Second layers will save the day in 2021, bolstering Ethereum and DeFi

When the decentralized finance sector exploded in summer time 2020, it was an eye-opening second that confirmed crypto’s precise capabilities to revolutionize finance. Nevertheless, the increase additionally uncovered a number of vulnerabilities of the Ethereum community, which most DeFi tasks are constructed upon. Essentially the most severe ones included excessive fuel prices and low scalability.

A bull cycle has kicked in since then, lifting Ether’s (ETH) worth to a brand new all-time excessive — and now the above-mentioned issues are much more persistent. Individuals are compelled to pay as a lot as $60 to $100 to finish a single commerce on Uniswap, whereas quite a few DeFi tasks are struggling to facilitate their transactions on the Ethereum chain in time, failing their customers consequently. An endless cycle of bullish information doesn’t assist, because it unintentionally distracts the group from these issues. It has been two days, and your transaction remains to be pending? However take a look at the charts: Ether value has been exploding, and one of many institutional funds has introduced it’s shopping for X million Bitcoin (BTC)!

Associated: Ethereum will turn out to be the principle asset for traders in 2021

The long-awaited Ethereum 2.0 transition, which goals to handle scalability and fuel charges, has begun, however Part 1.5, which merges the Ethereum 1.0 and Ethereum 2.0 blockchains, gained’t arrive for one more 12 to 18 months on the earliest. Are we actually able to preserve paying a couple of tens of {dollars} to ship a single transaction?

Associated: The Ethereum 2.0 issue: Altering the way in which DeFi tasks function

Fortunately, the potential repair has already arrived. Layer-two options, which began to achieve traction round crypto winter, serve to handle each the problems at hand: They cut back fuel charges and scale the Ethereum community by transferring most transactions to sidechains. There are fairly a couple of corporations which have been engaged on such options, together with Aztec, Offchain Labs, Matter Labs and others.

There are additionally tasks like Polkadot, which makes use of a sharded multichain community that may course of many transactions on smaller chains in parallel — which is why they’re referred to as “parachains” — as an alternative of processing them one-by-one like legacy blockchains.

Equally, Polkadot’s DOT token has been experiencing an unprecedented rally on the again of the rising fuel charges, beating XRP and transferring as much as turn out to be the fourth-largest cryptocurrency. In its 2021 prediction, Maple Leaf Capital — a crew of researchers targeted on Internet 3.0 hypothesis and constructing — anticipated that Polkadot might jumpstart infrastructure and utility enhancements.

On account of the huge adoption of layer-two options, a number of house will probably be created for the cryptocurrency trade — and we are going to heave a sigh of aid and get again to savoring the excellent news about cryptocurrency’s market capitalization, Bitcoin’s worth and institutional adoption.

This text doesn’t include funding recommendation or suggestions. Each funding and buying and selling transfer includes danger, and readers ought to conduct their very own analysis when making a call.

The views, ideas and opinions expressed listed here are the writer’s alone and don’t essentially mirror or signify the views and opinions of Cointelegraph.

Chandler Tune is the co-founder and CEO of Ankr Community, a Internet 3.0 infrastructure firm based mostly in San Francisco, and a Forbes “30 Below 30” laureate. He beforehand labored as an engineer at Amazon Internet Providers.