VitalikButerin, co-founder of Ethereum, has revealed Plasma, a scaling architecture that would allow the Ethereumblockchain to manage considerably bigger data sets than is now allowed. For these and other reasons, future cryptocurrency historians will look back on the second half of 2017 and recognize how crucial this time period was in propelling the technology forward. So, what issues does Plasma attempt to address?
The Crucial Scaling Issue
The scalability of cryptocurrency technology is critical to its eventual real-world applicability and practicality. While anybody may connect to Bitcoin and start a transaction, the network may take several hours to validate and transmit the currency. With the present usage of cryptocurrencies, this is not an issue, but competing with big payment processors is still unrealistic. The credit card processing network of major rival VISA can handle 2,000 transactions per second.
Earlier in 2017, this delayed transaction time became a source of contention. Several key miners and currency holders convened to discuss SEGWIT—short for Segregated Witness—a blockchain “edit.” The group successfully voted to change the blockchain without considerable disruption or third-party interference. As a consequence, Bitcoin is speedier, yet it still trails behind other transaction systems, with no apparent solution in sight.
As a consequence, alternative options, like Ethereum’s most recent announcement, are extending the distance between themselves and the dominant cryptocurrency.
Ethereum is a completely different animal than Bitcoin. It employs comparable technologies, but the main value of the coin is not its financial strength, but rather its standing as an application platform. The capacity of Ethereum to build smart contracts will most certainly be a huge component of the software industry, and new advances are being released on a regular basis. (See also “Understanding Smart Contracts.”)
While Ethereum is excellent at establishing smart contracts and utilizing the system to enforce and encourage them, it need a comparable boost to Bitcoin’s SEGWIT. Instead of making incremental adjustments, Ethereum’s team recognizes that more on-chain infrastructure, such as Plasma, will be required to stay up with business practicality. They may also make substantial adjustments to incorporate these functionalities.
This is when Plasma enters the picture. Plasma will remove superfluous data from the root chain. It will process smart contracts in the same way that its predecessor did, but will only publish completed transactions to the public Ethereum chain. This saves large amounts of processing power and memory for the chain’s members, making interaction with the system’s other participants more affordable. It will also speed up transactions enough to let decentralized applications to function without concern about backlog.
Implications for Ethereum
The launch of Plasma might be a watershed event, acting as a stimulus for a price surge. Speculation has dominated cryptocurrency markets in recent months and years, but variations in specific coin algorithms are becoming a major price driver.
Bitcoin was first praised for being a foolproof digital money solution, however there are currently few venues to spend Bitcoin. Surprisingly, the most liquid of all currencies is illiquid. Furthermore, the sudden influx of thousands of “altcoins”—alternative coins—undermines the whole notion. In terms of smart contracts, Ethereum may represent a threat to bitcoin. While ether has promise, it is now valued less than 10% of a Bitcoin in USD.
Until late June, when BTC gained over $1,200 in a few of weeks, ETH increases surpassed BTC gains.
Is the scarcity of Bitcoin sufficient to support this boom? Most likely not. While Ethereum is by definition less rare than Bitcoin, its other qualities are much more valuable. The only true benefit of Bitcoin was that it was the first to market.
As the curtain falls, many may regard Ethereum as providing a more realistic view of the future. The lengthy process of decentralized voting on chain changes is replaced with a crack team that understands the technology’s true purpose is not as a tool for speculation. In an ironic twist, this might drive up costs.
In contrast to BTC’s jumps, ETH’s consistent gain in the previous week is a favorable indicator for durability.
In the next years, the market will be watching as firms integrate Ethereum-based smart contract solutions into their systems.
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