Summary: When Ethereum finally scales through both upgrades brought by Ethereum 2.0 and layer 2 scalability solutions, the question of what will come of other smart contract blockchains will become quite relevant. Some chains similar to Ethereum may disappear entirely, while others that offer unique features may find a niche market in the smart contract space. ...

When Ethereum finally scales through both upgrades brought by Ethereum 2.0 and layer 2 scalability solutions, the question of what will come of other smart contract blockchains will become quite relevant. Some chains similar to Ethereum may disappear entirely, while others that offer unique features may find a niche market in the smart contract space.

As many have experienced firsthand, Ethereum has a scalability problem. Sending a simple transaction can cost upwards of $15, and a complex transaction like a Uniswap trade can cost upwards of $100. This, along with Ethereum’s 13 transaction per second limit, has caused controversy about what Ethereum’s role will be in the future of smart contracts.

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To combat this issue, developers have been working on a suite of upgrades to the blockchain collectively known as Ethereum 2.0. This will include a transition from proof of work to proof of stake, which is a more efficient consensus mechanism, and the introduction of sharding, which is a scalability solution that effectively creates different blockchains that each have their own role within Ethereum.

Additionally, layer 2 scalability solutions have been created with the same goal of reducing fees and increasing transaction speeds. These layer 2s, which include Optimism and Arbitrum, roll up bunches of transactions together before sending them to the main Ethereum chain, and split the transaction cost between hundreds, if not thousands, of transactions. Together, Ethereum 2.0 and layer 2 solutions will help Ethereum scale to handle a theoretical 100,000 transactions per second. 

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Though this will be a massive improvement for the blockchain ecosystem, it poses an issue for other smart contract blockchains. Naturally, Ethereum scaling will bring more users to its ecosystem, thus taking away users from other smart contract blockchains that are currently popular.

The most vulnerable chains are those that use the Ethereum Virtual Machine, or EVM. These chains allow for any application deployed on Ethereum to also be deployed on their chain. These chains include the Binance Smart Chain, Avalanche, Fantom, and Harmony, among others. Though each of these chains offers unique features, the reason they became popular is due to their high transaction speed and low cost, while still using the same interface, wallets, and application development process as Ethereum. Any app on Ethereum can be ported to one of these chains and vice versa, so the argument that one blockchain has a “killer application” that will help steal market share does not make sense. When users have the option to switch back to Ethereum while still having low costs, there will be less of an incentive to use alternative platforms. 

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Other chains, such as Solana and Cardano, may be safer from Ethereum’s scalability. This is because each of them has a unique smart contract development process and do not use the EVM. This explains why Cardano has yet to see any substantial applications deployed on their blockchain, since developers have to get used to a new development language and environment. This uniqueness allows for the creation of new decentralized applications that may not be feasible on Ethereum. Ironically enough, Cardano’s biggest current issue may be its saving grace in the near future. Additionally, Cardano can handle a theoretical 1,000,000 transactions per second, which may be required if blockchain is ever fully adopted. 

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Even though Ethereum 2.0 is not expected to be fully released until some time in 2023, it is important to consider its implications for long-term investments. Though EVM-compatible platforms like Avalanche and Fantom have seen massive gains over the past year, these may be short-lived unless they can find a way to compete with Ethereum 2.0. Blockchains with their own virtual machine and developer ecosystem might be safe since they can carve their own niche in the developer and user community to create unique applications that may not be possible on Ethereum. Regardless of what happens, the competition and development in the smart contract space will be beneficial for the adoption of blockchain and the proliferation of this technology throughout the world.

By Lincoln Murr