Ethereum — the second-largest cryptocurrency by market value — has seen explosive growth of more than 1,000% over the past year. The Ethereum ecosystem has flourished with the vast majority of decentralized finance (DeFi) protocols and stablecoins operating on it, and the total value locked in DeFi protocols now exceeds US$60 billion. Alongside Ethereum’s massive growth, high transaction fees and scalability issues have plagued the blockchain as it struggles to keep up with demand.
But according to Ethereum’s creator and co-founder Vitalik Buterin, Ethereum’s issues are not due to its technology.
“One of the biggest problems I’ve found with our project is not the technical problems, it’s problems related with people,” Buterin said.
“Ethereum is now in a better economic position, but it took us five years to get to where we are now,” Buterin said. “We have a lot of internal team conflicts in these five years. If you are building a team, it is important to know who you are working with.”
The 27-year-old Buterin made his comments in Mandarin in response to a question about the advice he would give to his 19-year-old self when he was starting Ethereum. Buterin was talking with Jehan Chu, co-founder and managing partner at Kenetic, a Hong Kong-based early-stage blockchain investment and trading firm, in a keynote fireside chat today at the Virtual Fintech Forum, part of the StartmeupHK Festival 2021 taking place this week.
Buterin said that building Ethereum took more time than he had anticipated. “At the beginning, I thought we might do a blockchain in three months… but we found out that it takes 18 months to finish,” Buterin said. “We thought it would take one year to do the proof of stake, but it actually takes six years.”
“If you are doing a complex thing that you think will take a while, It’s actually very likely to take a lot more time,” Buterin said. “It’s something that a lot of people will tell you, but if you haven’t done a project yourself, you might not believe it — but it is real.”
Ethereum’s upcoming upgrades
“We actually call it Ethereum 2.0 a bit less because we want to emphasize that, this isn’t throwing out the existing Ethereum platform and making a totally new one. It’s a much more kind of incremental set of changes,” Buterin said.
The upgrades involve Ethereum’s transition from a proof-of-work (PoW) consensus mechanism to secure the blockchain — like for Bitcoin — to proof-of-stake, which will significantly reduce its energy consumption. A PoW Ethereum consumes the energy equivalent of a medium-sized country like Portugal. In contrast, a PoS Ethereum will use at least 99.95% less energy.
Stability features such as sharding and rollups will also improve the scalability or number of transactions that the Ethereum network can process. Sharding and rollups will independently increase the scalability by a factor of about 50 to 100, Buterin said.
“The two of them stack on top of each other so once you have rollups and sharding, Ethereum and things on top of Ethereum will actually be able to have the kind of scalability that the large scale enterprise applications are expecting,” he added.
“There’s a lot of other things that people are building in the Ethereum space, but the blockchain’s ability to handle all the transactions is having a hard time keeping up with the demand, which is exactly why all of these things that we’re working on the technology side with scalability and proof of stake are so important, Buterin said.
See related article: Ethereum’s Berlin upgrade goes live. What’s next for Ethereum?
Stablecoins are ‘immensely valuable’
DeFi’s continued growth from 2020’s “Summer of DeFi” has corresponded with an increase in stablecoins on Ethereum. Buterin calls stablecoins “immensely valuable” to the global economy.
“Not only can you send money around, you basically cancel out the volatility issues with cryptocurrency,” Buterin said. “And if you have to hold on to it for some amount of time you’re guaranteed to get about the same value and actual purchasing power that you put in.”
Non-fungible tokens (NFTs) also had a meteoric rise this year with artists, content creators, brands and celebrities launching NFTs. Buterin expects the DeFi space to continue to evolve with synthetic assets and sees the potential to create a much more efficient financial system such as through fractional real estate investing. “The functionality and programmability that crypto and DeFi provides could eventually provide the tools to do a lot of much more interesting things,” Buterin said.
See related article: Report: 1.7 million DeFi users now on Ethereum, 50% more since Jan. 1
Are other blockchains a threat to Ethereum?
Given Ethereum’s scalability issues and high transaction costs, several new blockchains, including Binance Smart Chain, Cardano, Polkadot and Solana have emerged to challenge Ethereum’s dominance. “A lot of the newer chains are trying to target having more scalability in whatever way and sacrificing decentralization,” Buterin noted.
“In the long term, the challenge for those kinds of platforms is that Ethereum itself is improving, and there’s also these layer two protocols on top of Ethereum that are rapidly improving,” Buterin said.
Is Buterin a dog or cat person?
Buterin, who recently made headlines for donating over US$1 billion worth of Shiba Inu (SHIB) tokens to India’s crypto Covid relief fund, also commented on his donations of the meme coin to charity.
“Basically I just saw like, okay, there’s these new dog coins, and they’re worth a lot and there was just an opportunity to turn the meme bubble into something that could do some good for people,” Buterin said.
Buterin had been gifted with 50% of the SHIB tokens — a Dogecoin-inspired ERC-20 token on the Ethereum blockchain — by the project’s anonymous creators.
“They gave 50% of the supply to my cold wallet so it took me some time to figure out how to actually take the funds out of cold wallet and spin up a new multisig wallet so that the other things that I had in there can be safe,” Buterin said. He has also donated other dog-inspired meme coins like Akita Inu to other charities.
And what does Buterin think about dogs in real life?
“Dogs are cool, cats are great too,” Buterin said. “I like cats.”