Publication: MindPlex (Singularity.NET)
Publication Date: 15 July 2023
Ethereum co-founder and crypto frontman Vitalik Buterin recently outlined three significant technical transitions that Ethereum must undergo to mature from an experimental technology into a robust tech stack capable of delivering an open, global, and permissionless experience to average users. He believes that these transitions are not only crucial for Ethereum’s future but will also reshape the relationship between users and addresses on the blockchain.
As the leading smart contract-powered chain, the evolution of Ethereum will have important ramifications and lessons for both its Layer 2 networks and the slew of ‘Ethereum Killer’ Layer 1 chains, which will reshuffle their own value propositions and roadmaps in response.
Ethereum’s Evolution: A Recent History
Before delving into the three transitions, it’s essential to understand Ethereum’s evolution from a fledgling blockchain with a unique mission to the decentralized foundation of the most important technological changes and expansions in the crypto space over the last five years.
Ethereum has undergone several significant upgrades since its inception in 2015, each aimed at improving its scalability, security, and sustainability.
The Ethereum network last year underwent the ‘Merge’, transitioning from a Proof of Work (PoW) consensus mechanism to a Proof of Stake (PoS) model, making it 99.95% more energy efficient and much more attractive for institutions as an ESG-compliant investment. However, its staking mechanism has also put it in the potential crosshairs of US regulators like the SEC, who are on a witch hunt for any crypto asset it can define as a security.
The Merge transition was a vital part of Ethereum 2.0, also known as Serenity, a long-awaited upgrade aimed at addressing the network’s scalability and security issues. The Merge followed the successful deployment of the Beacon Chain in December 2020, which marked the beginning of Ethereum 2.0.
Another significant upgrade was EIP-1559, introduced as part of the London hard fork in August 2021. This upgrade changed the way transaction fees, or ‘gas fees,’ are calculated on Ethereum, aiming to make them more predictable.
It also introduced a mechanism to burn a portion of these fees, giving ETH the potential to become a deflationary asset over time, as we can see from this UltraSound Money chart below. Thanks to its PoS transition, over 3 million fewer ETH is now in circulation than if it had remained on the PoW network.
Looking ahead, Ethereum plans to introduce sharding, a scaling solution that involves splitting the blockchain into smaller pieces, or