V God: The next decade is crucial for blockchain technology

At the ongoing Korea Blockchain Week KBW 2022, Ethereum co-founder Vitalik Buterin discussed the vision of encrypted payments, ZK-Rollup technology, the challenges Ethereum will face, and why the next few years should become a testing ground for blockchain applications.

Rediscovering the vision of encrypted payments

Vitalik Buterin said that thanks to Layer2 Rollup, transaction costs on the Ethereum network will soon drop to 1 cent, and crypto payments will "make sense" again.

The last obstacle to reducing transaction costs to 1 cent is blockchain data compression, and Rollup's "solid work is underway", such as Optimism's Ethereum second-layer expansion solution - reducing the size and cost of data in blockchain transactions by introducing "zero byte compression".

"So today with Rollup, transaction fees are typically between $0.25, sometimes $0.10, and in the future with all the efficiency improvements, transaction costs could drop to $0.05, or even as low as $0.02, which would be a complete game changer."

Although Bitcoin is currently mainly used as a speculative store of value, Vitalik Buterin emphasized that Bitcoin's 2008 white paper was actually intended to provide a "peer-to-peer electronic cash system" that is cheaper than traditional payment methods.

This was true for Bitcoin’s practical use until 2013, but things changed in 2018 when transaction costs became too high. “I think crypto payments are a forgotten vision, and one of the reasons it’s forgotten is basically because its price is beyond market expectations.”

In Vitalik Buterin’s view, Bitcoin and other crypto assets will soon be able to regain their payment vision again as scaling solutions (such as the Lightning Network in Bitcoin) gradually reduce costs to below 1 cent.

Other encryption use cases

"Over the past 2 years, Ethereum transaction fees have reached $1-20, which means that someone has to spend several hours' wages for a single Ethereum transaction. In other words, it is difficult to call Ethereum a network that can be used in practice."

Vitalik Buterin outlined several different areas as to why cheap crypto transactions will be particularly important.

First, he pointed to “low-income countries or places where the existing financial system is less effective,” where crypto payments would enable citizens to gain access to an important means of payment via the internet, a solution that has already been phased in due to the high costs of international remittances.

Secondly, he noted that cheap crypto transactions would also help increase adoption of non-financial applications on Ethereum, such as Domain Name System (DNS) servers, human-friendly proof-of-attendance protocols, and Web3 account management services.

“You need to send a transaction to create a DNS name, you need to send a transaction to restore your account, you need to send a transaction to satisfy some of these changes, and so on, and if it costs $11 to do each of those operations, then people are not going to use it.”

So Vitalik Buterin believes that scalability is not a boring improvement, as costs come down, blockchain can actually enable and unlock entirely new use cases.

The Merge

Vitalik Buterin also said that “The Merge” upgrade involves the transition of the Ethereum blockchain from the proof-of-work consensus mechanism (PoW) to proof-of-stake (PoS), and “if everything goes according to plan”, the update is expected to take place in mid- to late September.

Ethereum developers are expected to shift their focus to scaling the network after the much-anticipated “The Merge” upgrade.

Ethereum’s “next decade”

Vitalik Buterin said that the next decade will be crucial for blockchain technology, and blockchain applications need to prove their practicality rather than promise that they will be useful in the next 10 years.

Due to today’s scalability issues, many applications are promising in theory but currently seem unfeasible. If scalability is not an issue after the Ethereum merger and Layer2 improvement, the fact that they still cannot run means that it is “pointless” to use blockchain in the first place.

He said he still believes that some of today’s Optimistic Rollup projects will succeed, but expects that some of today’s Optimistic Rollup projects working to scale Ethereum will turn to embrace ZK-Rollups because ZK-Rollups have "fundamental advantages."

Vitalik Buterin also reiterated his view that ZK Rollup is likely to be Ethereum’s top Layer 2 scaling weapon.

In addition, he added that quantum computing will be an important consideration in the future, and Ethereum needs to upgrade to protect itself from future quantum computing attacks and consider turning to "new forms of cryptography" to resist potential attacks, but it may take decades.

“We’ve been in very close contact with AI researchers, and they continue to work on this problem and come up with better algorithms, but that’s still a long way off. It could be 10, 20 or 30 years from now.”