In Defence of Ethereum
The race to supremacy in the decentralized finance (DeFi) space is underway and it is most probably not going to be Ethereum that walks away with the crown of victory, or are we all underestimating the comeback game of Ether?
One project in particular has grabbed my attention and that is the Matic network. The team is working alongside Ether to create a solution to the massive scaling problem causing intense unhappiness among the crypto community at the moment. This is happening at the same time as the Ether 2.0 upgrade which is underway and currently finding itself at Serenity phase 0 — The Beacon testnet.
Scalability issues (the need for networks to cope with higher transaction volumes and stunted by limited TPS) is not a subject uncommon in this space. Bitcoin has been facing the same critique for years, causing several fork events and big splits in the BTC community. More of this available at:
To best understand how we got here, we will need to have a little walk back into history.
Ethereum, founded in December 2013, was the brainchild of a group of four intensely intelligent and super driven individuals, most notably founder Vitalik Buterin joined at inception by Charles Hoskinson (IOHK, Cardano) with another three team members joining in 2014 as early developers. Among these, most relevant to this conversation is Gavin Wood (Polkadot Network).
The first Ether tokens were created during July to September 2014.
Also called the Genesis issuance, a total of 60 Million Ether (the native token of the Ethereum network) were created and sold at a price of 2000 Ether for 1 BTC, adjusted to 1339 Ether for 1 BTC to provide the funding for development. The nonprofit, Ethereum Foundation, was created on July the 6th and is registered in Zug in Switzerland.
Buterin, an early Bitcoin enthusiast, wanted to create a network which could go beyond just being a payment platform.
Various upgrades in the early years, Olympic to test the project, Frontier to start mining for Ether and build distributed applications and Homestead to increase transaction speed. The Metropolis upgrade again created increased transaction speed, added security (Byzantium upgrade) and in addition introduced a mining difficulty increase.
All these upgrades point to a project evolved with time and with insight to what the future will need from Ethereum.
Indeed, the current Serenity upgrade, where the project will move from proof of work (PoW) to proof of stake (PoS), already had a place in the planning folder (Ethereum 2.0).
So where did Ethereum allegedly fall off the bandwagon and why has so many Ethereum loyalists jumped ship?
A hard fork in 2016 to reverse an attack causing the loss of 50 million USD worth of Ether, was not welcomed by parts of the community, who in turn decided to stay operational on the original blockchain and forms the Ethereum Classic community.
Moving forward all reference is to the Ethereum Network and not the Ethereum Classic network.
Development can be classified as either layer one (on chain/on the main blockchain) or layer 2 (off chain).
To put it Grammarly correct; layer 1 solutions are built into the blockchain and would involve modification to the protocol, not necessarily staying on the original blockchain. (Hard or soft fork) and layer 2 is built onto the blockchain. Terminology you might see when layer 1 development is underway are, hard or soft forks and sharding. Normally to correct a flaw in the code or to address scalability or security issues.
Layer 2 development is what we have in all the cases of ICOs, smart contracts and tokens.
Back to various challenges Ethereum has faced in its time.
Initial Coin Offerings (ICOs) or Initial Public Coin Offerings (IPCOs) is a way for startups to raise money for their future ventures. A Whitepaper with the proposed venture is shared and funding is paid in Ethereum via a smart contract.In exchange, a token (the native token), an ERC-20 token, is given in return to the investor.The investor is in full belief that he has been given a fungible token with immense growth in value potential.
In 2017 ICOs was rampant with templates available for creating your own ICO within moments without having any coding knowledge.
ICOs in itself is not a bad thing as it offered an alternative way for traditional startups to raise funding and this space is all about disruption. The problem however was that most of these ventures only existed on the whitepaper presented.
The Ethereum network was overloaded.
Ethereum, the only crypto with which ERC-20 tokens could be purchased was overbought and overpriced and when investors realized that there will be no return on their investments (ROI), the famous ICO bubble popped.
Ethereum’s price plunged and Ether walked away with a reputation of not being able to scale and being overpriced due to high gas prices.
Gas price is the transactional cost for running computerized dApps (decentralized applications) or smart contracts and denoted in gwei.
A flaw in DAO (decentralized autonomous organization), one of the first ICOs built on the Ethereum network caused the 50 million USD hack mentioned earlier in our discussion.
It is no surprise that the more recent DeFi (decentralized finance) movement is being viewed with suspicion. We have a lot of investors still dealing with PTSD from the ICO hype.
We now have Bitcoin (BTC) with a solid classification as digital gold and a store of value. DeFi is the next chapter of this financial revolution and there is no bubble in sight!
The Real Vision podcast series by Raoul Pal on: “Is everything a bubble” is well worth listening to.
I think we should just stop here for a moment and remind ourselves that Ethereum was created before a single ERC-20 tokens saw the light of day.
Let us shift our attention from Vitalik and Ethereum and go find out what happened to two specific members of the original core developers of Ethereum.
Charles Hoskinson left the Ethereum team in June 2014, founded IOHK and started working on Cardano (ADA) in 2015 with the launch of ADA (The native token of Cardano) in 2017. Using Ouroboros proof of stake technology (much lower power requirements than PoW), Cardano’s developers (all mathematicians, engineers and scientists) primary aim is to support smart contracts and applications while overcoming the scalability issues present on the Ethereum network.
Also a community driven project with staking pools, its focus is on interoperability and regulatory compliance. Cardano’s protocol allows for developers to do end to end tests on their network without leaving the development environment or deploying their code.
Gavin Wood departed the Ethereum space late 2016 after being unhappy with the delay in development of Ethereum 2.0.
With the same foundational idea of creating financial solutions while removing the need for trust, Gavin believes putting all the focus on one chain is problematic, raising concern over the isolated and independent eco systems that was busy forming. The argument that arose is between the resultant groups wanting to achieve the same goal without ever being in alignment.
“Creating borders where borders do not need to be.”
Polkadot is a multi-chain blockchain to facilitate execution in parallel, allowing for much larger transaction volumes. The multi chain nature allows for specialized side chains to connect to other public blockchains.
Decentralized finance (DeFi) seeks to find financial solutions in all areas, beyond store of value and payment systems, without the need for central financial intermediaries.
With a value of locked Ethereum in smart contracts, that grew from approximately 11 Billion in October 2020 to an estimated 20.5 Billion in January 2021, DeFi clearly is the arena for innovation in the crypto space.
“We are a stone’s throw away from the global financial industry running on a common software infrastructure.”
–Lex Sokolin, Global Fintech Co-Head of ConsenSys
We have seen the creation of wrapped Ether (wETH) to create a simplified solution for swapping from Ethereum to ERC-20 tokens and back to Ethereum, as Ethereum is not compatible with the ERC-20 tokens built on its network.
At the same time, decentralized exchanges (DEX) such as UniSwop, SushiSwop, 1inch Exchange, Kyber Network, Synthetics Exchange (to mention a few among a rapid growing list), are taking front and center place. Peer-to-Peer token exchange, making use of the flexibility offered by the Ethereum protocol, it provides a lighter KYC load and adds a layer of anonymity. Important to note, as with all new developments, loopholes can be found by opportunists and reading up on the case of the Bancor hack and EtherDelta SEC situation will cast some light on possible “soft spots” in the systems.
Binance, joining the DEX movement first with Binance DEX and adding PancakeSwap to the family, only substantiates my positive lean into the growing DeFi space.
All this phenomenal development has put us back into a place of complete Ethereum network overload and gas prices have once again soared.
We have consistently seen both Cardano and Polkadot grow in market capitalization with a strong drive to capture the Ethereum market and create a shift over to alternative network options for DeFi space participants and developers.
With development and upcoming projects coming into the space at an almost daily rate, it would be very irresponsible of me to force your focus to my favorite projects, some of which had been listed in this article. I also quite enjoy keeping up to date with development happening in AAVE, Synthetics and Avalanche (AVAX), but I do encourage you to spend time to further investigate the projects and teams who grab your attention.
This week alone, MEW (My Ether Wallet), APY.Finance and Pangolin.exchange have found a place on my “further investigation” list.
In conclusion: this entire ecosystem has a bunch of over achievers and Ethereum is providing the springboard to a lot of creative solution-based projects; most inspired to grow the DeFi space.
Make some coffee and take a breath.
Remember the story of the hare and the turtle?
Ethereum 2.0 is underway and this really grabbed my attention this week — it might just be Ethereum’s secret weapon.