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How Ethereum Could Solve the ‘Blockchain Trilemma’

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How Ethereum Could Solve the ‘Blockchain Trilemma’

Editor’s Note: This weekend edition, we are taking a break from our usual rate. In this essay, recently published in the Summary of Stansberry Masters Series, crypto expert Eric Wade explains how Ethereum’s own success has created its biggest challenge… explains why an upcoming update could change the world of crypto as we know it… and reveals how this change could give us the opportunity to benefit from it.


“The fees were crazy!”

“Does it really cost that much to transfer my tokens?”

“I gave up trying to get the deal through.”

This is one of the most common comments we receive…

Over the past year, we have seen a massive increase in Ethereum (ETH) transaction fees.

I encountered this problem recently. I wanted to transfer Ethereum from my MetaMask wallet to a centralized exchange. Just sending my Ethereum from one address to another would have cost $80. I wouldn’t mind if I tried to send $1 million worth of Ethereum… But I was trying to send only $100.

That means it would have cost me $180 to make a $100 transfer. Meanwhile, I could do a similar trade for around $0.05 on Binance Smart Chain, now called BNB Chain.

I closed MetaMask and decided to do the transaction later. And I’m not alone…

Ethereum fees, commonly referred to as “gas” fees, are what sustain miners and keep the ecosystem functioning. If you transact on any network, you should expect to pay fees. I have already said that I have a general mistrust of systems or networks that don’t have fees.

But Ethereum has added so many new users and has become so busy that the demand for access exceeds the capacity of the network.

You see, Ethereum is the second largest crypto in the world by market capitalization. It is the biggest crypto if you count users and transactions. So, by some metrics, Ethereum has already overtaken bitcoin (BTC).

As a result, it has become too popular to process transactions cheaply or efficiently…

A simple trade on the Ethereum mainnet can cost between $20 and $100, compared to a few dollars or cents on blockchains like Avalanche or Harmony.

In many ways, Ethereum has become a victim of its own success…

Soaring Ethereum gas fees have shifted billions of dollars to cheaper blockchains. Ethereum has simply become too expensive for most users.

Last April, Ethereum had 80% of the total crypto market value locked (“TVL”) on its blockchain. Today, it holds only 59% of the market’s TVL. Looked…

This is where ETH 2.0 comes in…

With ETH 2.0, Ethereum will move from an energy-inefficient proof-of-work consensus mechanism to a more efficient proof-of-stake mechanism. This upgrade aims to increase Ethereum’s scalability while maintaining network security and decentralization.

But that’s only the first step… The real long-term solution is sharding.

Sharding will split blockchain data horizontally to expand network capacity. This will significantly reduce network fees and increase transaction throughput by creating new subchains called “shards”.

We believe that upgrading and sharing ETH 2.0 will make Ethereum the Layer 1 blockchain of choice.

A layer 1 blockchain has the ability to process transactions on its own without any other network. So, if Ethereum can offer low-cost transactions, it would be the first blockchain to be decentralized, secure, and cost and energy efficient.

You see, every blockchain faces three main challenges to succeed…

First, it must be secure. It must be difficult to rewrite blockchain history, post invalid transactions, and perform double-spend or 51% attacks.

Second, it must be decentralized. Instead of power residing in the hands of a few, it is shared by the community.

Finally, it must be able to scale to handle an increasing number of users in a cost-effective and energy-efficient manner.

Typically, blockchains sacrifice one pillar to satisfy the other two. This is the “blockchain trilemma”.

For example, some blockchains have cheap and fast transactions… But they have sacrificed decentralization or security for their scalability. Meanwhile, Ethereum is extremely secure and decentralized… But it has a scalability problem. It is so popular that it has higher transaction fees than any other blockchain.

This blockchain trilemma has kept many developers and investors on the sidelines. But soon they will have a layer 1 blockchain that offers it all – creating a wave of new development and investment on Ethereum.

This upgrade will therefore have a significant impact on the market. We believe this will take us from Crypto 1.0 to Crypto 2.0… where crypto and blockchain will finally go mainstream.

We are already seeing signs of this happening…

Some of the biggest companies in the world – like Ford, Visa, and MetLife – are already investing in and using crypto. Meanwhile, countries like El Salvador and the Central African Republic use or allow crypto as legal tender. And we’re seeing more and more individual investors entering this space. Over the past 12 months, the number of Ethereum addresses holding even the smallest amount has grown from 59.7 million to 81.9 million, according to Glassnode. That’s a 37% increase.

With cheaper and faster transactions and a way to fight inflation, we expect more money to flow into this space…pushing up the prices of many tokens and coins.

Good investment,

Eric Wade

Editor’s Note: According to Eric, cryptos are at the dawn of an incredible moment… And it could be here as early as August 31st. Even if you don’t own a single crypto, this event could impact your wealth for years to come. That’s why Eric shares how you can prepare your portfolio. He’s identified five tokens that have the potential for 10 bags…but only if you act now. Click here for more details.

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