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Ethereum 2.0 is supposed to help blockchain achieve a breakthrough

The blockchain is actually supposed to ensure more decentralization, democracy and transparency, but only a fraction of the business models survive on the market. What needs to be done so that the technology finally catches on?

In 2018, the Polish programmer Przemysław Thomann had the idea of ​​building a blockchain platform – Mobycrypt, a cryptocurrency exchange. The platform should offer the possibility to create personal tokens within minutes and to automatically trade on crypto-token-based markets – without any technical know-how.

Thomann quit his programming job at Volvo. He put 2,200 hours of work into the project, wrote 80,000 lines of code, and invested 10,000 euros from his private assets. He soon attracted attention, found partners. An American celebrity met him in Warsaw as a possible investor. Everything looked fine. Then he waited and waited. The investor eventually jumped out. The legal regulations are too opaque, it said. The celebrity doesn’t want to take any chances. Others did the same. Thomann gave up. The dream of an alternative to the banking system was over. The only consolation: he is not alone in this. There is great uncertainty among investors.

The blockchain pioneers imagined it to be so simple: more decentralization, democracy, security, transparency and uncomplicated financial transactions between parties without banks as intermediaries, based on smart contracts – a democratization of the financial system. Apparently this idea was naive: The China Academy of Information and Communications Technology (CAICT) announced in 2018 that only eight percent of over 80,000 blockchain projects from previous years had survived – most blockchain business ideas therefore have an average lifespan of 1 , 22 years.

The problem was quickly found. The technology had a downside: Because data is decentrally stored and validated as a chain of information, sometimes on hundreds of thousands or millions of computers, the technology not only slowed down the speed of many applications – it also consumed immense resources. This has now improved with the upgrade of the Etherum blockchain network. Many hope for the ultimate breakthrough of the technology, but as Thomann’s failure shows, it was not just due to technical defects, but to a variety of factors.

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When it comes to blockchain, companies are still faced with a whole series of questions: Does it offer added value from both an economic and an ecological perspective? What is my business model like? How do I really manage to make money with it? Is the blockchain even necessary or isn’t a classic database enough? Are the legal frameworks right? How secure is the blockchain really?

Ethereum 2.0 should fix it

So-called smart contracts are a promising element of the blockchain. They were introduced with Ethereum. A simple example shows how they work: A company orders various materials from a supplier that are regulated in the contract. The money transfer initially remains in the balance – when the supplier delivers the material, it is scanned at the customer’s and transferred to the blockchain. For example, if the quantity is incorrect, the supplier will not receive any money. If everything is correct, the customer cannot postpone or prevent payment. All of this is regulated by the smart contract, which is simply an algorithm that the contractual partners have agreed on. So far the problem of such solutions has been: the higher the usage numbers, the more clogged Ethereum was. This was due to a cumbersome verification process: the model (proof-of-work) requires an automatically calculated confirmation that a new block is plausible to be added to the chain, for example a transaction or an incoming goods scan. For this, so-called miners are selected based on their available processor power. If the technology was overloaded, the transaction remained unnecessarily in limbo – so the efficiency of many blockchain applications dwindles with increasing popularity.

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