“It was Ethereum, in Metamask, with the gas fees.”
There is often talk of Solana being an Ethereum killer, but what if the culprit is not the latest trendy smart contract platform; what if the wounds are self-inflicted and Ethereum will ultimately be done in by Ethereum itself, which is to say, by its own shortcomings?
Or alternatively, is this all melodramatic FUD from people who put their money on the wrong horse and are bitter about it? Is it actually the case that ETH, like Gloria Gaynor, will not crumble, nor lay down and die, because it knows how to love, and how to stay alive?
What’s the Problem?
The major sticking point with Ethereum is the transaction costs, known as gas fees. Anytime you want to do anything at all on the Ethereum blockchain, you have to pay for computational power on the network. These fees used to seem reasonable, but as the price of ETH has risen and the network gets busier, the costs become, in fiat terms, ludicrously high.
On top of that, the network is frequently congested, leading to long delays, battles to get transactions through first, failed transactions and, on the whole, a user experience that would, in a more orthodox and established industry, be considered a full-on disaster.
What this all boils down to is scalability.
What’s the Solution?
Sidechains and Layer 2
Sidechains and layer 2 solutions, such as Immutable X, Polygon, Optimism, and Arbitrum, comprise of other networks building compatible protocols alongside or on top of Ethereum. All being well, these allow you to work within the Ethereum ecosystem but with reduced transaction fees, improved speeds and on the whole, scalability.
Sounds good, but these solutions come with their own set of issues. There is no direct on-ramp to these protocols, so you have to buy ETH, move it from an ETH wallet to a sidechain/layer 2 wallet, and then all the way back again in reverse if you want to cash out. Though you are still paying some gas fees along the way, and there is an additional level of friction.
Bearing in mind that getting started with ETH and, say, buying NFTs, is already a slightly weird and complicated process. This seems like fixing one problem (the fees) while exacerbating others (friction and complexity).
Ethereum 2.0 is Ethereum, but better. To get very marginally more technical, it switches Ethereum from a Proof of Work consensus mechanism to a Proof of Stake consensus mechanism, and it introduces a technique
known as sharding.
From a user or investor perspective, the upshot of these changes should be to drastically ease congestion on the network, reduce transaction costs and times, and allow Ethereum to scale up and meet demand.
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The problem is that it is unknown when Ethereum 2.0 will be fully operational. It could be relatively soon, possibly sometime in early 2022, but no one seems certain. In the meantime, we can simply hold on and wait, but that risks losing some of the momentum and public interest that is building up around decentralization, blockchain technology, and digital assets.
What’s the Alternative?
There are several competitors, not layer 2 solutions for Ethereum, but entirely separate blockchains and ecosystems, that are attracting the development and users and have tremendous potential.
Cardano is a meticulous and well-thought-out protocol. The main criticism of Cardano is that it’s a little too meticulous, progressing slowly and with not enough actual working products. However, that has changed as smart contracts are now operational, a host of DeFi platforms are gearing up for action, and a buoyant NFT community continues to grow.
As with Ethereum, Solana has gained attention through its NFTs, which are achieving high trade volumes without the gas fees. There is plenty of development going on, and the coin price has made huge gains. A criticism of Solana is that, unlike Ethereum, it is not adequately decentralized.
Rapidly becoming known for its speed and utility, Avalanche’s price has soared as it offers a powerful alternative to Ethereum for the deployment of smart contract-based dApps (decentralized applications) that avoid excessive transaction fees. It is a relatively new platform, but Avalanche is looking extremely well positioned.
For more alternatives, you might want to look into Tezos and Binance Smart Chain, and there are other less well-known competitors too.
All that said, it’s worth noting that this doesn’t have to be a zero-sum game in which one ultimate victor devours the others in a brutal crypto blood-frenzy, although that might be entertaining. A key concept for the future is multi-chain functionality. The idea is that blockchains will become interoperable, and rather than facing off tribally on Twitter, we can all get along nicely.
Ethereum Has the Advantage, but Where Next?
Let’s be realistic here. Ethereum is not about to keel over just yet. What it has on its side is first-mover advantage and user adoption, meaning that it is heavily insulated by the network effects it has earned over several years.
If anyone says that Ethereum does not function, then the question you can fire back in its defence is, “then why are so many people using it?” And it is true, for something that supposedly does not work, it sure is doing a lot of work.
And yet. What is also true is that if you’re hoping to onboard a lot of new people into the worlds of NFTs, DeFi, metaverses, or just Web 3.0 in general, then with those gas fees? Forget it. The wonders of Ethereum will remain a niche interest for the crypto rich who got on board early. And, in terms of developer activity, don’t be fooled into thinking that other networks are not gaining momentum now.
What is more, Ethereum’s issues come at a moment (inevitably, being scalability issues) when interest in things like NFTs, the metaverse and blockchain gaming are sky-high. Plus, we can realistically expect a growing influx of newcomers.
Timing is everything, and it would be an interesting history that got written if Ethereum dominated while the space was in its obscure nascent phase, making a few people very rich in the process, only to be superseded by alternative protocols when crypto went mainstream.