Ethereum Thrives as Scalable DeFi Projects Take OffScroll Down
Where would the Ethereum be without decentralized finance (DeFi) technology? Blockchain analysts and developers believe that Ethereum may not have been able to scale in order to meet the considerable demand placed by ERC20-compliant tokens. Just a few years ago, Ethereum was suffering from significant network congestion, and then there were issues related to rising transaction fees. Thankfully, DeFi projects such as side chains have salvaged the future of ETH.
Zero-Knowledge (ZK) off-chain projects are part of the latest wave of DeFi technology that has emerged to improve Ethereum functionality. Two ZK projects worth mentioning are Arbitrum and Optimism; in essence, these two side chains take ETH transactions temporarily off the blockchain for the purpose of alleviating network load. When the computation process has been completed, the transactions are sent back to the ETH network along with proof to make them valid.
In an effort to promote DeFi blockchain research, researchers from all over the world are working together to come up with ideas for scalable DeFi technology. There’s a growing interest in ZK research, with many blockchain analysts and developers taking a keen interest in the DeFi-related ZK research that’s been published to date.
Although ZK is the latest DeFi solution to emerge, there are a number of reasons why Ethereum’s side chains may eventually overtake the Ethereum blockchain in terms of size and popularity. Firstly, some blockchain platforms (such as the Dash network) have not been able to implement blockchain technology efficiently. For example, DASH does not need to rely on a blockchain as it is an autonomous network. On the other hand, Ethereum’s blockchain has been criticized for using the Proof-of-Work (PoW) algorithm, which is the most popular energy-consuming proof-of-stake algorithm. Secondly, the Ethereum DeFi community is far larger and better organized than the Ethereum side-chain community, which is not to say that the latter doesn’t have active research. Many Ethereum side-chain researchers have found opportunities in the DeFi community.
A common mistake is to assume that side-chain technology is only for Ethereum 2.0. In fact, there are a number of Ethereum side-chains that are highly active and provide real-world applications, such as Cosmos and Raiden. Last, many of the technologies for Ethereum side-chains, such as Ethereum 2.0, are still in the development phase. Thus, they might not even be available in the next three years or even later.