100k transactions per second? The state of Ethereum, August 2022

100k transactions per second? The state of Ethereum, August 2022

100k transactions per second? The state of Ethereum, August 2022

It’s been another big month for Ethereum and we’re back with all of the biggest stories that you might have missed.

This week in our monthly Ethereum round-up we’ll check out how Ethereum could scale to 100,000 transactions per second, why Arbitrum’s newest update could be a game changer for adoption, and the latest developments with the merge.

Also, in the final section we’ll cover two threats to Ethereum that you might want to pay attention to.  

    The latest on Ethereum

    The Ethereum merge is scheduled for mid-September! Shadow forks and testnet simulations of the merge continue to prove that the network is ready for the upgrade. As we discussed in last month’s issue, the staking yield should go as high as 8 to 10% once the transition takes place. You can check out this excellent FAQ thread on Twitter if you want to know more about the merge.

    If an Ethereum staker makes a mistake, the network can slash some of their funds. Staking is complicated, and even institutional staking services have made mistakes and gotten slashed.

    Staking insurance will be an important part of building out Ethereum’s ecosystem, seeing as even institutional staking services have made mistakes and gotten their funds slashed. For this reason, it’s exciting to see Nexus Mutual is ramping up their slashing insurance. This type of unexciting but necessary financial product could legitimize Ethereum staking for institutional clients.

    2 Fast 2 Ethereum: speeding up the network

    Miles Deutscher recently put out a thread on Twitter explaining Vitalik’s theory of how Ethereum could eventually scale to 100,000 TPS. That’s not going to happen overnight, But Vitalik isn’t known for making grandiose claims with no basis in reality. According to Vitalik, if Ethereum is going to scale to those speeds it will happen in five distinct steps.

    1) The merge

    The transition from Proof of Work to Proof of Stake. The merge will cut Ethereum’s electricity use by 99%, and reduce the network’s inflation rate.

    2) The surge

    Another concept that’s been around for years, the surge refers to sharding on Ethereum. Sharding will divide the blockchain into smaller, semi-independent pieces allowing for faster processing.

    3) The verge

    Merkle proofs will reduce the hard drive space needed to run a full node, making Ethereum more accessible to solo stakers.

    4) The purge

    Pruning historical data and state expiry to further reduce storage requirements.

    5) The splurge

    A handful of less significant upgrades that will ensure the network operates at maximum capacity.

    This summary is only a superficial overview of what Vitalik views as Ethereum’s scalable future. To get a better idea of what’s going to happen you can watch Vitalik’s 45-minute presentation at EthCC.

    All about Arbitrum

    The price of Polygon’s MATIC token has been spiking recently, but the optimistic rollup Arbitrum is still the most popular layer 2 scaling solution with $2.8 billion in TVL (Total Value Locked). Not sure how rollups work? Check out this article.

    Arbitrum remains the most popular layer 2 scaling solution on Ethereum - IMG Source

    Not one to rest on its merits, Arbitrum is introducing two new exciting products.

    Nitro has been in the works for months and the upgrade is expected to go live at the end of August. A full technical explanation of how Nitro will work is available here. To summarize the key points:

    • Honest gas cost calculations on Arbitrum. Previously, gas costs on Arbitrum were estimates
    • Better user experience for developers, who will have more debugging tools
    • Lower fees via calldata compression, resulting in less data getting posted to Ethereum’s mainnet

    Nitro will also pave the way for the launch of Arbitrum Nova, an additional scaling solution built with a specific user in mind. Nova is designed to make a small trade-off in security, in exchange for high speeds and low fees.

    Nova assumes that given X number of validators, let’s call it 20 validators, a small percentage of them will be honest. For example, a bare minimum of 2 out of 20 validators will be honest.

    So long as that assumption holds, Nova will be even cheaper than Arbitrum. It could be ideal for gaming applications, where the average user might only be keeping $50 or $100. More information about Nitro and Nova is available here.

    ZK-Rollups on Ethereum

    ZK-Rollups use cryptographic proofs to validate transactions. The math involved is insanely complex and out of reach to 99.999% of the earth’s population. However, the practical applications are profound. Using math to secure transactions, instead of validators, is efficient and inexpensive.

    In the long term ZK-Snarks and ZK-Rollups may be the best scaling solution for Ethereum. At least, that’s what Vitalik thinks. However, until now ZK-Rollups have had a major disadvantage: they’re not EVM compatible. It’s difficult to run a smart contract (like Uniswap) in a ZK-Rollup.

    But that’s changing fast. There are three new ZK-Rollup protocols that claim to have achieved EVM equivalence. They are:

    These projects are still in their earliest stages and are not ready for mass adoption. However, even if only one of them proves successful, it will be a huge deal for Ethereum. Not nearly enough people are talking about how a successful, EVM equivalent ZK-Rollup could cement Ethereum as the dominant web3 protocol.

    If you really want to dig into the technical details of how ZK-EVM technology works, check out Vitalik’s latest blog post.

    Watch out for…

    Bridge hacks! It’s an unfortunate truth that blockchain bridges just aren’t that secure (here’s the latest hack, just one of many we’ve seen recently). Part of the problem is shady teams throwing together cut-rate projects to make a fast dollar.

    However, the real problem is just that bridges are brand new technology and even the most skilled teams with the best intentions can make mistakes. When it comes to bridges, the developers don’t know what they don’t know.

    Whether it’s Ethereum, Solana, Fantom, Polygon or any other inter-connected blockchain, be careful with bridges. When in doubt, stick to one blockchain and keep your coins in a non-custodial wallet like Exodus.

    Another risk factor worth considering is the control that centralized stablecoin issuers have over the blockchains that their tokens trade on. Recently Circle said that if Ethereum hard forks at the merge, they won’t support the Ethereum proof of work chain.

    Probably 95% of the Ethereum community agrees with that choice. However, the problem is that the decision might not be so cut and dry in the future. If we ever have a more contentious hard fork, as happened with Bitcoin and Bitcoin Cash for example, Circle and Tether could basically choose the winner. Whichever chain they accept redemptions on would almost certainly become the dominant fork.

    Stablecoin issuers’ control over blockchains isn’t a topic that gets a lot of press, but it’s definitely a risk worth paying attention to.

    The rise of ETH

    The merge is one of the most exciting blockchain updates since Taproot on Bitcoin, and it’s happening next month. The market is already pricing it in too.

    If you look at the charts, ETH is showing a solid outperformance against BTC, which is a great sign for Ethereum investors. If Ethereum can continue to outperform Bitcoin during a bear market, there’s no telling how well it could do once we enter the next cyclical bull market.

    ETH/BTC chart since July 1st. Trading View

    How to buy Ethereum

    You can buy Ethereum (ETH) and other cryptocurrencies in Exodus, in any way you prefer:

    This content is for informational purposes only and is not investment advice. You should consult a qualified licensed advisor before engaging in any transaction.

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