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Ethereum’s completion of the long-awaited “Merge” this week is unlikely to improve the long-term speed or scalability of the network, writes Marc Lurie of Shipyard Software.
The Merge of Ethereum
Ethereum is expected to complete the much-touted “merger” this week, drastically reducing energy consumption as the network switches from mining to staking. While this achievement sets Ethereum up for future operational updates, the informed consensus is that the merger itself is unlikely to immediately improve the speed or scalability of the Ethereum network.
However, the merger and future network upgrades will still have a huge impact on the broader scalability war as lesser-known Tier 1 blockchains step up their efforts to demonstrate their advantages in speed and scalability. And in their efforts to create commerce-ready network products, builders and venture capitalists keep their eyes on blockchain, fast and scalable enough to support the infinitely complex products on the network.
The problem of scalability of blockchain networks
The dream is inspired by centralized computing, which is constantly improving in line with Moore’s Law, which states that the number of transistors in a microchip — or computing power — will double roughly every two years. This has been true since it was first announced in 1965, and from then until now, centralized computing power has scaled fast enough to keep up with our needs.
But the reality is that it is unlikely that any blockchain will ever reach the computing capabilities of a centralized system that only has to run updates and store data inside. On the other hand, the decentralized system processes and stores data on hundreds, even thousands, of remotely connected computers that need to reach consensus on each transaction. With the exception of some major breakthroughs, the performance of decentralized systems will always be lower.
Moreover, and this is less intuitive, it is unlikely that any one blockchain will always be faster than the others. This is the “scalability paradox.”
Every time a popular decentralized network can support more and faster usage, it encourages more usage and more nodes. It’s a familiar concept in other industries. Studies show that the expansion of highways and roads simply encourages more drivers until congestion reaches the same equilibrium. Take the case of a decentralized exchange with an order book on the network: the more scalable the order book in the chain, the faster it can process maker and taker orders. This favorable environment attracts even more crypto traders to the exchange, as well as high-frequency traders, who help to bring the volume of orders to the limit. As a result, the grid becomes congested and gas prices rise. Blockchain becomes a victim of its own success.
In other words, Ethereum will never establish a true monopoly on Web 3.0, even though it has an extremely strong network effect that attracts developers and users. Instead, the continued success of Ethereum will again lead to increased network congestion, thereby creating a vacuum for the development of faster, more innovative, and scalable alternatives. An example is the Ethereum developer community, which decided to abandon the priorities of its network sharding plans after witnessing the emergence of viable third-party scaling solutions such as Polygon and Optimism. It is a tacit acknowledgement of the power of these projects and an indication of what lies ahead.
After the merger, new so-called “Ethereum killers” are just as likely to appear, as well as layer 2 protocols designed to complement Ethereum. Either way, the industry will improve from the past, and arguing about which L1 has the highest volume of transactions or total blocked value is less useful than learning which decentralized network or service is best suited for a particular task or opportunity.
All of this suggests that the winner of the war for scalability may ultimately be irrelevant. The Merge isn’t even the most important milestone on the Ethereum roadmap. Next Ethe Updatereum, dubbed “The Splash” (followed by “The Verge,” “The Purge,” and “The Splurge”)—is scheduled for next year, and only then will the speed and scalability of Ethereum be increased by sharding the network. But even so, Ethereum updates simply mean that the network will significantly increase the upper limits of its operating power, but not indefinitely.
Instead of worrying that Ethereum updates will cause the mass extinction of other L1s, we should look forward to the Cambrian explosion of creativity. A faster and scalable Ethereum is likely to destabilize some competing L1 projects, but such is the nature of the competition. A highly competitive crypto universe is much better than what we see in an outdated tech industry, where the benefits of mass scale make it nearly impossible for startups to compete against giants like Google and Amazon.
Web3 developers will likely never create a perfect “one-size-fits-all” blockchain, but the possibilities for the industry as a whole are endless. Creativity is often born out of necessity, and the result will be better technology for everyone.
Author: Elvir, Analyst Freedman Club Crypto News
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