Ethereum is by far the largest smart contract blockchain in the world. Especially in the DeFi market, Ethereum has become indispensable. This is also attracting more and more investors. A few weeks ago, the ETH price reached a new all-time high of over 2,000 US dollars. But this rank is increasingly being disputed by competing platforms such as Cardano or Polkadot. The main reason for this is Ethereum’s insufficient scalability to date, reflected in ever-higher transaction fees.
Depending on the load, up to 30 US dollars can be charged for a simple transaction. Smart contract transactions often exceed 50 US dollars. The scaling problem should be solved by sharding with Ethereum 2.0 at the latest. But users do not want to wait until then. That is why various projects are working at full speed on Layer 2 solutions to improve scalability as quickly as possible. One of the promising layer-2 solutions are so-called roll-ups.
Scaling with rollups
With rollups, sidechain transactions are bundled or “rolled up” into a single transaction. This creates a cryptographic proof (SNARK = succinct non-interactive argument of knowledge), which flows into the Ethereum mainchain. Thus, all executions can take place on sidechains with rollups, while the Ethereum mainchain only stores transaction data. Ultimately, this can significantly reduce transaction fees and significantly increase the amount of processing.
Ethereum co-founder Vitalik Buterin is convinced that rollups will solve the scaling problem in the medium term. In the Tim Ferris podcast of 9 March 2021, he talks about how he expects rollups to improve scaling 100-fold in the next few months:
If you have rollups, but you don’t have sharding, you still have 100x factor scaling. Depending on how complex the transactions are, the blockchain can still do between 1,000 and 4,000 transactions per second. As I mentioned earlier, Optimism’s fully EVM-compatible rollup is likely to launch in about a month.
Optimism rollups particularly suitable for DeFi
Several DeFi projects are coming up that could use Optimism’s rollup solution. MakerDAO is also already working intensively on this.
The MakerDAO community is excited to announce the Optimism Dai Bridge which solves the 1 week withdrawal problem for optimistic rollups.
Scaling with Ethereum 2.0
Sharding is the mechanism used to ensure the scalability of Ethereum 2.0. Sharding breaks down Ethereum’s infrastructure into several smaller parts to increase the platform’s capacity.
The big advantage of rollups is that they are basically compatible with Ethereum 2.0. Thus, sharding in combination with rollups could scale much higher. Vitalik Buterin even sees the potential for 10,000-fold scaling in this:
There is the possibility of over 100,000 transactions per second, and by the way, another really nice feature of sharding is that it is quadratic. So if the efficiency of computers increases by a factor of two, you can support twice as many shards, and each shard can be twice as big. And so, the capacity of the whole system increases by a factor of four. So we expect capacity to increase even well beyond 100,000 in the next few decades.
Conclusion: Hope for scaling is justified
The positive news about an imminent solution to Ethereum’s scaling comes at the right time. Complaints about excessive fees have increased sharply in recent months. Of course, there are still risks as to whether everything will work as planned. But if the promises of a 100-fold scaling come true in the next few months, this could lift Ethereum to a new level and make the competition look old.