The Ethereum network can process 15 transactions per minute, but scaling is one of its main problems. The gas fees increase as more decentralized apps (Dapps), are added to the network.
Last year, coincident with the first bull cycles, Ethereum fees soared to over $40 per transaction making it unaffordable for most people.
What Is The Problem?
Any developer who tried to create a decentralized application that could be used by the masses will tell you that Ethereum, in its current form, is not ready. Transactions take time to clear, and the cost of every function is high. This creates poor user experiences and makes transactions expensive. All of this boils down to a general “scalability” problem. Poor throughput and high costs have both been major barriers to meaningful adoption.
Ethereum can process approximately 500,000 transactions per hour, while at its full capacity it can process around 13 transactions per second. These transactions do not require validation from a third party, but centralized counterparts can more efficiently process transactions. Visa’s payment network processes 150,000,000 transactions per day, which is a lot more than any decentralized network of the blockchain network.
The primary reason for Ethereum’s slow scaling is that every node on the network must process each transaction. Nodes are responsible for verifying that miners’ work has been verified. Nodes play an important role in the network, as they are the primary check on miners who act maliciously. Each node also keeps an accurate copy of the current network state. This means they don’t have to rely on third parties to verify the balance of each account or smart contract.
The limited number of transactions one can make using one block to facilitate Ethereum’s gas prices is what makes Ethereum’s current gas prices work. In such a situation, miners can pick the most expensive transactions to prioritize, which results in an increase in gas prices.
What’s The Solution?
The only update that will address Ethereum’s scaling issues is the Ethereum 2.0 upgrade. Also known as the shift between proof-of-work (PoW), to proof-of-stake (PoS), the Ethereum 2.0 upgrade. Ethereum could theoretically handle 1,000 transactions per second once the shift is complete.
According to Vitalik Buterin, the update may not be available until late 2022. However, there are still ways to scale Ethereum. Sidechains, or layer 2 networks, can be built on top of Ethereum because it is layer 1. Sidechains can enhance the network’s capacity and complement it.
Other Options
Sidechains are independent blockchains that operate in parallel to Ethereum’s mainnet, but independently. This increases its scalability. Polygon, the most well-known sidechain, aims to scale Ethereum through building and connecting Ethereum-compatible blockchain networks.
Rollups are a type of sidechain that is designed to enhance Ethereum. Sidechains face the challenge of protecting their blockchains. This requires additional effort.
Layer 2s, however, try to avoid this complexity by borrowing security from layer 1 Blockchains — in this instance, the Ethereum blockchain. Layer 2s are more efficient independent ecosystems, as they sit on top of Ethereum and share its security.
There are two types of rollups. Optimistic and Zero-Knowledge. Both rollups aim to scale Ethereum by processing transactions at layer 2 and then submitting the results back. The difference lies in the way they validate transactions.
In simple words, optimistic rollups assume transactions are valid. This is why optimistic outlooks can be described as optimistic. It also allows “watchers”, who are public and transparent, to spot fraudulent transactions. A watcher can prove fraud cases and have the transaction reversed. The bad actor is penalized and the watcher is rewarded.
Optimistic rollups are used by Optimistic Ethereum and Off-chain Labs Arbitrum, which are two of the most popular projects. Both projects are still in their infancy but have already generated billions of dollars in network value.
ZK rollups on the other hand, and unlike previous versions, try to prove that transactions have been valid. By submitting validation proof to an Ethereum smart contract along with the bundled transactions, they do this. Starkware and Matter Labs are some of the most prominent ZK rollup users.
