Really big news. Currently the biggest obstacle to Ethereum adoption is ‘scaling’ the network. The ETH blockchain – while incredibly promising – is not close to fast enough to handle the potential transaction volume required.
For Ethereum to deliver on it’s promise it needs to be at least 100x faster than it is now. Ethereum will need ‘Visa-level’ transactions per second to handle all the applications / usage of the network.
To get an idea of where we’re currently, Visa handles 2000 TPS (transactions per second) with a capacity of 20,000+. Right now, Bitcoin has 7 TPS and Ethereum has ~15 TPS.
The ‘Scalability Trilemma’ – Vitalik Buterin, Creator of Ethereum
Vitalik believes there are three core components of a blockchain – Decentralization, Security, and Scalability – and current blockchains have to make sacrifices and aren’t able to achieve all three.
The biggest problem, however, seems to be scalability.
“Why is scalability so hard? I often talk about the ‘scalability trilemma’, where I say that blockchain systems have to trade off between different properties. And it’s very hard for them to have three things at the same time, where one of them is decentralization. The other is scalability, and the third is security,” Buterin said.
According to him, it’s very easy to have two of these, but developers will end up having to sacrifice one of them to some measure.
“For example, if you want only security and decentralization, then you just go for existing blockchains,” he said.
He then proceeded to list all the blockchains that exist today (including Ethereum and Bitcoin), which were developed with a focus on security and decentralization but suffer when it comes to scalability.
“The other thing you can do is you can go for decentralization and scalability at the cost of safety,” he added.
Buterin’s favored solution appears to be “sharding”, a practice in which only some of the nodes will process transactions from one particular block.
Sharding Proof-of-Concept Published
On Tuesday Vitalik dropped the ‘proof-of-concept’ code for ‘Sharding’ – his solution to the blockchain scalability problem. This is massive.
Short-term scaling is required for ‘Dapps’ – decentralized applications – to be launched on Ethereum. Remember CryptoKitties? It’s a game based on Ethereum that broke the network. If one cat game can overload the network, how can multiple applications function together?
There are hundreds of ‘Dapps’ being built right now that are waiting on this faster version of Ethereum. And it’s coming sooner than later.
Hybrid POW/POS Impact on Ethereum Inflation
Another big thing I’ve been talking about is this move away from ‘POW’ (Proof of Work) to ‘POS’ (Proof of Stake). This means the “mining” element will be eliminated and replaced with “staking”. This means instead of computers wasting power doing nothing, Ethereum holders can “stake” their holdings for rewards.
The current “block reward” – how much ETH is given to miners each “block” – is 3 ETH. When Hybrid POW/POS comes later this year (maybe August?), the reward for miners drops to 0.6 ETH. That’s a massive reduction!
On top of that 0.6 ETH a small amount will be given to “stakers” – I’m not sure of the exact amount – but overall the inflation rate of Ethereum should drop to ~2% later this year.
Impact on Ethereum’s Price
Over the past few months positive news for Ethereum hasn’t really impacted the price. I was mentioning this as the price kept going down through March/April – the price movements seemed divorced from the actual news / development of Ethereum. Nothing was going to stop the big retrace before Tax Day.
Right now the overall crypto market is recovering – and despite the recent positive price movement, I still think ETH is waiting for it’s breakout moment.
Over the past few weeks the ETH/BTC ratio continues to move as predicted –
As I’m writing this ETH is @ $740 after breaking $700 overnight. I expect continued positive movements over the next few weeks. I think ETH is coiling for a crazy move this summer, and I’m not the only one.
Reddit Creator Predicts $15K ETH!? By 2019?
Alexis Ohanian – Serena William’s husband – or otherwise known as the co-creator of Reddit – threw out an end-of-year prediction of $15,000 ETH. That’s bullish!
Pretty hard to imagine though. Or is it? As I’ve been saying, crypto is still in the 2nd inning. None of the promises of blockchain have delivered yet. Decentralized Applications are still mostly theoretical.
But if this really is “the new internet” – a new blockchain based internet layer that runs on the Ethereum blockchain – then that price point is completely reasonable. By the end of year? Maybe not. But just look at last year.
In 2017 the price started at $10. The “moon” that year was $100. Would ETH go 10x and reach $100? The end of year price was $750.
Right now there is so much crap (aka “shitcoins”) in the ecosystem. Eventually that money will flow into the real “blue-chip” projects – Ethereum and Bitcoin.
The entire crypto market is under .5 Trillion. Down almost 50% from ATH. These are early days.
Crypto is not done surprising people.
What’s Next? (WTF Am I Doing With My Life?)
In the midst of all of this I’ve been trying to figure out what I personally want to do. Now that I’ve quit my job the pressure is on. I have so many ideas and directions in my head, it’s been a bit overwhelming.
This past weekend I was in Los Angeles, spending time reconnecting with good friends and getting good advice.
I’ve decided what I want to do next. I want to build something on Ethereum.
This is really what I’m most excited about. I want to build something that wasn’t possible before on the old internet. I want to help build the new one.
More on that later, it will be helpful to write it out.