Why we selected Ethereum

Jun 4, 2021

The main problem with any truly decentralized blockchain is scalability. When the number of concurrent users increases significantly, the network becomes congested. The price of transactions skyrockets and the speed goes down. Some solutions to this problem are to reduce the degree of decentralization, which affects security and immutability. Examples are Solana or Binance Smart Chain.

Although we closely study these projects and see their appeal, we believe that Ethereum will remain at the forefront of decentralized finance for a long time to come. The changes that are being applied to the platform will further strengthen its leadership.

Ethereum 2.0

In the Ethereum network, the nodes are computers that run the Ethereum code and validate the integrity of the network. Although the network was designed so that all nodes are dedicated to validating the entire network at all times, this degree of redundancy is not required.

In the same way that thanks to statistics it is possible to know the attributes of a universe if we can study a completely random sample, we can know the state of the Ethereum network without having to validate the complete chain of blocks at all times. It is the same principle by which we can know what percentage of the population watches a television program without having to ask all the people who watch television in our country.

Different groups of nodes will validate different portions of Ethereum running in parallel, called shards. This change will dramatically increase the scalability of the network.

Ethereum Improvement Proposal 1559

The implementation of EIP 1559 will automatically increase the maximum block size whenever the network congestion level reaches 50%. Currently, the size of a block in Ethereum is 12.5 million Gas (the unit in which the cost of transactions is measured). As long as the network detects signs of congestion, each block will admit 25 million Gas, so each block may include twice as many transactions. EIP 1559 is scheduled to go live next July.

The proposal will also improve the way Gas operates. Among other updates, we will go from a bidding system (whoever pays the most is positioned first to enter the block) to one in which transactions always have a basic rate that will vary automatically when network congestion reaches 50%.

Layer 2 improvements

There are multiple projects already active dedicated to minimizing the cost and reducing the speed of transaction confirmation in Ethereum, known as second layer solutions (code that connects with Ethereum without being an integral part of the network). Some use extremely brilliant systems to cryptographically execute batches of transactions very cheaply. Others apply the “optimistic execution” of transactions, according to which the transactions are placed in the block in such a way that their validity can be directly assumed, provided that no other participant challenges the transaction.

Ethereum already has a huge competitive advantage over its potential competitors because most blockchain computing projects are developed on its platform. If Cardano or Polkadot (competitors that don’t sacrifice decentralization for scalability) have not been able to attract a critical mass of users and talent from Ethereum, the reason is it’s understood in the community that the scalability of Ethereum is far from having peaked and that the best is yet to come.

In the future, Cardano or Polkadot may well become the number one decentralized technology. While most likely they will turn out to be complementary technologies, today Ethereum is the undisputed leader.

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