Joseph Lubin, the co-founder of the renowned blockchain platform Ethereum, has previously pointed out that Ethereum is going to become a 1,000 times more scalable than it currently is in the next 18 to 24 months as a result of the much-hyped update termed “Ethereum 2.0” or “Serenity”. As he said:
In a small number of months, we should have a fully operational testnet and possibly, by the end of this year we’ll have a fully operational phase 0 Ethereum 2.0.
Previously, BlockPublisher also reported why Ethereum is going to play a much bigger role in 2021. Analysts suggest that inclusion of PoS protocol and the Fidelity’s institutional platform are the ones that have ignited the rising price for Ethereum. They suggest that the expected rise will be completed by the year 2021 and reason being, Fidelity’s institutional platform and Ethereum transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) protocol.
Ethereum Developers Taking Scalability ‘Head-On’
But what is all this fuss surrounding the issue of scalability in the blockchain world and why Ethereum 2.0 heralds a positive signal for developers across the globe and the crypto world overall? Here’s a brief look into what blockchain scalability is all about.
In simple words, cryptocurrency networks are peer-to-peer and decentralized. The network is not run by a single controlling entity, rather a network of “mining nodes” participate in the network to maintain it. Miners have the incentive of getting rewards in return for their participation in the network. The consensus algorithm lying at the core of bitcoin and ethereum is Proof-of-Work (PoW) for now. In PoW, miners have to solve a cryptographic puzzle. Whichever miner solves the puzzle first earns a reward of newly-minted bitcoins and gets to add a new block of record in the previous chain of blocks, hence the name blockchain. Although the reward for solving the cryptographic puzzle gives miners the incentive to join the network, it is also something that requires large computational power and time.
Whenever a new transaction takes place in the bitcoin or Ethereum network, it is to be validated by the entire network before getting added into the immutable record. This validation is needed so that no false transaction is put into the record. Time is thus taken to complete algorithmically-defined process across the network. This ratification of a transaction is what creates a bottleneck in the network.
There is a limit to the number of transactions that can be validated, ratified and put into the blocks in a network. For bitcoin, each block is added after an average of 10 minutes. For bitcoin, the “transaction per second (TPS)” rate is estimated around 7, while for ethereum it is estimated to be around 15. On the other hand, traditional financial systems like VISA can handle transactions in the range of thousands, a number far greater than both bitcoin and ethereum. This is what the issue of scalability essentially is, an issue that prevents both bitcoin and ethereum to accommodate large-scale global mass transactions, a theme central to their global adoption.
Cryptokitties, a decentralized blockchain-based app, highlighted the issue of scalability in its true extent when it clogged down the entire Ethereum blockchain network due to a large number of transactions that started taking place as more and more people started getting interested in the game. If the next blockchain-based Facebook, Twitter or any other social media-like platform is to be built that requires much larger interactions at their core than normal apps, the issue of scalability needs immediate handling so that mass adoption can be made possible.
In order to solve this issue, many alternative consensus algorithms have been put forward. One of the most prominent one in this regard is Proof-of-Stake (PoS). Ethereum 2.0 will see a shift to PoS from PoW and this is what carves out the possibility of increasing the scalability as pointed out by Lubin.
Instead of providing a cryptographic puzzle to solve which require heavy duty hardware and time from the miners, PoS delegates the chances of adding a block to the chain and earning rewards by the miners based on their stakes in the network instead of their hardware capabilities. Since miners will not be stuck finding the correct key while consuming a lot of electric power, this algorithm is also termed more environment-friendly. The time that was previously wasted in finding the key to the cryptographic puzzle is not going to go in vain and hence, scalability of the network increases. Thus a major bottleneck of PoW gets removed from PoS.
Previously, while talking to BlockPublisher, Assistant Professor at the University of Waterloo and the Head of Cryptography at Algorand, Sergey Gorbunov, discussed in detail why PoW is essentially flawed, stating:
“While proof-of-work is the most popular approach taken to decentralize a blockchain, it requires a great deal of computational effort from the miners, which ultimately leads to both high energy consumption and high transaction costs. Additionally, the PoW approach concentrates a great deal of power in the hands of just a few mining pools, creating centralization and the potential for malicious parties to launch a 51% attack on the network, as we recently saw with Ethereum Classic”.
He also said:
From a security, efficiency and centralization standpoint, a pure proof-of-stake approach is the optimal choice.
Scalability is an important issue of the blockchain world and Ethereum’s upcoming pivot to PoS just seems to be its first stride towards solving this issue for good in the long run.
Besides the ethereum (ETH) cryptocurrency, Ethereum platform is also one of the world’s biggest and renowned blockchain development platform. It is a programmable blockchain and offers smart contract services to developers across the globe so that they can develop decentralized applications (dApps). The language used in its ecosystem is called “Solidity”. With this scalability upgrade, blockchain developers across the globe can now focus on developing dApps that may require large-scale public interactions. So for Ethereum, the shift to PoS with its Serenity update will likely mean more attraction from the developers’ side. Ethereum 2.0 will make events such as Cryptokitties blocking the entire network much less likely… at least for now.
Although PoS is hailed as a much more efficient and scalable consensus algorithm than PoW, it is not something that is a cure-all for the scalability issue. It still has its merits and demerits. It is often criticized for its inclination towards miners in the network who have more of a stake, making it possibly favorable for certain parties only. Perhaps there will arise a need for an even better algorithm in the future.
In addition, there is already a PoS-based blockchain platform similar to Ethereum that goes by the name of EOS. So the latest upgrade of Ethereum is not something that should be viewed as revolutionary. Ethereum 2.0 will be tested to its core as more people step into this space with developments being made on the legislative end as well. If cryptos are to rival Visa, they should at least be at par with or even better than Visa in terms of TPS or become even better. Only time will tell how Ethereum 2.0 fares. For now, Ethereum has surely stepped up its game as far as scalability is concerned.