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Ethereum (ETH) and Ethereum Classic (ETC) have long been subject to comparison, given their shared origin, almost identical names, and widely debated divergence of paths following the 2016 DAO hack. Aside from their many differences, both face the problem that the rest of the DeFi world struggles with - inadequate scalability. In the fast-paced world of blockchain, dealing with hurdles affecting the effective operation of chains and DeFi solutions is paramount. These advancements indicate an extensive shift towards making blockchain technology more practical and widely applicable, paving the way for a much broader adoption. So, how can both networks work towards a future where they are more scalable and efficient?
Ethereum and Ethereum Classic have a shared origin, both deriving from the original Ethereum platform. The split in that platform occurred due to a notorious DAO hack. The DAO, one of the first prominent crowdfunding campaigns in crypto history, raised a substantial amount of ETH that was later stolen due to a code flaw. This led to significant disagreements within the Ethereum community regarding how to move forward, with people arguing about the ethics behind the hack and the decision to retrieve funds, ultimately resulting in a hard fork in the Ethereum blockchain. The new chain, which reverted to its state before the DAO attack, retained the original name, while the unreverted version continued its operation and was rebranded as Ethereum Classic.
Both chains initially utilized the Proof-of-Work (PoW) consensus mechanism, with Ethereum transitioning to the Proof-of-Stake (PoS) mechanism later on. While this decision helped enhance scalability, it was not a long-term solution. Therefore, it is unsurprising that these two blockchains have been actively exploring layer-2 (L2) solutions ever since. Such solutions are developed on top of any blockchain, referred to as layer 1, to improve its performance.
Ethereum is widely known for its thriving ecosystem of dApps, DeFi platforms, and developers who opt for Ethereum as the foundation for their products and services, deservedly taking its place as the second most popular cryptocurrency. Therefore, the issue of improving scalability has been particularly urgent for Ethereum compared to other chains. The introduction of Ethereum 2.0 marked a significant milestone in the network's development. This upgrade involves the implementation of the previously mentioned PoS approach. However, such a fundamental switch was less effective than many had hoped, so L2 solutions are still being considered and developed.
Ethereum has been at the forefront of creating and integrating various L2 solutions, such as rollups, state chains, sidechains, nested blockchains, etc. These solutions are designed to handle thousands of transactions per second, paving the way for new opportunities to expand the Ethereum ecosystem and adapt it to a rapidly growing DeFi market. For example, rollups enable the execution of transactions off-chain and then bundle them into a single transaction that is posted on the main blockchain, enhancing scalability. Sidechains function independently alongside the main blockchain, facilitating asset transfers between the two, enabling greater customization, and thus helping alleviate the load on the primary chain (Learn more about these and other L2 solutions in this post). Among popular Ethereum L2 solutions are Arbitrum, Optimism, and Polygon, which are supported by Kinetex.
Apart from insufficient throughput, transaction costliness is another issue associated with insufficient scalability, primarily due to excessive gas costs. L2 solutions are essential in addressing this problem as they enable transactions to be processed off-chain, substantially reducing fees. This decrease in fees improves the accessibility of the Ethereum network, making it more cost-effective for a broader range of users and applications to engage in the ecosystem.
Despite the development of various L2 solutions on Ethereum, they are still approached with great caution by crypto users, and rightly so. These cautions could become weak points for Ethereum if they are not thoroughly designed and audited, making them more susceptible to security breaches. Any major hacks might have a dreadful effect on the future of the Ethereum ecosystem and the DeFi industry as a whole.
Ethereum Classic is a significantly smaller blockchain, currently ranked thirtieth in terms of market cap. Therefore, scalability may not be its most significant issue, at least for now. However, it does not mean that it will not happen in the future since PoW blockchains are infamous for struggling with scalability, with Bitcoin being one of the well-known examples. Currently, the Ethereum Classic network can support only 12 to 15 transactions per second (TPS), which can be a shortfall in a landscape where speed and scalability are increasingly crucial. So, dedicated enthusiasts are still looking to enhance this chain's efficiency and scalability without sacrificing security, inspired to take the ecosystem to a new level.
One drawback of Ethereum Classic related to L2 solutions is the size of its user community. Being less prominent than Ethereum, it experiences significantly lower activity and liquidity. As a result, there is a diminished incentive to select this network for the development of new solutions, including L2s. The limited number of users and developers backing the platform also hinders the network's ability to advocate for new updates and improvements, negatively affecting the network's activeness for developers and users. Furthermore, although ETC has commendable interoperability with Ethereum's applications and tools, this may inadvertently attract potential users and developers to its primary competitor instead.
In terms of cost efficiency, transactions on ETC are typically less expensive than those on Ethereum due to its smaller popularity and consequent less network congestion. However, the development of layer-2 solutions could further reduce transaction costs, enhancing the benefits of the ecosystem as mass crypto adoption becomes more feasible and possibly bringing a new flock of active supporters.
The Ethereum network has a vibrant ecosystem and an active developer community that has fueled the adoption of advanced L2 solutions, leading to greater scalability, higher throughput, and significantly lower gas fees. In contrast, the Ethereum Classic network, with its smaller community, has seen limited development and adoption of L2 solutions, but there is still potential for broader growth in the future. As these technologies advance, both networks will benefit from enhanced scalability, ultimately making blockchain technology more accessible and efficient for users globally.
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