Ethereum faces ‘Blockchain Trilemma’ as ‘Merge’ craze cools

After much celebration over the successful transition to Ethereum, the question remains what is next for the most commercially significant crypto project. The long-awaited software revision, called Merge, moved the blockchain from a so-called proof-of-work system to a more energy-efficient proof-of-stake method of securing the network. There were no changes related to network transaction costs or speed, which are common issues among Ethereum users.

Completing the upgrade without any software downtime is a brilliant engineering feat, said Harsh Rajat, the Mumbai-based co-founder of the Ethereum Push Notification Service, or EPNS. “Akin to changing the foundation of a skyscraper while it’s still standing!”

Now developers must address a central existential question. The merger was the first step towards a series of upgrades on Ethereum to solve the scalability trilemma. After a point, the theory suggests that a blockchain must compromise one of the three key aspects – scalability, decentralization and security. And that a blockchain cannot have all three at the same time.

For Ethereum, the first step to solve this problem was to move to POS with the merger, and then there are four more phases of development.

• The Surge: Implementation of sharding, a scaling solution that will lower the cost of packaged transactions on Ethereum.
• The Verge: Introducing ‘verkle trees’, an update that will make the network more decentralized by making it easier for users to become validators.
• The Purge: Eliminating historical data and technical debt.
• The Splurge: Various updates after the first four stages to ensure the smooth functioning of the network.

“The ultimate goal of all these upgrades is to make Ethereum more scalable, faster and cheaper to use,” said Aditya Khanduri, CMO of Biconomy, a protocol that helps improve user onboarding and transaction experience on decentralized applications.

“It is difficult to talk about the timelines for the following four stages because all of them are still under active research and development. But in my opinion, it will easily take 2-3 years for all phases to be completed,” said Sameep Singhania, co-creator of QuickSwap, a decentralized exchange built on the Ethereum scaling solution Polygon.

The network will eventually be able to process 100,000 transactions per second after the completion of these five stages, according to Ethereum co-founder Vitalik Buterin.

Meanwhile, more investors in Ether, the original token of the network, are expected to unlock their tokens in digital wallets that provide returns to their owners under the new proof of stake format. But they won’t be able to take them out, at least not for a while.

Locked Ether plays an important role on the upgraded network. Wallets with what is referred to as staked Ether are used to help order network transactions. Currently, about 11% of Ether is already unlocked – either directly or through providers such as Lido, Coinbase Global Inc. and Kraken – in staking wallets on the Beacon Chain of Ethereum that were used to test the process, according to blockchain research firm Nansen.

Ethereum needs to undergo yet another software change called Shanghai, which is at least six months away, to enable the withdrawal of stake Ether. Even then, withdrawals will be limited.

“After the merger, the ether locked in the staking contract will still not be available for withdrawal,” said Kunal Goel, a research analyst at Messari.

Ethereum developers are also working on something called EIP 4844, or Proto DankSharding, which seeks to minimize the high network transaction costs referred to by users as gas fees, Goel said.