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Is Ethereum 2.0 scalable enough for payments?

Is Ethereum 2.0 scalable enough for payments?

Next month, the Ethereum blockchain is set to make the long-awaited move to a much more environmentally friendly Ethereum 2.0, which in turn will pave the way for a vast increase in scalability that will, in theory, allow it to compete in as large-scale payment network of Visa and Mastercard.

And yet, in a recent research report, Bank of America suggested that a number of so-called “Ethereum killer” blockchains that have garnered market share over the last year or so still pose a threat, CoinDesk reported Last week.

The Sept. 19 “merger” of an energy-hungry bitcoin-style proof-of-work (PoW) consensus mechanism with the proof-of-stake (PoS) method used by Ethereum killers will reduce its “power consumption.” ‘energy by over 99%’ and lower barriers to entry for investors to generate returns as network validators alter the supply and demand dynamics of ETH.

See also: Crypto Basics Series: What is a consensus mechanism and why is it destroying the planet?

It also paves the way for the much larger introduction – from a payments perspective – of “sharding” technology that splits the Ethereum network into multiple pieces.

The developers said this would increase its current scalability of 12 to 15 transactions per second (TPS) by several orders of magnitude, reaching 100,000 TPS – more than Visa’s 65,000 TPS capacity.

Read more: Ethereum 2.0 targeted for September with 100,000 TPS within reach

So why have analysts at the bank warned that blockchains like Solana, Avalanche, and Binance Smart Chain, among others, could still squeeze enough of Ethereum’s huge market share advantage to threaten its preeminence?

Simply put, there are still many unanswered questions about the capabilities of Ethereum 2.0, as well as the potential fallout from the switchover.

Related: BoA sees Solana Blockchain as the “visa to the digital asset ecosystem”

The numbers lie

For starters, the move to Ethereum 2.0 — assuming the PoS phase goes as planned next month — is already years behind schedule.

While moving to point of sale is a big undertaking, the next steps are just as important. Sharding is a huge undertaking that is supposed to bring about the same benefits as layer 2 blockchains that add to slower blockchains like Ethereum and Bitcoin, shifting the work of transactions out of them for big increases in speed and cost reductions.

Without it, the Ethereum killers still have a massive advantage – and given Ethereum’s history, that could be much further away than the first half of 2023.

Second, even the main creator of Ethereum, Vitalik Buterin, said that Ethereum 2.0 would maintain a block time of 12 seconds between downloading transaction data, giving it a finality time of six to 12 minutes. It’s barely real-time payments.

See also: Ethereum 2.0 will not be faster, says Vitalik Buterin. But it will always evolve massively

Then there is the issue of Ethereum fees, which currently range from several dollars to $20 or more. When sharding kicks in, it should, in theory, go down, but how much is highly debatable. Whether this can come down to pennies or fractions of a penny as Ethereum killers like Cardano and Algorand boast, while still retaining the lion’s share of transactions, is debatable.

Especially since any assumption about the need for Ethereum 2.0 scalability assumes that the number of transactions on the blockchain will increase exponentially.

This means that the true purpose of the upcoming merger, saving Ethereum’s place as the preeminent blockchain and making it a truly efficient payment blockchain, is still unclear.

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