The Ethereum blockchain is running out of space. Could global governments, a former foe, save blockchain’s future?

By Xische Editorial, September 2, 2019

What happens when innovative technologies fail to deliver on their basic promise? Imagine a smartphone unable to place phone calls or a laptop without a battery that couldn’t last more than ten minutes. Ethereum, the popular blockchain platform widely touted for its smart contracts prowess, is facing this conundrum. Ethereum co-founder Vitalik Buterin said that his creation was close to 90 per cent capacity and as a result, the cost of processing transactions on the blockchain will soon be prohibitively expensive due to the lack of space. 

Ethereum's troubles stem from the popularity of its technology. It has been praised as a better alternative to Bitcoin because Ethereum smart contracts enable users to automate tasks and set up autonomous corporations that run themselves via software. The result is that Ethereum's digital ledger is clogged with digital games such as CyprtoKitties (which has been removed) and several crypto coins that have turned out to be scams. 

Tether, a popular crypto coin, had reportedly paid computers processing transactions on Ethereum’s blockchain more than $260,000 in fees to maintain its share of the digital ledger. With a market capitalisation of over $4bn, at least 40 per cent of all Tether transactions take place on Ethereum. 

Telegram, the encrypted chat application, announced that its upcoming crypto coin will be compatible with the Ethereum blockchain. With Tether and Telegram taking over the lion’s share of activity on Ethereum, there is less room for other developers. Ethereum’s impressive smart contract capabilities, which have been highlighted as superior to Bitcoin’s digital ledger, will soon grind to a halt if no action is taken. 

 The problem the blockchain is facing is one of scale. Just before the news broke about Ethereum's capacity woes, leading central bankers met in Jackson Hole, Wyoming. Bank of England governor Mark Carney told the bankers it is time to look for a digital alternative to the US dollar. Indeed, it is time for nations to start embracing the power of blockchain. The backing of powerful countries could resolve Ethereum's capacity issues and perhaps provide some calm to tattered financial markets at the same time.

A sea change in the perception of blockchain technology is necessary for this to happen. Most people associate blockchain with Bitcoin and the wild fluctuations of the cryptocurrency. Others think of blockchain as a type of hacker technology used by criminals looking to avoid the system. In short, Blockchain has a branding problem. To face the challenges posed by Ethereum’s declining space and realise the full potential of blockchain, we have to overcome this reputational hiccup. Thankfully, powerful people are helping with this task. 

As more figures such as Mark Carney advocate for use of blockchain technology in the task of government, the perception problem will be easier to negotiate. The next step entails more governments stepping in and supporting blockchain. Countries such as Estonia and the UAE are at the forefront of this trend. By committing more government services to blockchain and other distributed ledgers, these governments are demonstrating just how powerful blockchain can be. Not only does it make life easier for residents – less waiting for government services, more efficient government – but it helps innovate new and better blockchain solutions. 

As platforms evolve, they will also require more resources to maintain. We are talking about the type of resources that only countries have the ability to provide. While that notion might go contrary to the libertarian ethos of blockchain technology, it is the direction of travel we are facing. That’s not a bad thing. We have seen how beneficial blockchain can be on the national level and having governments invest substantial resources into the technology will only make the sector better.  

It is ironic that governments might end up being blockchain’s saviour for scalability but it shouldn’t be that surprising. Combining the power of both will enable incredible results.