Second shifts will save the day in 2021 and empower Ethereum and DeFi

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When the decentralized financial sector exploded in the summer of 2020, it was an eye-opening moment that showed the real capabilities of crypto in revolutionizing the financial sector. However, the boom has also uncovered many vulnerabilities in the Ethereum network, on which most DeFi projects are built. Some of the most serious included high gas costs and poor scalability.

Since then, a bull cycle has begun that has brought the value of Ether (ETH) to a new all-time high – and now the above issues are even more lingering. People are forced to pay up to $ 60-100 to complete a single trade with Uniswap, while numerous DeFi projects struggle to simplify their Ethereum chain transactions in a timely manner, resulting in their users fail. An endless cycle of bullish news doesn’t help as it inadvertently distracts the community from these issues. It has been two days and your transaction is pending? But look at the charts: the price of ether has exploded and one of the institutional funds has announced that it is buying X million Bitcoin (BTC)!

Connected: Ethereum will be the most important capital for investors in 2021

The long-awaited transition to Ethereum 2.0, which deals with scalability and gas fees, has begun, but Phase 1.5, in which the blockchains Ethereum 1.0 and Ethereum 2.0 will be merged, will arrive after another 12 to 18 months at the earliest. Are we really ready to continue paying a few tens of dollars to ship a single transaction?

Connected: The Ethereum 2.0 Factor: Changing How DeFi Projects Work

Fortunately, the possible solution has already arrived. Layer two solutions, which have become increasingly important in the crypto winter, serve to solve both problems: They lower gas charges and scale the Ethereum network by shifting most transactions to sidechains. There are a few companies that have worked on such solutions including Aztec, Offchain Labs, Matter Labs, and others.

There are also projects like Polkadot, which uses a sharded multichain network that can process many transactions in parallel in smaller chains – which is why they are called “parachutes” – instead of processing them individually like older blockchains.

Similarly, Polkadot’s DOT token has seen an unprecedented rally due to soaring gas fees that has surpassed XRP to become the fourth largest cryptocurrency. In its forecast for 2021, Maple Leaf Capital – a team of researchers focused on Web 3.0 speculation and creation – believed that Polkadot could accelerate infrastructure and application improvements.

The massive rollout of Layer Two solutions will create a lot of space for the cryptocurrency industry – and we will breathe a sigh of relief and enjoy the good news about the cryptocurrency market cap, value and institutionality of Bitcoin again, and acceptance.

This article does not contain any investment recommendations or recommendations. Every step of investing and trading involves risk and readers should conduct their own research in making their decision.

The views, thoughts, and opinions expressed here are the sole rights of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Chandler Song is the co-founder and CEO of Ankr Network, a San Francisco-based Web 3.0 infrastructure company, and a Forbes “30 Under 30” award winner. Before that he worked as an engineer at Amazon Web Services.