Ethereum: A victim of its own success

Ethereum: A victim of its own success

Ethereum is one of the greatest technological innovations of the 21st Century. Its versatility across a wide range of applications, from transactions for financial services through to digital ledgers across many industries, have established it as one of the most important tools driving digital transformation. However, over the past few years, Ethereum has become far slower and more expensive than it used to be. It can take hours for a transaction to process over the network, and the cost per transaction (or gas fees) can be as high as $40.00.

With the rise of Ethereum-based NFTs taking the art and music world by storm, demand is only going to increase, driving up gas prices and transaction processing times further. This trend begs the question “should businesses give up on Ethereum and find an alternative way to process their transactions?” There is no denying that Ethereum surpassed its anticipated demand, but that doesn’t mean that it can’t outperform other options for businesses. Let’s take a closer look at the main problems with Ethereum, why we shouldn’t give up on it, and how we can make it work in a way that is fast, scalable and, crucially, cost-efficient.

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About the author Alan Vey is co-founder and CEO at Aventus Technologies

The issues with Ethereum

One of the most common misconceptions about public blockchains, especially Ethereum, is that it is a less secure or more vulnerable solution than, for example, a private network. The reality is that Ethereum is highly secure – far less hackable than a cloud server, given it is all open source and has been publicly validated the world over. The real problem with Ethereum is around bandwidth.

When developers first laid the foundations of what has now become the largest public blockchain protocol, there is no way that they could have anticipated the levels of demand for Ethereum. At its peak, Ethereum transactions can reach over 1.4 million in a single day. While this pales in comparison to something like the Visa network for card payments, which passes more than 65,000 transactions per second, stock Ethereum has a hard ceiling. In theory, the network can only support around 2,592,000 daily transactions full stop.

It’s not just about high gas prices when it comes to the cost of transacting Ethereum – it’s about price inconsistency. The gas price at a given time is set by demand for the network. As such, at different times of day or around certain dates, the volume of transactions passing over the network fluctuates significantly. This makes it nearly impossible to predict how much each transaction will cost and forecast your overall cashflow.

Say, for example, that you run a credit card cashback scheme using stock Ethereum to process your transactions. If one of your partner retailers is offering 10% cashback on all purchases, each purchase made will consist of one transaction where you bill the retailer 10% of the purchase, and another where that 10% is paid back to the customer. Depending on the time of day, those transactions could cost anywhere between $0.20 and $40.00 – vastly impacting the profitability of your business.

Why keep Ethereum?

For many applications, Ethereum is by far the best option, in spite of the issues outlined. An Ethereum blockchain solution can be built, implemented, and run indefinitely without any downtime, low risk of fraud, and no interference from malicious parties.

When you think about what Ethereum enables a company to do, it is clearly superior to any non-blockchain solution for applicable use cases. At the core of Ethereum for enterprise is the smart contract – pieces of code that automatically execute when a set of predefined requirements are met. If you apply that to our cashback example, in very simple terms it means that when a customer makes a transaction, a requirement is met that automatically bills the retailer 10% and pays the customer their cashback.

If you were to run this framework on a private ledger stored in the cloud, there would be no simple way to automate this process. If you wanted to set up a permissions network of any kind, you’d either have to do it yourself by hiring an expensive team of developers and experts, pay a huge fee for a large software company to develop it, or simply use an out-the-box software solution that’s robust and well-established, but may not offer all the functionality you need.

Crucially, if you do not want to manage the whole ecosystem, Ethereum has it automated. As an open public network that has been battle tested for years, Ethereum is inherently more secure than any private network, and can be extremely versatile. It can be shaped to work in a range of applications.

Fundamentally, it is this flexibility and versatility that has led to the main issues associated with Ethereum. It used to be called “great for micro transactions” - today that’s no longer true, as so many people are using the network for an unfeasible range of applications – large and small.

How can Ethereum still work?

If Ethereum didn’t work extremely well, then the gas fees would have simply reduced over time as businesses and projects turned to alternative options. This has not been the case – the value of Ethereum remains clear to many different organizations. The question is, how can people still use Ethereum despite the issues outlined, and how many of these problems can be eliminated in the future?

There are two main schools of thought when it comes to future-proofing the network. The first is Ethereum 2.0 – a significant update to the way that Ethereum functions that promises to increase its bandwidth and reduce the gas fees. Ethereum 2.0 is currently being tested with the ‘Medalla Testnet’, which involves over 20,000 validators worldwide. However, the new Ethereum has been plagued by delays and setbacks - the main network was meant to go live last year.

What’s more, among the many concerns aired in the developer community is the security of Ethereum 2.0, along with some questions about whether it is scalable enough. The testnet points towards the fact that 2.0 will be able to achieve around 3,000 transactions per second – far better than Ethereum 1.0’s 15, but still nowhere near Visa’s 65,000.

The second school of thought is with Layer 2 solutions. These are solutions designed to solve issues with stock Ethereum by handling transactions off the main Ethereum chain while still taking advantage of the many benefits it has to offer. These have the capability to solve many of the problems with Ethereum – from the gas fees through to speed and scalability.

There are scores of Layer 2 solutions available to organisations. The key for any business looking at using a Layer 2 solution is to assess exactly what they are looking to achieve. The best-in-class Layer 2s can entirely mitigate the issues around cost, speed, and scalability, and make Ethereum work efficiently and indefinitely for any use case.

The future of Ethereum

Ethereum no doubt has incredible potential – there really is no other solution that provides such a tool kit of functions. As the blockchain space expands, it is crucial that the market continues to look for creative ways that the technology can be applied and bring value to different industries. Then, as an industry, we can expand the capability of Layer 2 solutions to patch all the existing gaps and build a more solid ground for a broad range of applications.

How Ethereum Works: It Seems Like We’re Living in a Futuristic Alternate Universe

How Ethereum Works: It Seems Like We’re Living in a Futuristic Alternate Universe

The world is changing so fast that it’s tough to understand where the crypto revolution is going, but Ethereum will be part of that story.

Photo courtesy of Pixabay

It’s already a mad, mad world; add cryptocurrency, and it seems like we’re living in a futuristic alternate universe. It appears that new crypto technologies are popping up every week, and more people are becoming accustomed to investing money into digital coins. But what many of us don’t understand is that blockchain—the man behind the curtain of crypto—can be used for purposes beyond our current imaginations, the second-most-popular platform being Ethereum. Recently, the ether coin reached an all-time high of $2,200. But before we dive into Ethereum, let’s do a recap on how blockchain works.

Blockchain is revolutionary because it’s a decentralized technology that isn’t backed by a central authority. It’s a type of database that stores information; specifically for Bitcoin, it reserves the comprehensive history of Bitcoin transactions. This coin has been making headlines because of its institutionalization by everyone from Elon Musk and governments to banks and politicians—not to mention its skyrocketing value. Blockchain is difficult to alter, so that’s why it’s used in the digital currency space.

The cryptocurrency revolution is already affecting the way we live, how we view the world and—more fundamentally—the way our economy works. As of now, our economy depends on institutions for transactions. So, if you go to the store and buy something, it’s with cash that’s originated by a) the Federal Reserve or b) a credit card that uses U.S. dollars. And you have to go through a bank, so, at every transaction, there’s a touchpoint between centralized institutions—public or private, whether they’re governments or banks. The thing about cryptocurrency is it doesn’t depend on central players to get business across the finish line.

A lot of the news focuses on Bitcoin, but it’s just a currency. In December 2020, the World Economic Forum released a report titled “Crypto: What Is It Good For?” and they didn’t focus on Bitcoin. There are new emerging players.

Related Bitcoin 101: Could Cryptocurrencies Eventually Replace the Dollar?

The biggest story you’ve never heard of is Ethereum. It’s more advanced than Bitcoin in the sense that it’s customizable and open source. It can be used in such a vast capacity that we don’t know the extent of its possibilities. Ethereum is the new kid on the block.

Ethereum has a decentralized finance (DeFi) system, and it powers its own digital currency: ether (ETH). But according to their website, Ethereum builds upon Bitcoin’s innovation. Ether is the “gas” that “fuels” the network which is a programmable blockchain. Our world’s brightest minds can come up with endless possibilities for this technology; you can even use it for Bitcoin. It also runs thousands of decentralized applications (dapps).

Bank of America recently stated that “Bitcoin is the most talked about cryptocurrency, but Ethereum [the blockchain] has more features, including being more flexible,” according to CoinDesk.

Ethereum is much more flexible than Bitcoin because it’s not just a coin. The platform calls itself a “marketplace of financial services, games and apps that can’t steal your data or censor you.” One example of an Ethereum application is the use of non-fungible tokens (NFTs). Any of your assets can be tokenized, like how Kings of Leon sold their latest album.

Related How Cryptocurrency Could Inspire a New Kind of Financial Literacy

And they extend an open invitation to all of the coders and programmers out there.

“…[E]verything here is open-source and ready for you to extend and improve,” they stated.

So, get ready to learn some new vocabulary and adjust to new technologies in every facet of life. Bitcoin isn’t the height of blockchain technology. NFTs and DeFi aren’t the most advanced applications we will see. The world is changing so fast that it’s tough to understand where the crypto revolution is going, but Ethereum will be part of that story.

David Grasso is the host of the Follow the Profit podcast, where he shares simple ideas for financial success and lessons learned the hard way. He is also the CEO of Bold TV, Inc, a nonprofit media company dedicated to entrepreneurship and cultural empowerment.

Hannah Buczek is the managing editor and journalist for Bold TV. She also reports and edits for GenBiz, a nonprofit media brand focused on promoting financial freedom.

Bitcoin and Ethereum Price Seeks to Recover Lost Grounds After Market’s Flash Crash

Both Bitcoin and Ethereum traded at a weekly low of $47,159.49, and $2,060.14 respectively. These price levels were surreal as prices had not gone that low since early March.

With the market held down in the oversold region for days, the news that America’s oldest wine brand Acker now accepts Bitcoin and Ethereum payments is perhaps adding to fuel the current bullish market outlook.