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The Most Disruptive Technologies in the Ethereum Ecosystem - Part 2

Apr 17, 2024
byNDAX Labs

If you missed Part 1 Defi & NFTs, read it here.

III. Layer 2 Scaling Solutions Disrupting Payments, Banks, Government, and Centralized Exchanges

Ethereum's ability to effectively manage a large volume of transactions has been hampered by scalability issues. High transaction fees and sluggish transaction times during times of high demand have become more of a problem as the Ethereum network has gained popularity. By investigating and putting these layer 2 scaling solutions into practice, the Ethereum ecosystem has been actively tackling these issues. These ground-breaking ideas seek to increase Ethereum's scalability, decrease costs, and improve the user experience in general.

Scalability Challenges Faced by Ethereum

As a decentralized blockchain network that depends on consensus procedures to validate and record transactions, Ethereum faces scalability issues. The Ethereum network's constrained ability to handle transactions becomes apparent as more users and apps interact with it, causing congestion and rising costs. This scaling barrier affects several industries, including payments, banking, government, and centralized exchanges, where quick and affordable transactions are essential.

Layer 2 Scaling Solutions

The primary Ethereum blockchain's security and decentralization are used to process transactions off-chain as part of layer 2 scaling solutions, which are intended to alleviate the scalability difficulties of the Ethereum network. These solutions add an extra layer of infrastructure to enable quicker, more affordable transactions, allowing Ethereum to spread more widely. Layer 2 scaling techniques that have gained prominence include:

1. Optimistic Rollups

Layer 2 structures known as optimistic rollups make use of Ethereum's security while enhancing scalability. With only the necessary information being committed to the Ethereum main net, these methods allow for the processing of numerous transactions off-chain. Optimistic Rollups maintain transaction integrity while greatly increasing throughput and lowering costs by utilizing optimistic execution and fraud proofs.

2. zkRollups

To combine several transactions into a single proof that is subsequently submitted to the Ethereum main net, zkRollups, or zero-knowledge rollups, use zero-knowledge proofs. By combining numerous transactions into a single proof, this method eases the strain on the Ethereum network while enabling a high level of scalability. While preserving Ethereum's security and decentralization, zkRollups offer robust privacy protections.

3. Plasma

A network of child chains connected to the Ethereum main net is how Plasma, another layer 2 scaling solution, operates. The total number of transactions that may be processed by each child chain separately results in a significant increase in the Ethereum network's overall transaction capacity. By shifting a large percentage of the burden from the main Ethereum chain to the child chains, Plasma makes transactions faster and less expensive.

Impact on Ethereum's Scalability and User Experience

The user experience and scalability of Ethereum have been fundamentally changed by the adoption of layer 2 scaling solutions. By shifting a sizable number of transactions to layer 2 solutions, Ethereum can manage a substantially higher volume of transactions, lowering congestion and lightening the stress on the main net. Transaction costs are thereby reduced, increasing Ethereum's usability and affordability for both consumers and companies.These layer 2 scaling solutions not only increase Ethereum's scalability but also enhance the user experience by enabling quicker transaction confirmation times. Ethereum is a more practical platform for a variety of use cases, including payments, decentralized banking, and gaming, thanks to the faster and more responsive interactions users may experience with decentralized apps (dApps) created on Ethereum.Additionally, layer 2 solution implementation maintains the Ethereum network's decentralization and security. These solutions inherit the dependability and reliability of the Ethereum mainnet by depending on it for consensus and validation. This keeps transactions safe and protects them from malicious assaults.

IV. DAOs (Decentralized Autonomous Organizations) Disrupting Traditional Governance Structures

The revolutionary idea of decentralized autonomous organizations (DAOs) has evolved to transform conventional governance structures. DAOs are community-driven businesses that follow the tenets of openness, collaboration, and decentralized decision-making. Smart contracts are used by DAOs, which are constructed on the Ethereum blockchain, to automate procedures while enabling users to actively participate in and affect the organization's activities.

The Concept of DAOs and Community-Driven Governance

A paradigm shift in organizational structure and governance is represented by DAOs. DAOs are intended to empower community members by providing them with a direct voice in decision-making processes, in contrast to conventional hierarchical structures. Transparency, inclusion, and open involvement are among DAOs' core values.Smart contracts, which are self-executing contracts that automatically carry out predetermined rules and actions depending on community consensus, allow DAOs to function. These smart contracts make a guarantee that the organization's governance is always open and unbreakable.

Interesting DAO Projects Using Ethereum

Innovative DAO projects have flourished in the Ethereum community, each exploring a different use case for decentralized governance. Here are a few noteworthy instances:

1. Aragon

Aragon is a platform that makes it possible to create and control decentralized groups. With flexible governance structures, voting processes, and fund management capabilities, it offers a user-friendly interface for constructing DAOs.

2. DAOstack

A framework for creating decentralized governance systems is called DAOstack. It enables users to build DAOs with a range of decision-making procedures, including quadratic voting and liquid democracy. Additionally, DAOstack offers resources for decentralized proposal drafting, voting, and resource distribution.

3. MolochDAO

MolochDAO is an Ethereum-based project finance decentralized venture capital firm. It enables financial contributions from community members and group decision-making for investments. MolochDAO serves as an example of how DAOs might challenge established funding patterns by enabling decentralized decision-making and resource sharing.

Possible Disruption of Traditional Organizational Structures by DAOs

Traditional organizational structures may be disrupted by DAOs in numerous ways:

1. Decentralized Decision-making

DAOs provide the community with more control over making decisions instead of a centralized authority. This encourages a more inclusive and democratic style of government in which all interested parties can participate in the decision-making process and have a voice.

2. Accountability and Transparency

DAOs run on transparent smart contracts that can be audited, making sure that the community can see every decision and transaction. This encourages accountability and lowers the chance of corruption or power abuse.

3. Global Collaboration

DAOs don't have geographical restrictions, thus anyone from anywhere in the world can take part and contribute. This international interaction makes it possible to have different viewpoints, promotes innovation, and stimulates cross-cultural cooperation.

4. Disintermediation

DAOs do away with the necessity for intermediaries, such as centralized institutions or conventional corporate hierarchies. Direct peer-to-peer interactions are made possible by DAOs by utilizing smart contracts and blockchain technology, which lowers costs and boosts efficiency.All in all, DAOs are a disruptive force in conventional governance arrangements. These community-driven organizations facilitate worldwide collaboration, empower individuals, and promote transparency by utilizing the Ethereum blockchain. New models for decision-making, resource allocation, and organizational management are likely to develop as technology and DAO adoption continue to advance, further disrupting the status quo and influencing the direction of governance.

We will conclude this series with a final instalment next week! Stay tuned!

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Disclaimer: This article is not intended to provide investment, legal, accounting, tax or any other advice and should not be relied on in that or any other regard. The information contained herein is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of cryptocurrencies or otherwise.