Optimism Is The End Of Ethereum (As We Know It)
The much anticipated or awaited upgrade to the Ethereum blockchain is full of optimism. Optimism is an implementation that paves the way to ETH2 using a Layer 2 (off chain) scaling solution called “Optimistic Rollups.” It was supposed to be deployed to the mainnet in March 2021 but has now been delayed until the middle of 2021 (July or later). That announcement could later change since there is just no way to be exact on the date. The Ethereum developers are delaying the launch due to concerns regarding the security and stability of the software.
According to their article on Medium (Optimistically Cautious), the main reason stated for the delay:
“An uncoordinated rush into L2 without enough community preparation is dangerous. As we’ve seen on other chains, there is a very real risk of popular dapps getting forked and launched by adversaries with the intention of defrauding users.”
This will also give foundational projects, infrastructure providers, block explorers, wallets, and token bridges time to integrate, audit, and test Optimism before a production launch on the mainnet.
This was a measure to make sure that the network is secure and not open to flaws or vulnerabilities that could affect users. They are making a testnet open to hackers and anyone who wants to give it a try on April 13, 2021, with the Scaling Ethereum Hackathon. This type of community involvement is to be done to give users more confidence in the readiness of the Ethereum ecosystem. Projects like Ethereum are open source and do not have a full-time QA department for testing, so volunteers are providing a huge contribution in helping test the network. With ethical or white hat hackers involved in identifying vulnerabilities or flaws in the system, the road to ETH2 can be more secure.
Scaling The Network
One of the motivations for scaling the Ethereum network has to do with the high costs and slowness of the network. Since activity on the Ethereum blockchain has seen a surge, the difficulty target for miners has increased. The total hash power output has also increased, putting pressure to increase the cost of transactions. This has led to higher gas fees as part of the transaction costs that are averaging close to $20 per transaction in early 2021. On February 23, 2021, transaction fees reached a high of $39.49 (per transaction). Lower transaction costs can further the adoption of Ethereum, but higher fees will only discourage users.
Optimism eventually begins the Phase 0 transition from Ethereum to ETH2 or the Ethereum 2.0 version that moves to a different consensus mechanism. It will begin in phases though, starting with the implementation of the Beacon Chain followed by Sharding. This brings an end to Proof-of-Work (PoW) and a start to Proof-of-Stake (PoS). There will be a gradual transition from mining to staking using a difficulty bomb that will force nodes to stake rather than mine. The goal is to become more efficient and scalable, since staking allows faster consensus than mining so more transactions can be processed by the network. That aims to improve the network’s performance to higher transaction throughput that could rival the likes of the VISA network.
Optimism is a Layer 2 protocol that will bring scalability to the Ethereum blockchain network. This is implemented using sidechains called Optimistic Rollups. These sidechains also provide composability to interoperate with DeFi protocols that run on top of the Ethereum blockchain. Besides interoperability, what this will do is help increase throughput (number of tps or transactions processed per second) and reduce the cost of gas fees. Thus, it lowers transaction costs considerably. With the coming implementation of EIP 1559, there is also a burning of gas fees that can bring deflationary measures to control the supply of ETH.
More Confidence And Expectations
The air is tense when it comes to Ethereum. If price action seems undervalued, it is because of the uncertainties with the project. Oftentimes when the Ethereum developers make an announcement, it is not what ETH holders or analysts usually want to hear. Delays are quite common in Ethereum, with no exact date on the launch of developments. In the past, it led to more anxiety and those with less patience for the way Ethereum developers move, often pull back out of frustration.
This time around, there is more investment happening with Ethereum due to the exciting features being announced by Vitalik Buterin and the developer community. It is also in part due to the success of the DeFi space with growth in decentralized exchanges, NFT and liquidity pools. That means there is more confidence in the project with higher expectations. For ETH2, many users have already deposited their 32 ETH stake to become network validators, now valued at $8.06 Billion (as of April 13, 2021 — see updates on Etherscan Explorer).
One thing is for sure, with higher expectations now than ever before, the tolerance for failure appears to be less. There is more desperation from ETH holders who have been on board since the project started. What these holders want to see are things they expected from the Ethereum blockchain when they first bought their ETH or ERC-20 tokens. The space is more competitive now with the likes of Binance, Cardano, and Polkadot. It appears that if the competitors can produce a better solution, more investors will make a switch rather than wait for ETH2. There is still plenty of optimism for Ethereum though, and that keeps the momentum going. Improvements are on the way, and when it is delivered, it brings an end to the Ethereum we once knew.
First Published In The Capital — 4/13/21
Disclaimer: This is not financial advice, only for education and reference purposes. Please do your own research always to verify facts.