What will the Ethereum 2.0 performance upgrade bring?

“The main contradiction of Ethereum now is the contradiction between the increasing demand for contract usage and the stagnant underlying capacity.” - An unnamed ETH investor

If it is almost the second half of 2020 and you still think that cryptocurrency has no practicality, no real landing value, or even that no one is using it and it is all just hype, then you are really behind the times.

The most popular DeFi ecosystem on Ethereum now has a capital scale of 1.5 billion US dollars:

An ecosystem worth 10 billion RMB is really not small.

Moreover, as the Ethereum ecosystem develops, other public chains have followed suit, copied a lot of essence, and "replicated" it on their own public chains, making people feel the vitality. However, at present, the DeFi ecosystem is still dominated by Ethereum, and other public chains are still in the exploratory stage, and no particularly outstanding players have been seen.

Of course, all of this does not seem to be reflected in the price of ETH, so if you think the ecosystem is good and want to buy ETH, you still have to think again.

Having said that, why do Ethereum's big players feel that the underlying capabilities of the current Ethereum public chain are not good enough?

When discussing this topic, I will treat you as novices for the time being. Let’s first talk about the current performance of Ethereum.

This is a randomly taken block height map:

Currently, one block of Ethereum can contain a maximum of about 250 transactions. If we calculate based on an average of one block every 15 seconds, the TPS is probably less than 20. So let's just calculate it as 20.

If you don’t know what this means, let me put it this way: it’s not enough. (This is also the reason why the community is currently debating whether to increase the gas limit).

If the TPS is not high enough, the cost of a single transfer will be high if the demand is strong:

The most popular on-chain stablecoin transfers are as follows:

The transfer cost for a single transaction is $0.7, which is not high in theory, but it also isolates small transactions.

In addition, insufficient capacity also leads to slippage when decentralized exchanges conduct contract transactions, such as Uniswap:

(The above three pictures are from Lianwen articles)

In short, as mentioned in the first sentence at the beginning, the current Ethereum ecosystem has strong demand, but the performance is far from enough. Continuous congestion has led to high transaction costs. It’s not that it can’t be used, but it makes you feel uncomfortable everywhere.

So how much will the performance of Ethereum 2.0 improve? OKEX CEO Jie Lun mentioned this in an interview with Cointelegraph:

Jay Hao responded to this question by saying: “ETH 2.0 is designed with the highest level of security in mind. Therefore, it may take several years before ETH 1.0 is fully integrated, as a two-way bridge between the two chains may lead to vulnerabilities, making the chains easier to hack.

From the outset, ETH 2.0 will have at least 64 times the capacity of ETH 1.0, and will continue to increase over time.”

From this answer, we can conclude that 2.0 will have a 64 times higher TPS than 1.0 from the beginning (because there are 64 shards), and as it continues to develop and the number of shards continues to increase, the TPS can continue to expand. However, the overall size of Ethereum is there, and everything needs to be stable, so it may have to take it slow.

So some friends may ask, why is it 64 times? I also asked about this question, and the answer is this:

To be honest, 64 times is also impressive. The current TPS is close to 20, and if it is expanded 64 times, it will be over 1,000. Generally speaking, a TPS of over 1,000 is certainly not comparable to payment tools like Alipay and VISA that can handle tens of thousands of transactions, but it is enough. And if it is further subdivided into the financial field, then a TPS of over 1,000 and a low transfer cost are enough.

Of course, this is theoretical.

You know, it’s not easy for the cryptocurrency ecosystem to go from “unusable” to “sufficient”. With a good enough hardware foundation, you can expect to generate higher returns.

So Jay once again emphasized the importance of 2.0 when he was interviewed by Cointelegraph:

"Given the current economic crisis and the flaws exposed by the traditional financial system, cryptocurrencies and DeFi have never been as relevant as they are today. However, if this field continues to be unfriendly to users (referring to TPS not being high enough) and public chains are often blocked, it will be difficult to face the public.

Ethereum 2.0 is necessary. So, regardless of the risks, this is a crucial step. "

In short, Ethereum 2.0 is very necessary for everyone. It is a good story for investors and a much stronger underlying foundation for the ecosystem.

But if you want to rush in and buy ETH after seeing this, I still advise you to calm down, because Ethereum 2.0 has been delayed for a long time, and judging by the current situation, it may continue to be delayed.

At present, in the best case scenario, please note that this is the best case scenario. In the third quarter of this year, we will see the Phase 0 of Ethereum 2.0. In this phase, Ethereum 1.0 and 2.0 will be developed in parallel, and you can lock up your position to participate in PoS and receive a salary. However, this is only Phase 0 after all, and you can tell from its name that this is not a very comprehensive and complete version.

Phase 1 will not be available until 2021, when the legendary “64x” upgrade will take place. The final version of Ethereum 2.0, which is what everyone thinks is the “real ETH2.0”, will not be available until 2022.

Please note that this is still the most optimistic scenario. In the less optimistic scenario, we don’t even know which of the next halvings will come first, Ethereum 2.0 or Bitcoin.

Again, before the arrival of Ethereum 2.0, it is a good time for other public chains to catch up. Once 2.0 matures, other public chains will really have no chance.

Finally, I still want to express my concerns about DeFi. Usually there are no problems, but I am afraid that 312 will happen again:

As can be seen from the figure, when 312 came, more than half of the assets in the entire DeFi ecosystem were liquidated. Under extreme market conditions, no matter how low the mortgage rate is, it is likely to be affected by the liquidation, especially when the entire network is blocked and the margin cannot be replenished.

Currently, we see that the scale of mortgage assets has reached 1.5 billion US dollars, and it is still growing rapidly. In the future, the asset scale may reach 2 billion, 3 billion or even higher. Once a black swan occurs, it may affect all assets in the entire ecosystem.

In addition, the last dForce incident is also worthy of sounding the alarm (a DeFi project was attacked and all assets were moved away. Fortunately, the hacker later returned all the coins). There is no absolute security in the financial field. Only good enough risk control can ensure security.

Therefore, whether you are participating or investing, you still need to do a good job of personal risk control and don't spend all your money for high interest.