More than just an interim solution to Ethereum’s congestion problem, rollups promise throughput increases in orders of magnitude.
In an interview on The Tim Ferriss Show podcast, Vitalik Buterin described an L2 solution that could increase Ethereum’s processing capacity 100x. Called rollups, the solution creates sidechains for processing and storage, then batches the results back onto the Ethereum mainnet. Developed by a company called Optimism, the solution should leave beta testing in a month, Vitalik stated.
Vitalik also claimed that by the time the network needs more capacity than the rollup solution can provide, Ethereum 2’s sharding mechanism will be in place.
Ethereum has an upgrade, called Berlin, scheduled for Apr. 14, at block 12244000, and rollups will not be included there. The London upgrade follows in summer 2021, but Vitalik did not state whether the solution would make it in at that time.
A Dire Need for Ethereum
Ethereum clearly needs to sort out its network congestion problem. The crypto world was stunned when the network clogged up during the Crypto Kitties NFT craze in 2017. The event was seen as a shot across the bow, but the ultimate solution, Ethereum 2, saw subsequent delays in development and rollout.
The situation came to a head with the rise of Decentralized Finance (DeFi). DeFi came of age in 2020, and as decentralized lending and other financial instruments became more popular, the cost of transactions and processing time on the network rose accordingly.
Ethereum Price Effects
The price of ETH on the market is directly connected to the cost of transactions on the network. At the beginning of March 2021, gas prices plummeted nearly 70%, and as they did so, the market price of Ethereum rose 11.5% in a day.
Competition is fierce on platforms serving the DeFi industry and in any area where smart contracts are useful. Ethereum’s competitors gain whenever its network congests.
Some alternatives, such as Ripple, Cardano and XRP, have been around for a long time. Migration to those networks does happen. Ripple, however, has problems of its own in the legal field. The Securities and Exchange Commission in the United States is currently suing Ripple and two of its CEOs for selling unregistered securities.
Binance Smart Chain (BSC) is a newer competitor making the most of the opportunity. Binance chairman CZ tweeted in January that DEXs on BSC were 49x cheaper than Ethereum in 2020.