost of doing a task on the network has increased by 500% since April.
This growing gas charge is a concern for developers. Many are already looking for an alternative fee model that can be dynamic enough to accommodate these scenarios. The development group presented a proposal to improve Ethereum (EIP 1559), which contains a roadmap for a new fee structure that is intended to reduce costs.
When implemented, it could be a unique update for any blockchain after its introduction. Many Ethereum customers are already in the process of implementing these changes. EIP 1559 was first introduced in April 2019 and co-authored by Ethereum co-founder Vitalik Buteerin. EIP 1559 proposes “algorithmic pricing,” a dynamic system that adjusts the transaction fee based on the task with a burnt base fee and a tip for the miners.
The EIP solves two problems by dynamically changing the size of the block depending on the number of transactions in the queue and pricing certain users out when the demand is too high, thereby maintaining the balance. The basic fee is set depending on the network conditions, while the user can set the tip for the miner depending on how quickly his task should be done.
MetaMask Developer suggests a fee structure for the escalator algorithm
EIP 1559 sounds promising and reliable; However, Dan Finlay, a MetaMask developer, suggested a different fee structure called the “escalator algorithm”. This dynamic fee structure allows the user to set the fee for the task at hand. This was suggested by EIP 2593.
The developer community liked both the fee structure proposal and the introduction of a mix of both EIPs. The development team has already made plans to start a test network shortly to check the advantages and disadvantages of this fee model and then to derive a final version for the start in the main network.
While these proposed changes are designed to address the problem of increasing gas charges on the network, it is believed that miners would be at a loss to implement these changes.
Commenting on the newly proposed changes, David Hoffman, COO of Ethereum investment firm RealT, said:
“The burning of BASEFEE, which makes up most of the transaction fee, is a deflationary force for ETH. It promotes its scarcity and links its scarcity to the growth of the Ethereum economy. The issue of ETH that pays for security initially raises the value of ETH. If BASEFEE burns a lot of ETH, the value of ETH should be higher as it is [becomes] less common. “
So far there have been no fixed denominations in which miners were rewarded for completing the transaction. However, due to the proposed changes, Ethereum transactions must be paid for in native blockchain tokens.