In 2018 or 2019, Ethereum’s competitors were all spreading information that the blockchain is slow, expensive, and without privacy features making it unusable for businesses. Today it is the most used network for enterprise applications and keeps growing at an increasing rate. In this article, we will explore those supposed flaws and debunk the Ethereum myths!
1/ Is everything public?
That’s one of the biggest misconceptions when talking about Ethereum. Yes, the Ethereum public network is indeed… public; however, private networks on Ethereum are the most used for enterprise solutions. For the past three years, atato has delivered blockchain solutions for the financial industry using mainly private networks on the Ethereum blockchain. Today SaaS companies such as Kaleido allow you to deploy those networks in a fast and straightforward way.
“Kaleido offers permissioned variants of the core Ethereum protocol, allowing for authenticated and identifiable participants to communicate and transact securely in a private setting.”
Private chains on Ethereum keep the information confidential between the network participants while still using the Ethereum development possibilities. This mix of public and private networks positions Ethereum as the best option for enterprise solutions by keeping information confidential while having the opportunity to share them publicly when needed.
While companies like EY (through the Baseline protocol) are pushing public chain adoption, today, most blockchain enterprise applications are deployed on private networks guaranteeing privacy among the consortium operators.
We often read that the Ethereum blockchain can’t scale due to its design limitations. Some applications like payments or decentralized finance require many transactions per second to accommodate the demand. With only 15 TPS today Ethereum seems far from matching the 1,750 handled by Visa and other non-blockchain payment providers.
However, several solutions called “layer 2 ” are designed to address this issue. Two examples are Rollups or Plasma used for fast transition throughput and reducing fees for users. While not going too much into the technicals (Ref: Ethereum.org):
A rollup is an off-chain aggregation of transactions inside an Ethereum smart contract, which reduces fees and congestion by increasing the throughput of the blockchain from its current 15 TPS to more than 1,000 TPS.
A plasma chain is a separate blockchain that is anchored to the main Ethereum chain. Same as Rollups il allows more than 1,000 TPS.
Today there is an increasing number of top Ethereum app adopting rollups to answer the scalability issue. Major decentralized exchanges (which are responsible for the high amount of transactions today) are actively working on layer 2 solutions to increase the number of transactions and reduce the fees. Vitalik Buterin also declared that he sees Rollups as the scaling strategy for the near-term while waiting for Ethereum 2.0 phase 2 to launch.
Also, as we have explained above, most enterprises are running private networks where you can achieve around 100 TPS (You can see below the result of a private blockchain running on Kaleido):
There is today a lot of solutions available to answer scalability issues and enterprises seem to have already adopted them. Furthermore, ETH 2.0 phase 2 is likely to offer near 100,000 TPS and finally answering scalability restrictions. This will enable new main net applications like Central Bank Digital Currency and sustain the growth of decentralized finance.
Ethereum transaction cost on Etherem continues to be very high today (between 6 to 17 USD) and makes most of the enterprise’s application expensive to use on the main-net.
First, it’s essential to understand how an Ethereum transaction works. As explained on ethhub: “every transaction that occurs on the network requires a set amount of gas, which is a unit used to measure the computational power needed to process the transaction. To process a transaction and include it in a block, miners expect to be compensated. This is accomplished by setting a gas price with every transaction denominated in Gwei (1 ETH = 1,000,000,000 Gwei). For example, when you send ETH from one account to another, this cost 21000 gas. If you were to set a gas price of 1 Gwei, this transaction would cost 0.000021 ETH.
Due to the increasing network demand, the gas price often sets new highs and limits adoption for high transaction applications. You can monitor the gas price in real-time with https://ethgasstation.info/.
To avoid high transaction costs, enterprises are likely to use private networks where there is no need for cryptocurrency to operate. In those networks, you control the miners and can decide what kind of transactions they process. You can just set all the miners to include zero-gas priced transactions and run a blockchain with no transaction cost.
However, even if the transaction cost is 0 in a private configuration, you will still need to run the network. Using a blockchain provider as a service like Kaleido, the cost of running your enterprise blockchain comes down to the number of nodes you are using. Operating a network of three medium-size nodes will set you for around 2,000 USD/month.
With such a competitive value proposition is not surprising to see most enterprise solutions choosing such a setup.
While the main-net transactions are at an all-time high, gasless and private networks are the answer to enterprise solutions today while waiting for more scalability to come with Roll-ups and ETH 2.0.
Blockchain is still a new technology; improvements and new features are developed every day by a large pool of talented developers (about 900,000 today and growing).
Despite its limitations, in less than 4 years Ethereum gave birth to a new way of raising funds (ICO/STO), decentralized finance with over USD 28 Billion locked in their contracts, internal financial settlement for institutions, and many other applications bringing significant ROI for adopters.
With the launch of ETH 2.0, layer 2 scaling solutions, and a massive development community, Ethereum will likely increase its advantages over other blockchain and consistently attract more enterprises.
If you wish to know more about Ethereum business applications, do get in touch with us! [email protected]