A recent Bank of America report argues that Ethereum’s long-term viability hinges on scalability, even in the face of major merger OFAC censorship issues.
According to the report, Ethereum’s first-mover advantage attracted decentralized app developers, who now face the prospect of network congestion until sharding goes live.
Threats of Ethereum’s low transaction throughput and use of censorship
Data from Blockchair shows that the Ethereum network processed just under 15 transactions per second on March 12, 2023.
Another issue threatening Ethereum’s future is choosing only validators to process transactions for Ethereum addresses that are approved by the US Office for Foreign Assets Control.
After an Ethereum merge, validators bundle the transactions into blocks and broadcast them. Proposer-Proposer separation allows builders to create transaction blocks and present them to block proposers. The proposer chooses the most profitable transaction block.
The separation of the roles of maker and mover means that transactions are less likely to be censored.
MEV-Boost software validators use to boost returns by subcontracting block production to the highest bidder. Validators can configure their software to accept blocks from certain MEV-boost relays, including Flashbots. Boost relays that exclude transactions from accepted blocks, putting the neutrality of the Ethereum network at risk.
Since Ethereum moved to a proof-of-stake chain, 56% of transaction blocks are subject to OFAC censorship. Further contributing to Ethereum’s low neutrality is that the network has many institutional validators, such as the Celsius Network.
How the ETH network will survive congestion and restrictions
The scaling roadmap of Ethereum co-founder Vitalik Buterin pegs the rollup as an intermediate step towards better transaction throughput on Ethereum.
Developers frustrated by the low transaction throughput on Ethereum can stay within the ecosystem by developing applications for Rollup.
Rollup, the smart contract language for Arbitrum with the highest value lock, is compatible with the Ethereum Virtual Machine, making developer migration easy.
ConsenSys, the company behind the self-custodial wallet MetaMask, recently announced the launch of an early version of a zero-knowledge rollup that allows Ethereum developers to onboard in under 5 minutes.
The Ethereum roadmap has eliminated the shard chain. Instead, the developers plan to use a new method called dunksharding, which will be preceded by an intermediate step called proto-dunksharding.
Proto-dunksharding would make transactions cheaper by using temporary data blobs instead of keeping transaction information in the call data section of the transaction.
Ethereum.org predicts that full dunksharding may be several years away. Therefore, the growth of layer-two solutions like Arbitrum is crucial to sustaining Ethereum’s developer community.
There may be hope on the horizon on the censorship front, as the site MEV Watch reports that only one-third of all transaction blocks last weekend complied with OFAC regulations. The number remained the same in the previous days as well.
Censorship is likely to decrease further with the emergence of non-censoring variants of the MEV-Boost software, such as Ultra Sound, which has processed roughly 20% of blocks over the past two weeks.
Last year, nonprofit crypto think-tank Coin Center sued OFAC for approving Ethereum mixer Tornadocash.
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