What’s Really Going On With Blockchain Networks

There’s a lot of buzz around the overall blockchain community. Wild price swings continually push the market up and down. Speculation is at an all time high. From the outside looking in, it makes sense to buy a stake in your favorite DeFi project or NFT. However, there’s a fundamental issue that lies below the surface.

Blockchain networks are facing a major scaling and sustainability issue.

If you think of the blockchain ecosystem as a farm, decentralized applications are different crops you can choose to grow and the networks they’re built on are the soil they grow in. Investor money and developer time is the water that’s continually sprayed on the crops to keep them growing.

The big issue with the farm right now, is that everyone is focused on which crops (dapps) to water when they should be focusing on the fact the soil is almost infertile.

Yes, the networks that every company relies on for infrastructure like Bitcoin, Ethereum and Polkadot are scrambling. The market is currently so focused on which companies are going to succeed and who’s competing against each other to see that the foundation itself is rocky.

We’ll discuss what’s really going on with blockchains by focusing on how they affect:

• Developers
• Investors
• The Environment

Developers

As of yesterday, Ethereum has over 3,500 decentralized applications currently being built with around 2 million transactions happening per day.

Solidity is the main language being used by those developers and smart contracts have an outsized opportunity to change the way industries conduct business.

The Ethereum 2.0 upgrade has been on everyone’s minds with the ultimate goal being to add more storage to the network and up the transactions/second to around 100,000.

As the price pumps for ETH, what no one is discussing is how difficult it is for developers to actually build on Ethereum’s network. Gas fees are making it 1,000,000x more expensive for companies to build on the blockchain than traditional centralized networks. Yes this figure is real and it’s actually on Ethereum’s Intro to Dapps Wiki.

Along with the cost of doing business, blockchain networks make it incredibly hard for developers to change or update code. In theory, immutability is a huge benefit of using blockchain technology, but in practice it can lead to a headache.

The good news is that Dr. Gavin Wood at Polkadot and Vitalik Buterin at Ethereum still collaborate and shard chain technology will do a lot to reduce gas fees and help with speed of transactions.

Investors

Right now, the cryptocurrency market as a whole is close to 2 trillion dollars being led by institutional and retail investors (plus a lot of people with stimulus checks) all buying up their own mix of alt coins.

Major companies like Coinbase, Kraken, Crypto.com, BlockFi and Binance have made it incredibly easy to exchange fiat for crypto.

Popular Media has also taken to reducing the barriers to entry by disseminating a whole slew of information on which coins are going to pump and which ones to dump. If you type in “cryptocurrency” on YouTube, you’ll see that just about every video is related to speculation.

The bad news is this is all shallow content taking away from what industry professionals are saying. In fact, if you look past all of the “Polkadot is the new Ethereum Killer” articles you’ll see what’s really going on.

The soil on the farm is in danger of becoming infertile (reference the farm metaphor above). Polkadot and Ethereum aren’t competing. They’re collaborating at an incredibly high level to ensure that the future of blockchain technology is bright.

If you look at the Ethereum 2.0 upgrade documentation, you’ll see that ETH is literally building a new blockchain to merge the old mainnet onto. That’s not just a simple upgrade.

Investors at all levels must recognize that the companies they’re pumping money into won’t have much of a tangible offering in the near future. The networks need to fix their scaling problems before any tangible results can be achieved.

The Environment

At this point, we’re all familiar with the major push Elon Musk made for Bitcoin that resulted in Tesla pulling their Bitcoin investment a few months later. Media stint or not, Elon did bring up an excellent point about the effect of Bitcoin Mining on the environment.

Mining is the process of putting in computing power to solve a complex math problem that ultimately yields a small reward for the miner. This is a fundamental component of the Proof-of-Work model that Bitcoin and Ethereum currently operate on.

With the growth that BTC/ETH have achieved, the amount of computing power necessary to mine has grown exponentially. So much so, that there are companies taking over old manufacturing plants and infusing them with a massive amount of hardware.

To put it into perspective, one BTC transaction has the same environmental impact as over 600,000 Visa transactions.

That’s a lot.

This is a major reason why Ethereum is making a change over to Proof-of-Stake in the next year. Having miners change over to a validator model will drastically reduce the carbon footprint.

Final Thoughts

Blockchain networks are ripe with opportunity, but it’s important to know about the growing pains just as much as the successes.

Collaboration is the key to addressing the scaling, development and environmental problems that companies like Ethereum, Polkadot and Bitcoin are facing. Investors need to be wary of the foundation of blockchain before diving into the surface level opportunities.