Since ETH’s launch in 2013, the journey has been quite tumultuous. It has weathered technological innovations, economic depressions and local political skirmishes among its passionate netroots. Vitalik Buterin, a 19-year-old wonderkind from Canada, dreamed up Ethereum. Since then, it has evolved from being a new idea to being a widely used and integrated technology in the blockchain and cryptocurrency industry. Despite facing numerous challenges, including a significant hack in 2016 and heightened scrutiny in recent years, Ethereum has demonstrated remarkable resilience and adaptability. With ongoing optimizations to its layer 1 network and the development of layer 2 solutions, Ethereum is addressing scalability issues and positioning itself for continued growth and adoption.
Addressing Scalability and High Transaction Fees
Scalability is arguably the biggest challenge Ethereum has ever faced. High transaction fees on conversions, often referred to as “gas fees,” contribute to the burden as well. Activity on the Ethereum network exploded. This led to an explosion of transaction fees, pricing a lot of users out of being able to affordably make their transactions. Just a few years ago in 2021, even sending small amounts of cryptocurrency could cost more than hundreds of dollars. This exorbitant fee effectively rendered the network useless for day-to-day transactions.
To solve for this developers have an invented a network of layer 2 blockchains (L2s) that sit atop Ethereum. Like Arbitrum, Optimism, and Polygon—mainstream L2s that offload transactions from Ethereum’s base layer—these layers bundle user data. They then publish this entire bundle onto the Ethereum network, massively reducing transaction costs. This new approach has made transaction costs nearly negligible. Having risen sharply during the pandemic, since peaking in the summer of 2020, residential deployment costs have dropped by more than 99%.
Optimizing Layer 1 and the Rise of Layer 2 Solutions
Now, developers are working hard to improve Ethereum’s layer 1 network, the Ethereum mainnet, so that it processes transactions more quickly and efficiently. At the same time, layer 2 blockchains (L2s) are assuming an ever-growing significance in the Ethereum ecosystem. To prevent congestion and high fees, L2s process transactions off-chain before anchoring them to the core Ethereum blockchain.
In this regard, the collaborative implementation of L2 solutions represents a huge step forward in creating their value. It helps Ethereum become more accessible and useful to a broader ecosystem of users and applications. As these technologies continue to develop, they will deepen Ethereum’s promising scalability and usability.
Navigating Market Fluctuations and Future Outlook
Despite its technological advancements, Ethereum has not been immune to market volatility. Now hovering at about $2,500, ether (the cryptocurrency connected to Ethereum) is about 50% off its all-time high. Advocates are pushing for a change in priorities. They think that we should be focused on Ethereum’s real technology and what it can do to create demand for Ether.
"If we do our job, and we become the first place for everybody to do business, then the asset price is just something that takes care of itself." - Paul Brody
Paul Brody, EY’s global innovation leader for blockchain, underscored the importance of making Ethereum the dominant global business operating system. Created demand This shift will inherently increase the value of Ether.
"Bitcoin has died many times… Ethereum has died several times. When there are challenges, we learn from them." - Joseph Lubin
Joseph Lubin reminds us how resilient Bitcoin and Ethereum have been. He reminds us that what is challenging is opportune — challenges, he says, are incredible learning opportunities.
