crypto
Two equal chances to dominate the Web3 world
For most casual digital asset investors, the Ethereum 2.0 upgrade promises to be a game-changing event that will improve efficiency, reduce network costs and propel the entire blockchain and crypto space closer to a Web3 reality.
Ethereum has been struggling with a lack of scalability and skyrocketing gas fees, and since it serves as the largest smart contract and DApp development platform, the move to a more reliable and scalable proof-of-stake (PoS) blockchain will be a welcome reprieve.
Unbeknownst to most casual investors, however, Polkadot’s Substrate platform has been making massive inroads in the development of a parallel decentralized internet infrastructure that many believe will eventually eclipse Ethereum’s.
Related: The Polkadot architecture and introduction to the Substrate infrastructure
Ever since the release of the Polkadot white paper, its value as a bridge between Ethereum’s ecosystem and the many possibilities that make up a Web3 internet experience has been at the forefront of Polkadot’s main selling points.
So, how exactly does Polkadot compare to Ethereum? What’s Ethereum’s current progress towards a decentralized internet, and have Polkadot’s parachains become a viable threat to the dominant smart contract network? Here is a quick look at the technical details that differentiate Polkadot’s ecosystem from Ethereum’s upcoming upgrade.
Two routes to the decentralized internet
To understand the value that Polkadot brings to the table, we must first compare Polkadot’s Substrate and how it is different from what Ethereum is currently offering.
There is no denying that, at one point, Ethereum was considered a revolutionary technology and a sought-after platform for DApp development. Over the years, however, scalability has become Ethereum’s Achilles heel. With an estimated 1 million transactions per day, the Ethereum blockchain is only capable of processing 15 transactions per second (TPS), leading to volatile gas fees. Although this number is set to increase with the upgrade to Ethereum 2.0, it will still fall way short of traditional centralized infrastructures such as Visa, which can theoretically process well over 1,700 TPS.
Adding to its slow and congested network, Ethereum’s outdated consensus algorithms consume up to 112.15 TWh per year, which is comparable to the power consumption of Portugal or the Netherlands. Simply put, Ethereum heavily relies on a proof-of-work (PoW) algorithm that requires computationally intensive mining to add new blocks to the chain and confirm transactions.
Related: Inside the blockchain developer’s mind: Proof-of-work blockchain consensus
Ethereum 2.0 plans to address these concerns by moving from a PoW algorithm to a more efficient PoS algorithm, which will eventually allow Ethereum to go carbon-neutral and achieve more speed.
Ethereum 2.0 will also make use of sharding as a scalability solution that will see the network broken into smaller pieces that can process transactions in parallel. In theory, this will allow Ethereum to process an infinite number of transactions per second, but in practice, it will be limited by the number of shards created.
To date, the shift to Ethereum 2.0 is still a work in progress, even though the testnet is live. Frustrated by the delays, ambitious project developers like Ethereum co-founder Gavin Wood left Ethereum to build the Web3 Foundation and Parity Technologies. Parity Technologies and the Web3 Foundation focus primarily on developing three main technologies: Parity Ethereum (also known as Serenity), Parity Substrate and Polkadot.
Ultimately, the goal of these organizations and projects is to fast-track the Web3 vision.
Their victories and defeats
As a core blockchain infrastructure company, Parity Technologies provides several tools and software that allow developers to launch their blockchains quickly and easily. The Parity Substrate is a toolkit for building custom blockchains from the ground up, and it powers some of the most popular blockchains in the world, such as Polkadot, Kraken, and Chainlink.
Parity Ethereum, on the other hand, is the software that runs Ethereum 2.0 clients such as Geth and Prysm. Parity’s main contribution to Polkadot is the Substrate framework, which is used to build custom blockchains or parachains on top of the Polkadot Relay Chain.
Related: How Polkadot’s parachain auctions make a decentralized Web3 possible
Compared to Ethereum’s existing system as well as its upcoming sharding framework, Substrate is very modular and allows for custom blockchains to be built. Developers can pick and choose the features they want for their parachains down to the degree of technical difficulty they can handle.
Here are some examples of how the functions of blockchains built with Substrate can differ:
- Zeitgeist has prediction markets (similar to sports betting or betting on what the weather will be like next week) and uses them for on-chain governance.
- KILT is a highly complex system for decentralized identifiers (DIDs) with the goal of bringing identity to Web3.
- Subsocial is made up of two communicating Substrate blockchains with social interactions built into the code (a palette for making posts, another palette for comments, another palette for reactions, etc.).
As a result, Substrate allows users to assemble a few palettes and launch their chains in less than an hour, which is far easier than starting from scratch. In the future, they may be far superior to Ethereum at completing specific tasks. Furthermore, they can still communicate easily using XCMP, a cross-consensus message format developed for Polkadot that allows interaction between networks that share the same relay chain.
Substrate also provides developers with a library of modules that can be used to create compatibility between new blockchains and legacy chains such as Bitcoin and Ethereum. What’s more, you don’t even need to create blockchains that connect to Polkadot while using Substrate. Simply put, any developer can use Substrate to create forkless blockchains that can upgrade without the need for hard forks and on any ecosystem outside Polkadot or Ethereum.
In terms of validators, Polkadot uses a Nash equilibrium staking game that incentivizes validators to behave in a way that is best for the network as a whole. This is different from Ethereum’s current emphasis on rewarding miners for their efforts, which often leads to centralization and high barriers to entry.
The Polkadot Relay Chain is also designed to be much more scalable than Ethereum’s, with the ability to process around 1,000 transactions per second as compared to Ethereum’s measly 15.
Perhaps the only chink in Polkadot’s armor is the fact that Parity Technologies did have a major security breach in its multi-sig wallet software back in 2017, when more than $30 million worth of ETH was stolen from several multi-sig wallets.
Not confrontation, but complementarity
When it’s all said and done, Polkadot is a complementary platform to Ethereum, as both blockchain ecosystems strive towards the same goal of delivering a fully decentralized World Wide Web.
While Polkadot boasts a ton of features and improved capacity, it is still in its nascent stages, with only a handful of applications (Moonbeam and Moonriver) running on its network. At the same time, Ethereum continues to be a jack of all trades, with hundreds of thousands of developers and projects, which gives it a significant advantage in terms of adoption.
Both Polkadot and Ethereum serve different purposes and can co-exist and complement each other in the decentralized future.
A glimpse into the future
Polkadot and Ethereum have their own strengths and weaknesses. Going forward, they may even co-exist to deliver a fully decentralized Web3. Developers might use Substrate to create decentralized social media platforms or video-sharing apps that integrate Ethereum’s ERC-20 token economy. With more developers coming on board to help accelerate the move to a Web3 internet, there is no telling what the future holds for both Polkadot and Ethereum.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Oleh Mell is the developer of Subsocial, a social networking platform built to support the social networks of the future. These apps will feature built-in monetization methods and censorship resistance, where users will own their content and social graphs. Built with Substrate pallets, Subsocial is a one-of-a-kind in the Dotsama ecosystem, and designed specifically for social interactions. These interactions do not have to be specifically social networking, as Subsocial can support apps like YouTube, Shopify, or even Airbnb.
Purpose of Ethereum 2.0
The primary goal of the Ethereum 2.0 update is to improve scalability so that the network can handle more transactions without delays or high fees.
While the full effects of the update will not be felt until it is fully rolled out, some of the possible use cases for Ethereum 2.0 include:
- Supporting the large-scale enterprise adoption of blockchain technology in private corporations and businesses;
- Creating more decentralized autonomous organizations (DAOs) and governance models based on smart contracts and trustless interactions;
- Ethereum token launches that will allow new projects to fundraise and launch their own tokens on the Ethereum network;
- The further expansion of nonfungible tokens (NFTs) and other digital assets that can be stored on the Ethereum blockchain; and
- Improved support for decentralized finance (DeFi) platforms and DApps is expected to be widely used by crypto enthusiasts and the broader public.
In addition to these benefits, it is also likely that Ethereum 2.0 will enable a variety of new use cases that are not possible on the current network, such as:
- Distributing tokens that represent ownership rights as a method of managing royalties in the music industry;
- Creating a decentralized AI (artificial intelligence) ecosystem that will allow users to train and monetize their own machine learning models;
- Facilitating safe and inexpensive cross-border payments;
- Allowing supply chain managers to track product delivery without fear of tampering;
- Providing a decentralized platform for gaming and predictive markets; and
- Increased privacy and the capacity to store large amounts of data, which can be particularly helpful for storing sensitive information such as medical records and financial data.
While there’s still time before the update is fully rolled out, the benefits it promises to bring are significant and could have a major impact on the way businesses and individuals use blockchain technology in the future.
The Ethereum platform’s popularity
The blockchain network’s popularity is expected to grow once Ethereum 2.0 is released.
Ethereum 2.0 will offer increased scalability, security and efficiency for businesses and individuals looking to take advantage of blockchain technology. Ethereum is currently one of the most well-known cryptocurrencies, alongside Bitcoin (BTC), with nearly 4 million wallets actively holding ETH as of February 2022.
The blockchain continues to be the place where most DeFi and NFT activities happen, with new DApps and projects being launched on the platform each day. According to analysts, Ethereum currently has 70% of all DeFi transactions in the cryptocurrency market, and its blockchain is used to support the majority of NFT and gaming projects.
The number of transactions on the Ethereum network
The average number of transactions on the Ethereum network is currently 1.1 to 1.5 million transactions per day.
These numbers are expected to increase exponentially after the launch of Ethereum 2.0, as it will allow significantly more transactions to be processed per day. At the moment, the network can only handle 15 transactions per second.
Ethereum 2.0 aims to increase this exponentially to about 150,000 by the time the upgrades are fully rolled out. If this becomes a reality, Ethereum will undoubtedly become one of the fastest and most scalable blockchains in existence, which should further increase its popularity.
Addressing scalability and high gas cost concerns with Ethereum 2.0
Scalability has always been one of Ethereum’s biggest challenges. This is especially true for developers seeking to build DApps and DeFi platforms on the blockchain, as transaction costs can be prohibitively high.
However, with the launch of Ethereum 2.0 (which introduces a new PoS consensus mechanism and shard chains), it will finally be possible to scale the network in a way that significantly reduces costs and facilitates faster transactions:
Tips and tricks to spend less gas fees on Ethereum
There are several ways you can reduce or even eliminate these costs when spending on gas fees on Ethereum.
- Use wallets that support batching: Batching is a feature offered by some wallets that allows you to group multiple transactions into one, thereby reducing the amount of gas you need to spend.
- Use ERC20 tokens: ERC20 tokens are digital assets that run on the Ethereum blockchain and can be used in place of ETH when paying for gas. This is because they often have much lower transaction fees than ETH, itself.
- Use a gas price calculator: Gas prices fluctuate frequently, so it’s important to use a gas price calculator to ensure you get the best possible price for your transaction.
- Use a gas tracker: A gas tracker is a tool that allows you to monitor the current gas prices on the Ethereum network in real-time. This can help ensure you’re always aware of the latest prices.
- Use a gas station: A gas station is a website that allows you to compare the gas prices of different ETH wallets to find the best one for your needs.
By following these tips, you can significantly reduce the amount of money you spend on gas when using Ethereum. This will help make it more affordable for you to use the network and participate in DeFi and other activities until such time that Ethereum 2.0 has fully launched.
The European Central Bank (ECB) is planning to launch a prototype of the digital euro in 2023. In the next five years, Europe could have its own central bank digital currency (CBDC) up and running. However, there are still many questions surrounding the prospective digital currency. In what form could it be issued? Is the ECB too late for the CBDC party, especially compared to other central banks such as that of the People’s Republic of China? To address these and other questions, Cointelegraph auf Deutsch spoke with Jonas Gross, chairman of the Digital Euro Association (DEA) and member of the expert panel of the European Blockchain Observatory and Forum.
New digital cash
Gross said that compared to digital cash issued by a commercial bank, central bank money carries fewer risks. A commercial bank can always go bankrupt, but a central bank cannot because in an emergency, it can print as much money as needed. And, in times of crisis, people may want, at least in theory, to transfer all their digital money from a private bank to the central bank, which will mean the end of the commercial banks’ business.
There are two potential mechanisms to avoid such a scenario: Either to set a cap on the amount of funds that a citizen can hold in central bank money or implement a negative interest rate applied to CBDC funds above a specified limit.
“The digital euro is mainly to become a kind of digital cash, also a new payment method and less a store of value. The central bank does not want to take away the banks’ business.”
Complete anonymity
The digital euro will not be adopted by European Union citizens if it won’t have certain features such as complete anonymity, said Gross. His team did a study that showed that it is technologically possible to make a digital euro just as anonymous as cash. It is also technically possible, Gross maintained, to allow digital euro payments to remain anonymous only up to a certain threshold, let’s say up to 10,000 euros, above which identification could be required. “This can be a great advantage for the digital euro, especially in view of the fact that cash is becoming less and less important,” Gross said.
“In an extreme case, in a few decades there could be very little use of cash, as is now the case in China or Sweden. And, if we didn’t have a digital euro that at least partially enables anonymous payments, then we would no longer have any privacy in payments. Even if it seems counterintuitive, the digital euro can promote privacy if one were to implement such a system with a focus on anonymity.”
ECB’s indecision
According to Gross, the biggest problem at the moment is that the ECB has not yet defined the aim and functions of the prospective digital euro. Last year, the ECB, in cooperation with several member states’ central banks, tested four design options for the digital currency. The first was the digital euro on the KSI blockchain, the core technology used by Estonia’s e-government.
The second option is a digital euro built on the TIPS, a European electronic payment system launched in 2018. The third possibility is a hybrid solution that sits in between the blockchain and the conventional banking system. Finally, the fourth is a bearer instrument, which is a sort of money card that can be used for payments or hardware capable of processing offline payments without access to the internet.
These are only the rough possibilities, Gross said, and the ECB has not yet settled on a single design because the range of potential applications of the digital euro is not entirely clear.
Possible geopolitical risks
Projects like the digital yuan, China’s CBDC, could weaken the position of the euro altogether, especially if foreigners are also granted access to using it. Digital currencies can make it easier and cheaper to pay in that currency, Gross explained. Amid the Russia-Ukraine war, the issue of international payments and monetary sanctions is becoming geopolitically important again.
“The Russian government says Russian gas must now be paid for in roubles,” Gross said. “The Chinese can theoretically also come up with the idea that the products we have to export, which are currently transacted in U.S. dollars or euros, must from now on be paid for in the Chinese currency, for example, in the digital yuan.”
China can strengthen its currency by digitizing it, and this could cause the euro to lose some of its influence in the future. This is why the ECB should move faster on the digital euro and decide what it wants to get out of the CBDC after all.
This is a short version of the interview with Jonas Gross. You can find the full version here (in German.)
Cardano (ADA) pared a big portion of the weekly losses incurred during this week’s crypto market rout.
ADA’s price reached an intraday high of $0.60 on May 13, a day after rebounding from its week-to-date low of $0.38 — a 58% rally.
The huge upside retracement appeared in the wake of similar price action in the crypto market with top cryptos Bitcoin (BTC) and Ether (ETH) rebounding by 23% and 25.75% since yesterday’s lows.
But the sharp ADA recovery does not promise an extended upward continuation, at least according to the three factors discussed below.
Stock market crash far from over
First, the price action in the Cardano and similar crypto-assets has been in lockstep with U.S. equities, especially tech stocks.
Notably, the correlation coefficient between ADA and the tech-heavy Nasdaq Composite was 0.93 on May 13, meaning that any major moves in stocks would likely steer Cardano in the same direction.
Moreover, the chances of Nasdaq undergoing a sharp recovery are currently slim, as analysts highlight the overstretched valuations of the Big Tech stocks and their probability of crashing further in a higher interest-rate environment.
“The [ax] is hanging, rather, over high-growth tech companies,” opines Richard Waters, the Financial Times’ West Coast editor, adding:
“This is where valuations became most stretched, and where the market is having the most trouble finding its nadir.”
Simply put, Cardano’s persistent positive correlation with Nasdaq could result in more sharp declines in the ADA market, at least for the time being.
ADA’s “fifth wave missing”
Secondly, another hint of a potential Cardano price decline comes from a technical structure highlighted by Capo of Crypto, an independent market analyst.
The pseudonymous analyst notes that ADA could fall to the $0.30–$0.35 range next, given its possibility to paint the fifth and final wave of a bearish Elliott Wave setup, as shown in the chart below.
The target range coincides with the support area from January 2021 that preceded a 850% bull run.
Descending channel breakdown
Thirdly, Cardano has been breaking below its multi-month descending channel in another sign of weakness.
ADA has been trending lower inside a range defined by two falling, parallel trendlines, underscoring traders’ current strategy of buying near the lower trendline and selling toward the upper trendline.
But on May 12, ADA/USD broke down below the lower trendline near $0.568, showing that traders ignored the buying opportunity.
Instead, buyers showed up near the $0.378-level to accumulate ADA, leading to the price rebound, as discussed above. However, the trading volume backing the recovery move was lower than during the selloffs, indicating a weakening rebound trend.
Simultaneously, the upside retracement move showed signs of further weakness after testing the descending channel’s bottom as resistance — a way of confirming the breakdown. If the bulls fail to flip the price ceiling to support, then ADA’s likelihood of continuing its prevailing downtrend will be much higher.
Related: Look out below! Ethereum derivatives data hints at further downside from ETH
Conversely, a decisive move above the channel’s lower trendline could have ADA then test its upper trendline near $1.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
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