Until Ethereum 2.0 proves it can do what it claims it can do, its full impact on DeFi and other applications remains to be determined.
Many people are anxiously observing the launch of Ethereum 2.0 because the media has touted it as a “game-changer” for the cryptocurrency industry. Yet the masses seem to forget there are viable alternatives in existence already.
Is Ethereum 2.0 taking too long?
In recent days, there has been ample excitement surrounding Ethereum 2.0. The beacon chain deposit contract successfully achieved enough deposits to launch Eth2 Phase 0 in December 2020. That is only the first stage, however, and full functionality isn’t expected to go live within the next two years — or perhaps even longer. Therefore, it will take a while before anyone can see if Ethereum 2.0 can ever do what it claims.
The launch of Ethereum 2.0 is needed in order to save the network from itself. Ongoing network congestion and mounting gas fees have cramped the network far too often. Ever since the DeFi industry started gaining more traction, these problems have only become more apparent. Finding a permanent solution is mandatory, but it’s not necessarily easy or straightforward.
One pro-Ethereum 2.0 argument is that there are layer-two scaling solutions to alleviate congestion. Innovative ideas including Loopring exemplify that things can be done differently. However, these layers are not used in a broad sense and may never be. Such integration may offer short-term relief but is far from a long-term solution.
Ethereum has hit its limits
From a design point of view, the current iteration of Ethereum — or Eth1 — is far too constricted because it’s not designed to scale in a significant manner. It’s a bit unusual, as the project has always been marketed as a haven for developers looking to experiment with blockchain technology. More applications, projects and services only result in more congestion, leaving users dissatisfied.
Considering how this network is the main hub for financial innovation, a different approach is warranted. While Ethereum technology is flexible and modular in some ways, it is also home to failures, hacks, unsafe code and so forth. Moreover, few projects extend beyond Ethereum itself even though cryptocurrency is so much bigger than the Ethereum ecosystem itself.
This becomes apparent when looking at the current DeFi landscape. Hundreds of projects have come and gone, yet few remain standing. Of those remaining projects, none of them introduces cross-chain support. It is all about catering to Ethereum users, even though it isn’t the most liquid ecosystem.
Bitcoin can become the king of DeFi
Exploring opportunities in the world of decentralized finance should require Bitcoin (BTC) support by default. Unfortunately, that’s not the case today. It is true that some DeFi projects support Wrapped Bitcoin (WBTC). This tokenized version of Bitcoin adheres to the ERC-20 token standard, which, in my opinion, is an unnecessary hurdle that should not even be present.
Given Bitcoin’s market cap and overall cryptocurrency dominance, the current situation is rather baffling. The lack of support for the number one cryptocurrency in its native form is a glaring problem. None of the major DeFi projects appears intent on changing its business model to incorporate Bitcoin either. A clear sign of lacking innovation in decentralized finance.
DeFi needs Bitcoin to survive
Although decentralized finance is popular in its current form, it remains a fairly niche market today. According to DeFi Pulse, there’s over $23 billion in total value locked across top Ethereum DeFi platforms. Of that amount, over $3 billion comes in the form of WBTC — a clear sign of what investors and speculators want to see in the future.
Rather than focusing only on Ethereum, the more accurate strategy will be to explore all the other major currencies. And the approach of supporting crypto assets that are not Ether (ETH) is unusual. There are other DeFi projects that are more than happy to support Ether and tokens issued on that blockchain.
There is nothing wrong with waiting for Ethereum 2.0 to reach its full potential. However, at this time, no one knows how long it will take. In the meantime, there’s no reason to convert existing assets such as Bitcoin or XRP to Ether because those assets can be put to use through cross-chain solutions.
Additionally, one has to wonder if the Ethereum 2.0 upgrade will genuinely solve Ethereum’s problems. On paper, it seems to be a big network upgrade. In reality, everything has yet to be proven and verified by the general public. There are other options available today, and they offer working technology built by world-class engineers. Besides, keeping all options on the table is often preferred over putting all your eggs in one basket.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.