Is Ethereum 2.0 scalable enough for payments?

Next month, the Ethereum blockchain is scheduled to make the long-awaited transition to a much more environmentally friendly Ethereum 2.0, which in turn will facilitate a huge increase in scalability that will, in theory, allow it to compete as a large-scale payment network on par with Visa and Mastercard .

And yet, in a recent research report, Bank of America suggested that a number of the so-called “Ethereum killer” blockchains that have been stealing away market share over the past year or so remain a threat, CoinDesk reported last week.

The September 19 “merger” from a power-hungry, bitcoin-style proof-of-work (PoW) consensus mechanism to the proof-of-stake (PoS) method used by the Ethereum killers will reduce its “energy consumption by over 99%, ” and lower barriers to entry for investors to generate returns as network validators change ETH’s supply/demand dynamics.

See also: Crypto Basics Series: What is a consensus mechanism and why is it destroying the planet?

It also clears the way for the much more important – from a payment perspective – introduction of “sharding” technology that divides the Ethereum network into many parts.

Developers have said it will increase the scalability of 12 to 15 transactions per second (TPS) by several orders of magnitude, reaching 100,000 TPS – more than Visa’s capacity of 65,000 TPS.

Read more: Ethereum 2.0 targeting September with 100,000 TPS close at hand

So why did the bank’s analysts warn that blockchains such as Solana, Avalanche and Binance Smart Chain, among others, could still chip away at enough of Ethereum’s massive market share advantage to threaten its prominence?

Simply put, there are still many unanswered questions about Ethereum 2.0’s capabilities, as well as potential fallout from the transition.

Related: BoA Sees Solana Blockchain as “Visa of Digital Asset Ecosystem”

Number Lie

For starters, the transition to Ethereum 2.0 – assuming the PoS phase happens on schedule next month – is already years behind.

While moving to PoS is a big task, the upcoming stages are equally big. Sharding is a huge undertaking to provide much the same benefits as Layer 2 blockchains that sit on top of slower blockchains like Ethereum and Bitcoin, shifting the transactional work away from them for huge speed increases and fee reductions.

Without that, the Ethereum killers still have a huge advantage – and given Ethereum’s history, that could be much further away than the first half of 2023.

Second, even Ethereum’s chief creator Vitalik Buterin has said that Ethereum 2.0 will maintain a 12-second block time between transaction data uploads, giving it a six- to 12-minute end time. There are hardly real-time payments.

See also: Ethereum 2.0 will not be faster, said Vitalik Buterin. But it will still scale massively

Then there’s the matter of Ethereum’s fees, which currently range from several dollars to $20 or more. When sharding starts, in theory it should go down, but how much is debatable. Whether it can go down to a few cents or a fraction of a cent that Ethereum killers like Cardano and Algorand boast about while still maintaining the lion’s share of transactions is debatable.

Especially since any assumption that Ethereum 2.0’s scalability is necessary takes it for granted that the number of transactions on the blockchain will increase exponentially.

That means the real purpose of the upcoming merger, to save Ethereum’s place as the pre-eminent blockchain and make it a truly efficient payment blockchain, is still in doubt.

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