I think everybody has been hearing a lot about ETH v.2.0 for quite some time now. People have lot of hope in it. It promises a lot doesn't it? Lets see:
- Fast transactions
- Cheap transactions
- Smart contracts
Anything more? Maybe, but let's analyze what is actually behind all these promises.
Cardano vs. Ethereum
I don' t know if you know so I will start from the very beginning: Ethereum had it's development headed by Vitalik Buterin. He understood very early that Bitcoin wasn't exploring all the possibilities that the blockchain could implement. That was genius! However, he kept the Proof-of-Work confirmation method that was implemented by Bitcoin.
Sometime later, Charles Hoskinson, also a founder at Ethereum understood what kind of problems that PoW would bring to Ethereum (and Bitcoin): it would prevent the network scalability — which at first seems counter-intuitive — I got used to think that, if a network has more computers working, the faster the whole network becomes. Well, this works the other way around here. For PoW, what actually happens is, the more nodes (miners) there are, it can take longer to confirm a transaction.
Apparently, these 2 guys had some kind of discussion and, since Charles wasn't able to convince Vitalik of what today is obvious, he simply decided to jump off the Ethereum project and start a new one: Cardano. Now, instead of implementing PoW, this new blockchain would work based on Proof-of-Stake, which would scale much more, with much cheaper transactions than Ethereum and, of course, smart contracts.
The broader market behaves, even today, as if it doesn't have a clue of the problems that Bitcoin and Ethereum have. Even though Cardano being worth a few billion $, it is really nothing compared to Bitcoin's and Ethereum's valuations.
I like to present some concepts in a simple way so they are easier to understand. It might seem like an over-simplification, but I like to think of Cardano as Ethereum, implemented with PoS.
ETH problems became evident
During the second quarter of 2021, ETH surged from $600 to $2,600. The transaction fees went up just as much, and everyone noticed that they took too long to be confirmed. I still get nervous every time I send ETH somewhere or buy something with ETH and I see it "disappearing" from my wallet and nothing else happens for 20 minutes or even hours (which happened when I decided to pay a lower fee).
At that moment, the crypto projects that became the stars were all the Level 2 networks because they implemented the "fast and cheap" transactions that everyone wanted. Funny thing is that nobody seems to care about security anymore…
Anyway. I've been hearing, since the end of 2020, influencers saying that ETH is the project with the highest potential because they will soon launch ETH v.2.0, and this will solve all the problems and ETH will finally surpass BTC.
I don't know what the timeline was supposed to be for ETH 2.0 to come out, but I know it is late and, honestly, I think it will take much longer than what the most pessimistic person would estimate.
But what is ETH 2.0?
At the risk of over-simplifying again, I think I can say that ETH 2.0 is ETH based on PoS. But wait a minute! Didn't I just say that about Cardano???
I'm sure that a lot of people will, right now, try to defend ETH, that it will be much better than Cardano, that Cardano wasn't able to implement Smart Contracts yet bla bla bla…
I really don't intend to get into this kind of conversation. It's a waste of time to try to discuss with fans. They might not like that I said that ETH 2.0 is the same as Cardano, but they cannot deny that it is Ethereum's plan to "abandon" PoW and adopt PoS. Why? Because it scales much better and it is faster and cheaper.
Honestly, ETH 2.0 is so different from ETH that it is really wrong to call it Ethereum. It should have another name. But then, Ethereum is a strong name, worth a couple hundred billion dollars. It would be dumb to throw such an asset away. ETH 2.0 is totally different but it will still be called Ethereum and that will be used for credibility. Keep in mind that, without credibility, any crypto is worth absolutely nothing.
How hard is it to fix the foundation of a skyscraper?
Let's say you built a house. It is 200 square-meter (around 2,200 sq-ft), 3 bedrooms and 3 bathrooms. After it got ready, you find out that the foundation wasn't done properly, and the house is actually sinking into the ground. You have no choice but fix the foundation, but you don't want to take the house down. Is that a lot of trouble?
Well, it so happens that ETH cannot be compared to a 200 square-meter house. It is more like a 80-story skyscraper, with 800 apartments (2 bedrooms and 2 bathrooms). After it is built, you find out that the foundation is weak and you will have to change it completely… but you don't want to take the building down. Whaaaat?
It is suicidal to even try to do that. It makes absolutely no sense. The ETH team knows that and anyone that works in IT or has made a really nice Excel spreadsheet knows that, sometimes, it is easier to just start something new from scratch. And that is what the ETH team is doing. PoW and PoS are so different that it is much easier to create ETH 2.0 from scratch.
What happens when ETH 2.0 is finally ready?
As I mentioned before, even though I believe that it will take very long to get ready, that is not where I want to focus this discussion. What I want to know is: what is the plan to make ETH users (not just ETH holders, I'm talking about people/companies that developed all sorts of stuff using ETH as their foundation) and miners/nodes migrate to ETH 2.0? There is a bridge right?
What always happens when a new version of any software is launched?
If you work or have worked in the IT industry, you've lived this a few times already. Every time a new version of a software comes out, there is a race to migrate everything you prepared for the previous version into the new version. And you also know that there are always a few solutions/programs/people, that decide not to adopt that new version. Not going to discuss why. It is a fact. The point is, because of these few people, the company that developed the software has to keep a team to support the old version (now called the legacy system). People actually deciding to keep using the older technology always seemed like a very stupid decision to me but it happens, people do make such decisions and there is really nothing you can do about that.
Let me try to develop a simple example. This is real and I was in the room when the CFO of the company I worked for said this. In 2001 I used to work for Oracle Corporation, and at that time, our computers had Microsoft Office 95. Microsoft had already launched 2 new versions of MS-Office by then but we still used Office 95. That was a problem because all of our clients had the latest versions of Excel, Word and PowerPoint. Everytime they sent us a file, we weren't able to open them because our old version didn't open the new format files. We had to call the clients and ask them to "Save as" Office 95 document. This "save as" an older format file is the Support that I mentioned.
What is this Support?
The point here is: the new Excel version always has to be able to read the Excel 95 files and also has to be able to save files in that format. For the outsider that sounds trivial, but for Microsoft, that means they have to keep a team working to guarantee this will happen. That is cost — a cost to do nothing because the launched newer versions so they have a better product. Why do people want to keep their old formats?
How many times do you think companies like Microsoft had the following discussion? "Our clients need our products. We are the best and getting them even better products. Let's just force them to migrate to the newer version. How much will we save if we redirect this team (the one that supports the old version) to do something that is actually worth something?"
Why do you think they never did this?
Because that would cost them their credibility (and that is much more valuable than the cost of that Support tea): people could stop using Excel, Word and PowerPoint because Microsoft is forcing them to do something they didn't want to do. A company that developed super complex spreadsheets with functions that were replaced by other ones, macros etc would be very cautious before deciding to migrate them all to the new version. Some clients certainly noticed that, in order to migrate (or bridge) their spreadsheets to the new Excel version, they would have to make so many changes it might just be best to develop those spreadsheets again. The problem is, they didn't want to do that but they were forced. Because of that, they had to spend all the time and money again. That is enough to make them decide to use a set of tools developed by another company: Google or Apple. Their "Office" products are not as good but they don't force their clients in doing something they don't want to do.
Going back to the story why Oracle didn't upgrade their MS-Office… It didn't matter why Oracle's employees computers had an old version of the software. It mattered that we had it, and that it would be bad for Microsoft to say "you have to migrate to the newer versions of our software or you just will not be able to work anymore". Of course, 20 years later, this naturally happened. But at that time, we were just 6 years late.
Just as an interesting fact as I'm writing this article — I just checked my PowerPoint and noticed I can save my PowerPoint file as a "Powerpoint 97–2003 presentation file". We are in 2021…
By the way, in that meeting with the Oracle CFO, a colleague (I think he was from Argentina) asked him "why do our computers have this old version of MS-Office? It causes us such headaches!". The answer was something like this: "Look, we currently have 60,000 employees which means 60,000+ computers, all with MS-Office installed in them. If we upgrade all of them, that will cost us an extra $100 million. We just don't want to pay this kind of money to Microsoft".
How long will it take for every ETH project to migrate to ETH 2.0?
I honestly don't know. But I know it will not happen in 1 year. Nor will it happen in 5 years. Maybe everybody has migrated in 20 years.
At this point, all I can say is that ETH will be a victim of its own success. Let's think about this:
- How many other cryptos were built on top of the existing ETH PoW blockchain? What kind of effort will they need to invest to migrate their projects to ETH 2.0? And how many of their users will, for whatever reason, not upgrade?
- How many companies decided to create their own blockchain (for their corporate controls or whatever) on top of the existing ETH blockchain? The reason they created those wasn't the use of crypto as money. They wanted to track assets, automate processes with smart contracts or whatever. Will they have to migrate all their developed systems to ETH 2.0? At what cost?
- What about the nodes/miners? If I were a node, I would certainly upgrade everything as fast as possible because for me, maintaining the legacy system working will just be headache. It so happens that 100% of the nodes cannot just decide to go to ETH 2.0. If they do so, who will keep the old ETH working? At what cost? Who will pay for this? The ETH 2.0 users?Look, the old ETH will have to continue to work because, even if just 1% of the present market cap decides not to upgrade, that still represents $2.5billion, and they cannot be abandoned or the whole name ETH would be at risk of completely losing credibility. What happens if they lose credibility?
- Another interesting point: as nodes "abandon" the old ETH, that blockchain also becomes more vulnerable to the 50% attacks.
Oh man! I just see huge problems for ETH in the future. I am not saying the solution they are designing is bad. I'm just saying that they will have to live and maintain 2 completely different blockchains for years! And that is inefficient, it needs more people, it costs. Somehow, these costs will affect, at some point, the ETH 2.0 users. Could that be irrelevant? Maybe. Maybe not. In my MS-Office example, $100 million wasn't really relevant for Oracle, but it was still a lot of money and they didn't want to pay it to Microsoft.
Is there a solution for this?
Yes, there is: Tixl. What a cliche! Every time I write something and present problems, the solution always seems to be Tixl… Tell me: how will Tixl solve these problems?
After all I wrote here, I would say that the greatest advantage that Tixl has over Ethereum is that Tixl is not Ethereum. The effort is the same: we have to convince ETH users to migrate their cryptos into the Autobahn Network. Once they do that, they will have the "fast, cheap and interoperable" solution they need.
As for the advantage of not being Ethereum: the ones that don't migrate into the Autobahn Network are not Tixl's problem. Sorry if I may sound sarcastic here but that is true. The people and projects that decide to stay in the ETH blockchain, they are responsibility of the ETH team. So Tixl actually will just keep the happy people and now they are even happier because they didn't have to get rid of their ETH and yet solved their problems.
How much do you think the Tixl project should be worth?
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If you think what I wrote makes sense and are planning to buy TXL because of this, contact me. I can help you:
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