Ethereum is by far the most popular blockchain for DeFi, gaming, and NFT projects. About 59% of the decentralized applications are based on Ethereum. However, it is plagued with sky-high gas fees and slow transaction processing. A transaction on the Ethereum blockchain currently takes between 30 seconds and 16 minutes.
The upcoming Ethereum 2.0 appears to be the panacea that would resolve all these issues. Until that happens, the competing blockchains have an open window to attract developers and users looking for alternatives to Ethereum.
As DeFi and NFTs gained traction over the last year, they exposed the limitations of Ethereum. The network has been struggling to deal with the influx of new users. Ethereum has become unsustainable for small investors and traders. The fees make no sense if your transaction sizes. The average gas price on Ethereum is 58 GWEI compared to just 6.1 GWEI on the Binance Smart Chain.
Ethereum 2.0: How Long Do We Have To Wait?
The community is eagerly waiting for the ETH 2.0 aka Serenity release. The upcoming upgrade would make it more secure, scalable, and sustainable. It is switching from the Proof of Work (PoW) to Proof of Stake (PoS) consensus mechanism, which would reduce energy consumption by more than 99% and increase the transaction speed from the current 15 transactions per second to about 100,000 TPS.
The Ethereum 2.0 transition is happening in three distinct phases. The first phase - the Beacon Chain - has been live since December 2020. It laid the groundwork for future upgrades. In the second phase, dubbed The Merge, the Ethereum network will switch to the Beacon Chain as its consensus mechanism. There is no specific date for this, but it’s likely to happen towards the end of 2021. It will enable staking on the Ethereum network, putting an end to the energy-intensive mining.
The final phase - Shard Chains - will arrive sometime in 2022. It will involve the splitting of the Ethereum network to further increase its capability for validating transactions, storing data, and improving performance over time. The inclusion of shard chains will mark the official completion of the Ethereum 2.0 upgrade.
Charles Hoskinson, who co-founded Ethereum and later launched the Cardano platform, said in an interview with Bloomberg News that the “most significant heavy lifting in their (Ethereum’s) upgrade strategy will occur in 2022.” Hoskinson thinks Ethereum will wrap up the transition and upgrade towards the end of 2022 or early 2023.
Ethereum co-founder Vitalik Buterin has also admitted that the ETH 2.0 is taking a lot longer than expected. “We thought it would take one year to do the proof-of-stake, but it actually takes six years,” he said.
Alternatives, Alternatives, Alternatives
Ethereum competitors have been taking advantage of the delay in ETH 2.0 to strengthen their ecosystems. Binance Smart Chain is only about a year old, but it is processing more transactions than Ethereum.
BSC is a hard fork of the Go Ethereum (Geth) protocol, so it has many similarities with Ethereum. Decentralized apps and tokens built on BSC are fully compatible with the Ethereum Virtual Machine (EVM). In fact, the public wallet addresses are the same for both BSC and Ethereum.
Binance Smart Chain is more scalable because it uses a fully delegated Proof of Staked Authority (PoSA) consensus mechanism. The low transaction costs reduce the barriers to entry for small traders and investors. As of June, there were about 2,000 dApps on Ethereum and only a little over 800 on BSC. But considering Ethereum has been around for much longer than Binance Smart Chain, the one-year-old chain’s growth is admirable.
Meanwhile, Qtum, a proof-of-stake blockchain that takes the best of both Bitcoin and Ethereum to offer faster and more secure transactions, has seen its token jump more than 500% this year as it shifted its focus to decentralized finance. Network developers are riding the boom in DeFi.
Qtum uses Bitcoin’s UTXO transaction model in combination with an adaptation layer interface to the Ethereum Virtual Machine (EVM). It is going to great lengths to attract developers. The Qtum network has transitioned from a 128-second block average to a 32-second block average. It also boasts one of the largest node networks of any blockchain. As of May 2021, there are a total of 1,200 Qtum nodes distributed across 60 countries, making it one of the most open and decentralized blockchain.
Then there is Cardano that aims to be a force of good, providing “unparalleled” security and sustainability to dApps, systems, and societies. Cardano has been getting a lot of attention from developers since announcing the launch of smart contract functionality on September 12. Smart contracts will allow it to compete directly with other programmable blockchain networks.
Cardano’s ADA token has become the third largest in the world with a market capitalization of $90 billion. The two tokens ahead of it are Bitcoin and Ethereum. Smart contracts will enable Cardano network to provide lucrative services like DeFi lending, borrowing, gaming applications, NFTs, etc.
Polkadot is also in race to become the go-to blockchain network for dApps. In fact, it is emerging as a viable alternative to Ethereum. Polkadot is a fully decentralized Web 3.0 blockchain platform that bridges the independent blockchains to enable seamless asset transfer and communication among them. It uses sharding mechanisms to offer cheaper and faster transactions.
There are more than a thousand public blockchains, and we are moving towards a multi-chain universe. So, Polkadot’s cross-chain interoperability will become more important than ever before.
Polkadot allows developers to build and launch specialized blockchain platforms that are connected into one unified network. Projects within the ecosystem can communicate and transfer assets with one another. They can also communicate and transact with external public blockchains such as Ethereum and Bitcoin.
Another set of networks such as Biconomy are focusing on making it easier for newbies to enter the DeFi space. Biconomy is a new blockchain network that simplifies Web 3.0 and helps developers build applications that are simpler and more user-friendly. It removes the friction points that overwhelm new users interacting with dApps.
Proof of Stake - or a variant of it - is the future of decentralized finance. Ethereum has been the dominant blockchain network, but the delay in ETH 2.0 rollout could cost it dearly. Rivals such as BSC, Qtum, Cardano and others are going the extra mile to attract developers and take advantage of the network effect. Only time will tell whether Ethereum 2.0 will arrive in time to maintain its dominance or cede ground to rivals.