The upcoming release of Ethereum 2.0 has never been more critical after the growing criticism of energy consumption by Proof-of-Work (PoW) blockchains like Bitcoin. Ethereum also uses the PoW model, so the blockchain consumes an energy equivalent of Hong Kong, according to Digiconomist. Comparatively, ETH 2.0’s new proof-of-stake network expects to use around 99.95% less energy.
Naturally, the public is restless for the release of ETH 2.0 as it could be the inflection point that takes blockchain technology to the mainstream. However, Vitalik Buterin admitted in his recent interview that building Ethereum 2.0 has taken many times longer than he had anticipated. He said, “We thought it would take one year to do the proof-of-stake, but it actually takes six years.” So, what’s causing the delay? Internal team conflicts have been hammering the project, according to Buterin.
“One of the biggest problems I’ve found with our project is not the technical problems, it’s problems related with people … We have a lot of internal team conflicts in these five years,” said Vitalik Buterin
Ethereum saw many shake-ups in the team with seven co-founders leaving the project, and Buterin is the only founder remaining in the project. In the same interview, Buterin shared the biggest “people” lesson he learned: “If you are building a team, it is important to know who you are working with.”
Ethereum Needs Proof Of Stake More Than Ever
This news comes at a time when the demand for Ethereum to switch to PoS is at an all-time high. The reason is simple. The explosion in the popularity of cryptocurrency has overwhelmed Ethereum. Gas fees are sky-high and transaction times are taking longer than usual.
Buterin said the current version of Ethereum has become a victim of its own success, with demand pushing network fees to record levels, making the majority of transactions too expensive for the average user.
Buterin acknowledged the urgency to switch to the PoS model: “There’s a lot of other things that people are building in the Ethereum space, but the blockchain’s ability to handle all the transactions is having a hard time keeping up with the demand, which is exactly why all of these things that we’re working on the technology side with scalability and proof of stake are so important.”
The model of PoW worked well for Bitcoin because of its main draw as a “digital gold.” It can afford to be slower in order to be more secure. However, Ethereum is viewed as a utility platform like the Apple app ecosystem. So, the inability to scale up is harming Ethereum’s market share in DeFi.
Competitors Are Circling To Take Market Share From Ethereum
Experts believe that it’s inevitable that there will be “winners take all” for DeFi platforms, with possibly two platforms becoming the dominant leaders. For example, Microsoft Windows and Apple iOS own 93.7% of the market share for desktop PC operating systems.
Right now, Ethereum holds a large lead in DeFi with Ether’s market cap at $328 billion. However, many users are moving away from Ethereum because it is simply too expensive and time-consuming to use, especially for smaller payments. As a result, an alternative called Binance Smart Chain has leapfrogged Ethereum for now.
Binance Smart Chain launched last year as a fully delegated proof-of-stake alternative to Ethereum, using validators instead of miners. Of course, PoS is far more scalable which means cheaper transaction fees.
Case in point: Currently, BSC has an average transaction fee of about 7 GWEI versus Ethereum’s 95 GWEI for fast transactions — a 1,257% fee difference in favor of BSC.
Good enough, Binance Smart Chain (BSC) surpassed Ethereum in user count. At the time of writing, DappRadar shows that BSC’s Pancake Swap has 23 times more users than ETH’s Uniswap V3:
Adding to the urgency of PoS, eBay recently began allowing NFT sales on its auction site. The auction site chose WAX as the blockchain to run their NFT transactions. WAX uses proof-of-stake blockchain, and its official website boasts that “WAX is ~125,000x more efficient than Ethereum.”
The trend is clear that Proof-of-Stake is the future of DeFi platforms, so only time will tell if Ethereum can complete its 2.0 version before the clock runs out.
Does Ethereum Have Time To Take The Lead Back From BSC?
Even though BSC is ahead of Ethereum in users, the BSC platform is barely one year old. Ethereum has a colossal head start of five years, so Ethereum has a far greater pool of developers, altcoins, stablecoins, and the legacy of DeFi protocols.
Some experts believe that a bulk of the users who use BSC still have ETH in their wallets, and they’re just waiting for the ETH 2.0 to be released. Plus, BSC is highly centralized with only 21 validators while Ethereum has over 100,000 network validators.
Blockchain platforms rely a lot on the “network effect” where a platform with the largest number of users and developers can deliver the greatest benefits — similar to Uber or Facebook. So, speed is essential in building out the network effect. Stay tuned to ETH 2.0’s development as it could decide how the next decade of blockchain would look like.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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