Next month, the Ethereum blockchain is scheduled to make the long-awaited switch to a much more environmentally-friendly Ethereum 2.0, which will in turn set the stage for a vast scalability increase that will, in theory, allow it to compete as a large-scale payments network on par with Visa and Mastercard.
And yet, in a recent research report, Bank of America suggested that a number of the so-called “Ethereum killer” blockchains that have lured away market share in the last year or so are still a threat, CoinDesk reported last week.
The Sept. 19 “merge” from a power-hungry, bitcoin-style proof-of-work (PoW) consensus mechanism to the proof-of-stake (PoS) method used by the Ethereum killers will decrease its “energy consumption by over 99%,” and lower barriers to entry for investors to generate yield as network validators alter ETH’s supply/demand dynamics.
See also: Crypto Basics Series: What’s a Consensus Mechanism and Why Is It Destroying the Planet?
It also clears the way for the much more important — from a payments perspective — introduction of “sharding” technology that splits the Ethereum network up into many pieces.
Developers have said that will increase its current 12 to 15 transactions per second (TPS) scalability by several orders of magnitude, topping out at 100,000 TPS — more than Visa’s 65,000 TPS capacity.
Read more: Ethereum 2.0 Targeted for September with 100,000 TPS Close at Hand
So why did the bank’s analysts warn that blockchains like Solana, Avalanche and Binance Smart Chain, among others, could still take away enough of Ethereum’s massive market-share advantage to threaten its preeminence?
Simply put, there are still a lot of unanswered questions about Ethereum 2.0’s capabilities, as well as potential fallout from the switchover.
Related: BoA Sees Solana Blockchain as ‘Visa of Digital Asset Ecosystem’
Numbers Lie
To begin with, the switch to Ethereum 2.0 — assuming the PoS phase happens on schedule next month — is already years behind.
While moving to PoS is a vast undertaking, the coming stages are just as big. Sharding is a huge undertaking that is supposed to bring much the same benefits as Layer 2 blockchains that site on top of slower blockchain like Ethereum and Bitcoin, moving the work of transactions off of them for big speed increases and fee decreases.
Without it, the Ethereum killers still have a huge advantage — and given Ethereum’s history, it could be a lot further off than the first half of 2023.
Second, even Ethereum lead creator Vitalik Buterin has said that Ethereum 2.0 will maintain a 12-second block time between the uploading of transaction data, giving it a finality time of six to 12 minutes. That’s hardly real-time payments.
See also: Ethereum 2.0 Will Not Be Any Faster, Vitalik Buterin Said. But It Will Still Scale Massively
Then there’s the matter of Ethereum’s fees, which are currently ranging between several dollars to $20 or more. When sharding kicks in, that should, in theory, go down, but how much is very debatable. Whether it can go down to a few cents or a fraction of a cent like Ethereum killers like Cardano and Algorand boast, while still maintaining the lion’s share of transactions, is debatable.
Especially as any assumption about Ethereum 2.0’s scalability being necessary takes it as a given that the number of transactions on the blockchain will increase exponentially.
That means that the forthcoming merge’s real purpose, to save Ethereum’s place as the preeminent blockchain and make it a really effective payments blockchain, is still in doubt.
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