When will Ethereum finally scale?

Although Ethereum is the leading smart contract blockchain, it has a serious transaction congestion problem. During peak hours, a simple token transaction can cost more than $50 and take more than 30 minutes. Fortunately, the technology for Ethereum's secure expansion is close to completion, and only with these expansion solutions can Ethereum users experience low fees and fast transactions again.

When Ethereum was released in 2015, it was the first blockchain of its kind, and it was not expected that it would one day reach the levels of demand for on-chain transactions in the hundreds of billions of dollars. As smart contracts became more popular and demand grew, it became clear that Ethereum in its current state would not be able to keep up with demand, and transaction fees skyrocketed.

As a result, alternatives to Ethereum such as Binance Smart Chain, Solana, and Avalanche were released. These projects chose to sacrifice decentralization slightly in order to create faster blockchains with lower fees. The increased level of centralization means that these blockchains are more susceptible to censorship or block creation issues, and Solana has experienced several hours of downtime on multiple occasions.

In order to maintain decentralization while still providing minimal congestion, Ethereum has opted for two different types of scaling solutions: Rollups and Sharding. We will focus on Rollups, which are already available, rather than Sharding, which may not be released until 2023.

Rollups is a scaling technology that publishes transaction data to the main Ethereum blockchain, but moves the execution of those transactions off-chain. Execution occurs on a separate blockchain, and then the data from multiple transactions is compressed together and published on Ethereum as a single transaction. This compression is similar to a traditional ZIP file. By moving execution off-chain and compressing transactions, there is more room in Ethereum blocks for transactions, allowing for cheaper and faster transactions. In addition, using sophisticated encryption and verification, transactions that occur on Rollups are almost as secure as those that occur on the main chain.

There are currently multiple Rollups solutions available, including Boba Network, Optimism, and Arbitrum. Although these solutions are still in the testing phase and not yet ready for widespread adoption, anyone can deposit funds into these blockchains and enjoy the benefits of second-layer scaling on top dApps such as Uniswap, AAVE, and Curve. Transactions are completed in seconds, fees are less than a dollar, and users can use Ethereum as expected.

Even though some second-layer protocols have billions of dollars in value locked up, they are not yet ready for full launch. Optimism and Arbitrum, the two largest second-layer solutions, are limiting performance while they continue to develop and optimize their systems. Once completed, according to estimates, they should be able to process more than 4,000 transactions per second.

The key factors for the adoption of second-layer protocols are exchanges and industry support. Regular users barely know how to withdraw Ethereum from exchanges, let alone use MetaMask to send their funds to a new blockchain. Once exchanges like Coinbase, Binance, and FTX offer native withdrawals to the second layer, it will be very simple for anyone to use these solutions and never have to worry about Ethereum fees again.

Optimism’s full roadmap takes until 2024, but it will most likely be adopted by Coinbase and other exchanges much sooner. Ideally, the second layer will be integrated into exchanges by the end of 2022, and possibly by mid-2023 at the latest. However, the wait will be worth it, as it will usher in a new era for Ethereum, where anyone can use the blockchain and its dApps without having to worry about fees or congestion, at least in the short to medium term.