Layer 2 networks (complementary to Ethereum).Sidechains (somewhat complementary to Ethereum).Layer 1 blockchains (competitive to Ethereum).The approaches being taken to fix this problem come twofold: (1) build brand new networks competitive to Ethereum that can handle more activity, or (2) build complementary networks that can handle Ethereum’s excess capacity.īroadly, they break out across a few categories: Remember, it would be trivial to scale smart contract platforms through a centralized solution managed by a single entity (Visa can handle 45,000 transactions per second), but then we’d be right back to where we started: a world owned by a handful of powerful centralized actors. The goal is to increase the number of transactions that openly accessible smart contract platforms can handle, while retaining sufficient decentralization. In this edition of Around The Block, we explore the crypto world’s collective quest to scale.* To compete or to complement? Thankfully, the cavalry is beginning to arrive, with many proposed solutions coming online recently. If smart-contract based blockchains are to ever grow to support finance and Web 3 applications for billions of users, scaling solutions are needed. Ultimately, this prices out many users and limits the types of applications Ethereum can handle today. Since Ethereum’s popularity far exceeds 15 transactions per second, the result is long waits and fees as high as $200 per transaction. Ethereum’s decentralized design ends up limiting the amount of transactions it can process to just 15 per second. The entire network settles trillions of dollars in transactions annually, with over $170 billion locked on the platform.īut as the saying goes, more money, more problems. Īs of late 2021, Ethereum has grown to support thousands of applications from decentralized finance, NFTs, gaming and more.
Around the Block from Coinbase Ventures sheds light on key trends in crypto.