If the long-awaited ETH 2.0 lands in July as promised, it will mark almost exactly five years since the world’s first smart contract platform launched in July 2015. The upgrade will introduce significant constraints on supply. These include a new cap on issuance, but it will also lock up substantial quantities of ETH as stakers compete for rewards in the new proof-of-stake consensus model.
Excitement is already building, with many analysts predicting an epic bull run on ether. Analyst Adam Cochran took to Twitter in a lengthy tweetstorm, summed up in a blog post in which he argues that Eth 2.0 “could prove to be the largest economic shift in society.”
Locking up tokens through staking serves the network well. A platform that has found it necessary to upgrade due to scalability constraints will benefit from having fewer ethers in circulation to pay gas fees. In turn, more competition for ether may also help to reduce the kind of network overload for which the first version of Ethereum became well-known.
Interoperability - A Welcome Relief to Ethereum’s Scalability Challenges
The long wait for ETH 2.0 has also led to many projects developing their own workarounds to the scalability problem. Ethereum is the biggest smart contract platform in terms of developer activity, running over eight times the number of dApps than EOS, the nearest competitor. Enticing developers to a new platform was always going to be a challenge, which is why so many competitor platforms to Ethereum struggle to gain traction.
Instead, 2020 has seen an increasing focus on interoperability, allowing developers to cherry-pick the best parts about different platforms. In particular, the introduction of bridges has enabled developers to continue building on Ethereum while benefiting from the faster throughput of other networks.
Bridging the Gap to High Throughput
The first platform to launch its own bridge this year was Syscoin, back in January. Syscoin has been around even longer than Ethereum, with the first version of the platform launched in 2014. However, unlike Ethereum, Syscoin has been continuously iterating over the years, with the latest version, Syscoin 4.0, introducing the Z-DAG layer. The Z-DAG is based on a directed acyclic graph structure, which enables an extremely high throughput of up to 60,000 transactions per second, as verified by a third-party auditor.
The Syscoin bridge allows Ethereum developers to access this speed while maintaining security and decentralization for their own dApps. The bridge means developers can program their dApps to send tokens back and forth between the Ethereum and Syscoin networks without changing the overall supply, thanks to a two-way mint-and-burn mechanism. Bridge activities are overseen by incentivized nodes called Bridge Agents.
Using Bridges to Spread the Load
Syscoin was the first to introduce this functionality, but others are now following. One of the most interesting cases is Tether. In April, Tether announced that it is launching an EOS-Bitcoin bridge and will soon launch a similar feature between EOS and Ethereum. Although Tether migrated from Omni to Ethereum in 2017 as a means of overcoming the congestion on the Bitcoin network, it’s now suffering the same issues with Ethereum.
It’s an ironic twist, though, that Tether has become the victim of its own popularity. Tether is currently the biggest hog of Ethereum’s processing capacity, accounting for over half of all transactions. Last year, some users even complained that transactions were taking days due to a backlog of Tether transactions. Therefore, the company now sees the opportunity of using bridges to spread the weight of transaction processing across multiple platforms.
Will ETH 2.0 Negate the Need for Bridges?
It would be easy to think all these problems will be solved by July. After all, most Ethereum fans have been waiting years for this update, which is allegedly intended to solve the scalability challenge.
Unfortunately, it seems unlikely that Ethereum’s scalability woes will be solved any time soon. The update for July is only phase 0, and it will be phase 2 before any real scalability comes into play. Much of phase 2 is still under research, and not yet in development. Therefore, we don’t have any concrete numbers to work with in terms of transaction processing capability.
Furthermore, both Tether transactions and DeFi adoption are growing fast. By the time ETH 2.0 is fully live, who knows whether or not it will be in a position to handle the increased demands on the Ethereum platform?
With all this in mind, it seems fair to assume that ETH 2.0 isn’t going to negate the need for interoperable bridges any time soon. Ethereum has struggled to keep pace with innovations in blockchain technology, and other platforms are likely to retain their edge even as the Ethereum team is working to stay up to date. While Ethereum can retain its crown as the most-used platform, it’s inevitably going to thrive better as part of an interoperable blockchain ecosystem.