How Does Ethereum 2 Seek to Address Some of the Concerns Regarding NFT Transactions

The crypto network’s change in protocol promises to make the platform eco-friendly and bring down transaction fees.

For crypto enthusiasts, there’s some good news. Altair, Ethereum (Eth) 2's first hard fork (fancy term for a change in the protocol) was put in place in the last week of October.

Coders and developers are gearing for The Merge: the point where the proof-of-work-based Ethereum blockchain will transition into Ethereum 2’s proof-of-stake consensus mechanism. This transition is posited to reduce the network’s power consumption by 99.9% and will hopefully sound the death knell for the likes of rival platforms like Solana, Cardano, and Avalanche — which have so long been touted as the silent killers for the power-guzzling, unscalable network and its native token, Ether. If all these appear to be a bit esoteric, then Terrain.art has got your back. Read on.

 What is Ethereum?

 Touted as the world’s first programmable blockchain, Ethereum allows you to send digital money without payment providers and banks. But you can do a lot more with Ethereum than just monetary exchange. You can use it to trade cryptocurrencies like Bitcoin, along with its own currency, Ether; you can buy and sell digital assets like artwork (as NFTs or non-fungible tokens); and you may access a host of apps (called Ethereum dapps) for finance, work, gaming and much more. All you need to do is pay a small fee and get started with a wallet that the network helps you choose.

Despite its tremendous popularity, the Ethereum network has come under fire for its high transaction costs and excessive time taken to process a transaction. Thankfully, Ethereum 2’s change in protocol promises to address some of the concerns regarding its earlier version.

 Problems with Ethereum 1

 Ethereum burst into the crypto scene promising a host of benefits: It posited itself as an improvement on the already popular cryptocurrency Bitcoin, boasted being the second-largest cryptocurrency after Bitcoin in terms of market capitalization, and enabled the deployment of smart contracts and decentralized applications to be built and run without any downtime, fraud, or control interference from a third party.

The main difference between this platform and its closest rival Bitcoin is that while the latter is just a digital currency, Ethereum is a decentralized ledger mechanism that allows companies and individuals to build new programs based on it. While both operate on blockchain technology, the latter is a far more robust system that allows for innovation.

However, critics were quick to point out that while Ethereum scored brownie points on decentralization and security, it scored low on scalability, which is a major challenge for its makers. The scalability challenges emerge from the very nature of how the technology works. The network’s mining rules restrict block generation to anywhere between 7 -15 transactions per second, which when compared to, say, the VISA network handling 45,000 transactions per second, seems minuscule.

Moreover, the scaling issues have led to an exponential rise in gas fees, or the fees that need to be paid to perform a transaction. Miners set the gas price based on the demand and supply. Cardano and Solana were being seen as potential alternatives to Ethereum precisely for this reason.

 TIME’s NFT Sale Controversy

 TIME magazine recently launched an NFT community initiative called TIMEPieces that allowed users unlimited access to the magazine website and archives till its 100th anniversary in 2023. Plus, it also enticed buyers with invites to exclusive events organized by the magazine.

TIME minted 4,676 tokens that were tied to digital art, with each priced at 0.1 Ether. While all the tokens were sold off within minutes, they also exposed the vulnerability of the Ethereum network. Since over 4,000 transactions were carried out within a very short period, it raised the gas fee for each transaction. Users ended up paying over 30 times the original price of the NFTs.

 Proof of Work versus Proof of Stake

 Critics believe that the problem arises from the peculiar algorithmic nature of the cryptocurrency used by the network. As of now, the network uses a proof-of-work consensus algorithm, whereby each node in the blockchain needs to solve a computational problem to add a new block.

This not only creates scalability issues but also raises environmental sustainability issues. The high amount of computing power required directly translates into a high amount of power consumption. In the proof-of-stake model, a person can mine or validate block transactions according to how many coins they hold. The more coins they have, the more mining power they possess. As such, instead of utilizing precious energy to solve proof-of-work puzzles, miners can only mine that percentage of the transactions that is reflective of their ownership stakes.

Furthermore, the proof-of-work model is widely believed to have been headed towards what is called a potential Tragedy of Commons — a problem in economics in which every individual has an incentive to consume a common resource but at the expense of every other individual. In the case of cryptocurrencies, this means that only a few miners would have been left due to the overutilization of cryptocurrencies and lack of block rewards. This would have left the network vulnerable to malicious attacks.

Thankfully, with proof of stake, an attacker would have to hold more than 51% of all the cryptocurrencies in the network. This creates a double bind for the attacker. Not only holding 51% of all cryptocurrencies in a network is impossible, but it is also disadvantageous because one who holds such a vast amount of currencies would not attack the network in the first place.

While all these sound too good to be true, sceptics believe that The Merge will not have an immediate impact on gas prices, while Eth1 (Ethereum 1) clients will still be looking to extract value from liquidations, frontrunning and arbitrage.

 While Ethereum transactions may be out of reach for some, you can still buy NFTs of original artworks by Indian and international artists by visiting Terrain.art's page, where there are hundreds of digital artworks, AI artworks and limited edition prints on offer.