Vecteezy
Ethereum has been a constant and popular presence in the cryptocurrency market for such a long time that it requires no introduction. Since it’s listed on all major crypto exchanges like Binance, it’s easy for people to keep track of Ethereum price movements and learn about its latest developments. This is especially important considering Ethereum’s reputation as a driver of innovation in the crypto industry, regularly rolling out updates and upgrades that are meant to improve the network’s technical capabilities.
But just because we’ve gotten used to Ethereum being in the lead, doesn’t mean that its future in the crypto market is guaranteed. In fact, the network faces several challenges that need to be addressed if the network is to reach maturity. In an industry that’s still in its early stages of development and where volatility and instability are the watchwords, no crypto project is safe from failure, and crypto experts and developers are well aware of this.
Ethereum is thee transitions away from success
In a recent post titled The Three Transitions, Vitalik Buterin, Ethereum’s co-founder, talked about the essential transformations that the blockchain platform needs to undergo in order to survive and thrive in the years to come. According to the programmer, layer-2 scaling solutions, smart contract wallet functionality, and improved privacy features are the three main areas that call for attention.
Buterin also explained that these key technical transitions, as he calls them, which are definitory for Ethereum’s success, would have to happen simultaneously. This is going to be extremely challenging due to the blockchain trilemma. For those who are not familiarized with the concept, the blockchain trilemma revolves around the three pillars that blockchain technology relies on: decentralization, security and scalability. The dilemma stems from the challenge of achieving optimum levels in all these areas since blockchains usually score high only on two out of the three. However, it’s necessary for Ethereum to check all these boxes to achieve its goals and maintain its relevancy.
Scaling for the win
While addressing these issues, Buterin specifically focused on the first point of interest represented by layer 2 scaling solutions. He noted that scaling has become an increasingly concerning problem as transaction costs have risen considerably, reaching $3.75 per transaction which could go as high as $82.48 during bull markets. In order to solve the scalability issue, Buterin proposes rollups as a solution. Layer 2 solutions are used to enable off-chain transactions, thus enhancing speed and reducing costs. Rollups are a specific type of layer 2 solution which consists of bundling together these off-chain transactions and periodically publishing their status on the Mainnet to ensure their validity, while also avoiding network clogs. This results in faster and cheaper Ethereum transactions.
Ethereum needs to scale so it can support the computing demand that would turn it into the “world computer” that its creators originally envisioned. Therefore, Ethereum’s main goal and vision largely depend on the network’s ability to successfully deploy layer 2 scaling solutions. If Ethereum fails to do so, transaction costs are bound to get higher leading to increased centralization of the network.
However, rollup contracts should not be regarded as a way to reduce activity on the Mainnet. Their purpose is to extend the network’s capabilities and ensure a balance so that the demand can be spread across the Mainnet and other chains while ensuring the same level of security.
Improving user experience and privacy
Buterin also highlighted the need to improve the user experience for those managing multiple addresses simultaneously. At the moment, smart contract wallets are experiencing some technical difficulties which can affect the user experience, but Buterin is optimistic that addressing these issues is not going to be too challenging.
Privacy – more specifically enhancing wallet security and privacy – is another key topic on the agenda, according to the Canadian programmer. It’s especially important for wallets to provide adequate security to users by keeping their authentication credentials and personal data safe. Improved identity, reputation and social recovery systems are required for Ethereum to reach optimal privacy levels. Buterin views privacy as the most difficult transition, albeit a very necessary one. The lack of adequate privacy measures will cause users to seek centralized solutions that might not offer the same benefits as a decentralized platform but would at least provide better privacy.
Although blockchain is touted as providing anonymity, that’s not exactly how things work. Crypto transactions are at best pseudonymous, meaning that they are not linked to an identity, which ensures a certain level of anonymity. However, one can track the transaction history of a specific address, and most users are not comfortable with having this data out in the public for everyone to see.
Buterin believes that the use of stealth addresses might provide a solution in this respect. These are one-time addresses that are not linked to users’ public addresses, so they provide anonymity while conducting transactions. Nevertheless, improving privacy while scaling up the network’s capabilities and ensuring more secure wallets is going to be a very difficult endeavor given the coordination efforts required in the process.
Conclusion
So far, Ethereum has been able to maintain its position as the altcoin leader. Despite being second to Bitcoin based on market cap, Ethereum has always been the hot spot for innovation in the crypto space, building an entire ecosystem of smart contracts, dApps and DeFi around its network. This proves that Ethereum has greater chances of thriving in the years to come than any other crypto project in existence. The fact that the network still has a host of issues to address is also a clear indication that the Ethereum team prioritizes continuous improvement and development. All in all, the signs point toward a bright future for Ethereum, so it’s going to be interesting to follow its evolution.
