Istanbul fork improves Ethereum performance. Can Ethereum become the "world computer"?

About the author: Miko Matsumura is a general partner at venture capital fund Gumi Cryptos Capital and co-founder of wallet service provider and exchange Evercoin. He has been engaged in open source software projects in Silicon Valley for 25 years, starting with the introduction of the Java programming language, and is a true evangelist in the field.

Ethereum co-founder Vitalik Buterin said that Ethereum will be able to process 3,000 transactions per second after the Istanbul fork, Cointelegraph reported on December 8.

Image source: pixabay

Will this set off a wave of Ethereum innovation? Will Ethereum network traffic surge as a result? Will traffic growth affect the price of ETH?

“Ethereum is too slow”

The common perception of Ethereum is that it processes transactions too slowly. But in what sense? It seems fast enough for financial services. The reason people mistakenly say "Ethereum is slow" is because they misunderstand something great and think it is slow. ETH works because users want to pay (in the form of "gas") to perform computations.

If the Ethereum network is clogged, it means there are more people wanting to pay to use Ethereum’s computation than its capacity allows.

In other words, let's say you have an Apple Store and you have more and more customers lining up to buy the latest iPhone. The more customers you have, the more profit you make. If you have a hard time accepting the money people give you to use your service, then you're doing well. You wouldn't complain in that situation.

"World Computer"

It turns out that reaching consensus computationally is very expensive, and therefore a very slow process. The Istanbul fork will make Ethereum consensus a little faster, but achieving a "world computer" seems a bit exaggerated, as it suggests that there may be a single device that handles the computing needs of the world. It doesn't even reach a speed of 3,000 transactions per second. Ethereum's current state is more like a "trust machine" (the name of a blockchain documentary directed by Alex Winter) than a "world computer."

Decentralized Applications

What is a “decentralized application” (Dapp)? It’s a confusing mix of metaphors. The word “app” is inseparable from the rise of smartphones and the “app store.” So, when you say the word “DApp,” a similar world of endless possibilities and creativity comes to mind. This flawed reasoning is further complicated by the discussion in the original Ethereum whitepaper about creating a Turing complete “world computer.” A “world computer” would imply that an infinite number of applications could run on Ethereum. However, since there is a cost to running computations with consensus, even if the cost of consensus is greatly reduced, it will always be higher than the cost of running computations without consensus.

“Vending Machines”

The cost of consensus is why what Nick Szabo calls a “vending machine” makes more sense. If a line of code can’t process value, then why not execute it in a faster, cheaper, and more centralized environment? This reduces the practical applications of storing, transferring, buying, selling, splitting, sharing, or otherwise manipulating value. This means that the practical applications are naturally practical value input and output smart contracts, such as decentralized exchanges, token swaps, nonfungible token sales, token issuance (ICO or STO) contracts, loans, and arbitrary decentralized finance (DeFi). If we have a “world computer”, then it may make sense to talk about decentralized applications, but until then, all we have are vending machines.

Decentralized Finance

Nowadays, smart contracts related to digital asset mortgages and lending are receiving widespread attention. In this regard, ETH is particularly well-positioned because it has a relatively large liquidity pool and very high programmability. DeFi means that there are a variety of programmable digital financial products, but the concept of "lending applications" is currently the most popular. In particular, loans seem attractive because current DeFi protocols generate interest rates of up to 10%. This can be regarded as a "killer application" in the crypto field, because traditional banks have long been close to zero interest. This is also a reason to drive new users to cryptocurrency finance. At present, DeFi contracts have locked up nearly $700 million in funds. As more and more funds seeking high returns pour into the market, it remains to be seen whether such high interest rates can continue.

Gambling apps

Another obvious application is gambling applications. This is a variation of a “decentralized exchange”, but essentially users are not exchanging one token for a predictable amount of another token, but rather exchanging tokens for unpredictable returns. One advantage of smart contract-based gambling over other forms of online gambling is that players can determine whether the machine is “provably fair” by carefully scrutinizing the smart contract, as opposed to being obviously unfair as in a centralized exchange.

The need for speed

If all we are building are "vending machines", decentralized finance, and gambling applications, do we really need Ethereum's high performance? "Decentralized exchange" providers insist that they can achieve "centralized exchange" liquidity as long as the speed is fast enough. But historically, liquidity has always moved to high-frequency trading venues, and trusted computing has always brought higher performance advantages than untrusted computing.

One benefit of improved performance is that it increases the capacity of existing applications, enabling more similar applications to run on Ethereum. However, it seems unlikely that the performance improvements of Ethereum from Istanbul will lead to the creation of new types of applications.

Special Statement

Original article: https://cointelegraph.com/news/ethereum-istanbul-faster-but-still-not-the-world-computer

Author: Miko Matsumura

Compiled by: Libert