Every new development involves Ethereum, cross-chain or multi-chain
Over the past few years Ethereum has become the center of the blockchain industry, perhaps mainly driven by the success of decentralized finance. Nonetheless, other blockchains build bridges, while dapps create a multichain ecosystem. Despite many alternatives, Ethereum remains at the center of the decentralized world.
Ethereum has grown massively over the years since inception rivaling flagship cryptocurrency, bitcoin. Beyond that, it has also assumed the role of a parent blockchain, birthing other blockchains and tokens built via the ERC-20 standard, but also ERC-721 and ERC-1155 tokens also known as non-fungible tokens (NFTs).
Becoming the most prominent blockchain enables it to remain at the epicentre of activities within the crypto ecosystem. Still, Ethereum is yet to attain its best form and has recently witnessed a number of significant upgrades. The London hard fork, which was just completed, counts as one.
One of the disruptive innovations to have made a grand entry into the crypto sector is the cross-chain functionality. This technology allows custom blockchains to connect to or build bridges between themselves and another. The Ethereum blockchain has been able to achieve cross-chain relationships with other blockchains such as Polygon (MATIC), Solana, NEAR, and thereby strengthening its foothold.
Cross-chain functionality exists to enable interoperability between blockchains. As such, tokens built under the ERC-20 standard can be transferred to another blockchain, maybe Solana. Before they arrive at the latter blockchain, they are locked into smart contracts in exchange for a wrapped version that supports the standards of their new blockchain. The more bridges exist for certain tokens, the easier value can flow between blockchains.
Similarly, these tokens can be sent to the former blockchain by unwrapping them. Then, they are swapped for the initial tokens locked in the smart contracts. Wrapped tokens can be used on lending and borrowing DeFi protocols like Compound or Aave. Examples of wrapped tokens include WETH, RenBTC, sBTC (Synthetix BTC) and WBTC (Wrapped Bitcoin).
Fostering multi-chain activities through bridges will help for a broader adoption of blockchain technology. On the contrary, the fragmentation of chains will impede the growth of the sector. Hence, why cross-chain messaging protocol Wormhole has introduced a bridge that will enable users to concurrently connect to chains like Solana, Ethereum, Terra, and Binance Smart Chain (BSC).
Apart from the transfer of tokens across connected chains, Wormhole introduces the transfer of arbitrary data such as prices of crypto assets. As such, users will be able to witness data being updated in real-time. Developers can also create decentralized applications with multichain capabilities.
Ethereum has positioned itself for the multi-chain paradigm and benefits from cross-chain functionalities. One challenge that might have posed a problem to interactions with other blockchains has been solved following the implementation of the London Hard fork. Last week, the much-anticipated EIP-1559 went live introducing a base fee structure to address the age-long bottlenecks of high gas fees and transaction delays. This will definitely make for a more seamless interaction with other chains.
Ethereum and DeFi
Decentralized Finance owes much of its growth to Ethereum. In 2021 alone, the DeFi sector has grown beyond measure in terms of daily trading volume and Total Value Locked (TVL). Decentralized exchanges like Uniswap and SushiSwap exist on Ethereum and keep witnessing increased traffic. The TVL on DeFi protocols currently stands at almost $80 billion. Lending and borrowing protocol, Aave dominating by 16.18%. Aave recently attained multi-chain status in March, and is looking to extend their frontiers to the Solana and Avalanche blockchains.
Ethereum’s transition to a Proof-of-Stake consensus will line the network up for more scaling and development. The first phase of ETH 2.0, which is the Beacon Chain has been implemented, and the projection for integrating other phases such as The Merge, sharding and block proposer/builder separation in the coming months. Coupled with the deflationary mechanism which is poised to reduce the circulating supply of ETH by burning fees, the blockchain will gain even more attention for sure.
Following the successful launch of the London hard fork, Ethereum founder, Vitalik Buterin declared that the network can accommodate future upgrades as much as it did the former. Interestingly, the billionaire has lofty plans for Ethereum as he stated during the 4th edition of the Ethereum Community Conference (EthCC).
Buterin argued that Ethereum has outgrown decentralized finance and needs to explore new frontiers. In light of this, he suggested making users’ accounts on crypto wallets such that they become just like social media profiles; this is in line with the web3 innovation which Ethereum is primed to spearhead. The Ethereum Community has adopted a catchphrase for ETH calling it an ultrasound money in view of the deflationary mechanism introduced. Since August 5th, over $100 million worth of ETH has been burned. Most of the burned base fees come from the sales of non-fungible tokens (NFTs) on Opensea, the multi-chain bridge for Axie Infinity and the decentralized exchange Uniswap.