ETH2 merge looms large as developers migrate to Polygon
22:05, 26 January 2022
High transaction costs, known as gas fees, and intermittent network outages are putting pressure on the world’s second-largest cryptocurrency blockchain to complete its long-planned – and frequently delayed – protocol merge to Eth2, according to 21Shares research lead Eli Ndinga on the digital asset manager’s first media roundtable on Wednesday.
Specifically, 21Shares has seen developers migrate to the competing Polygon blockchain as non-fungible token (NFT) sales and trading continues to grow.
“The Ethereum merge is expected in the second half of 2022,” Ndinga said, noting Ether is the cryptocurrency of choice among the NFT set. “If that doesn’t happen, we expect we will see further migration to Polygon.”
Other gas also high
Driven by high and often unpredictable gas fees, which fluctuate based on transaction volume, as well as the relatively high carbon footprint associated with mining Ether, the Ethereum network has been developing this merge throughout last year.
During peak transaction times, Ether gas fees can reach into the hundreds of dollars per transaction. High gas fees were cited by the creators of ConstitutionDAO as a hurdle to redeeming donations after it was unsuccessful in its bid to buy a copy of the US Constitution.
With the gas fees incurred during the initial contribution, and based on the roughly $200 average donation, requesting a refund just wasn’t worth the gas.
Additionally, mining Ether is a relatively energy-intensive process driving the network’s unsustainable carbon footprint.
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Awaiting the merge
The merge, integrating the already running beacon chain with the Ethereum main net, will change the consensus mechanism to a proof of stake from the current proof of work mechanism, or Ether mining. This merge will theoretically shift the consensus mechanism while maintaining the historical transaction integrity currently on the blockchain.
The merge to Ethereum 2 (Eth2) had been expected early in 2022, but 21Shares predicts it will be completed later in the year, further boosting Polygon’s progress.
Developer migration
“Developers are moving from Ethereum to Polygon,” Ndinga added during the roundtable. “The Ethereum merge is expected in the second half. If that doesn’t happen, we will see further migration to Polygon.”
Polygon is a relatively new, and much smaller network – with a $16.4bn market capitalisation versus Ethereum’s $294.5bn – launched in 2019 as MATIC as a Layer 2 Ethereum-compatible blockchain network.
Created by former Ethereum developer Sandeep Nailwal, Polygon’s designed scalability reduces transaction costs to fractions of a cent.
As developers migrate and transaction volume increases, Ndinga added, “It’s possible Polygon will experience the same problems as Ethereum, but Polygon is doubling down on its infrastructure.”
This doubling down, as Ndinga called it, is Polygon’s collaboration with accounting firm EY, called the Polygon Nightfall ZK-Proof, which is currently being developed.
Additionally, while not technically a migration, the Great Resignation the US economy has experienced over the past year has fuelled the growth in the number of developers, added Ndinga. Notably, former tech employees have left the workforce and entered the Web3 and cryptocurrency spaces.
Polygon’s currency, MATIC, currently trades at $1.54, versus Ether’s current $2,458.70 price, according to data maintained by Coindesk.
Read more: ETH2 merge looms large as developers migrate to Polygon
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