Interview: Vitalik Buterin on Scaling Ethereum, Its Popularity in Asia and ICOs

In an interview with Bitcoin Magazine, Ethereum co-founder Vitalik Buterin discussed some of the scaling issues Ethereum is currently dealing with, the rising interest in Ethereum in Asia and his thoughts on the ICO ecosystem in general.

In late May, developers from the Ethereum-based job market platform Ethlance introduced an issue its freelancers were struggling to deal with. Twelve months ago, when the price of Ethereum’s token Ether was around $14, a smart contract to set up a freelancer profile on Ethlance cost less than $1.

As the price of Ether started to surge beyond $250, Ethlance freelancers were required to pay around $8 to set up their profiles. Issues of Ethereum-based decentralized applications (DApps) and the rising fees on Ethereum led the community and supporters of Ethereum to express their concerns over the platform’s scalability.

Discussions on Etheruem’s scaling issues intensified as Buterin’s interview with Epicenter, conducted in December of 2014, resurfaced, during which he characterized Bitcoin’s $0.05 fee as “absurd.” Currently, Ethereum’s average fee is over $1 and its median fee is around $0.05, close to the level Buterin described as absurd.

Bitcoin Magazine spoke to Buterin to address some of these scaling issues Ethereum applications are currently dealing with, the rising transaction fees on Ethereum and the ICO ecosystem.

Scaling Issues of Decentralized Applications and How They Can Be Resolved

In regards to the issues that Ethlance and other DApp developers are facing, Buterin explained, “There are a lot of applications and contracts even now that are being built inefficiently. One major example is that there are a lot of applications that make one separate contract for each user which means that for every single user, it adds several kilobytes of data that cost a few million gas.”

Instead, Buterin explained that the same logic or contract is not required to be copied onto each other and replicated tens of thousands of times. There are more efficient ways to process smart contracts that can significantly reduce gas costs for users. He noted that by implementing efficient smart contracts, users can save anywhere from 50 to 90 percent in gas costs.

According to Buterin, the Ethereum Foundation and its development team recently asked writers to reduce their gas prices and some of them have agreed to do so to ensure that users are not required to spend upwards of $8 per smart contract. However, these solutions can only last for the short and midterm. Buterin explained that, in the long run, the only way to maintain low gas or transaction fees is to scale the entire Ethereum network and blockchain proportionally as it grows in size.

Another long-term solution or development plan the Ethereum Foundation is looking into is the possibility of switching the consensus protocol of Ethereum from Proof of Work (PoW) to Proof of Stake (PoS).

As it did after the execution of the DAO hard fork, which resulted in the creation of Ethereum Classic, another major hard fork could lead to another network split. Ethereum Classic is currently the fifth largest cryptocurrency in the world.

Buterin recognized that there are some members of the community that are concerned over the possibility of a split chain.

“I feel like recently, most of the people that are really against PoS have moved over to Ethereum Classic, so I’m not really sure if that substantial of a community will want to make another fork or split of Ethereum once the Casper switch happens. That’s just my instinct,” said Buterin.

In terms of development of the overall Ethereum ecosystem, progress has been slow but steady. “A lot of the things that we’ve wanted to do around Metropolis, privacy, proof of stake, Serenity, scaling, sharding, all of those things have been taking more time that we had expected,” Buterin admitted, “but I also think that the results that we’ve been moving towards are much better than we thought that we would get.”

He mentioned, as an example, that over the past two or three years, there have been improvements in protocol security that they hadn’t foreseen and that are of great benefit. “I think the end result of a lot of our work and a lot of our research is much stronger than it would have been two years ago.”

Ethereum Demand on the Rise in Asia

South Korea has become the largest Ethereum exchange market in the world with a 19 percent market share, surpassing the U.S. and China in terms of daily trading volume. China, within a few days of its exchanges adding support for Ethereum, became a contender for top spot in market share.

Ethereum is being actively developed by educational institutions such as universities and government agencies including the Chinese Royal Mint. Recently, the People’s Bank of China stated that Ethereum is heading in the right direction, validating the network and project. As Bitcoin Magazine’s China-based journalist Bradley Fink previously reported, some of the largest companies in China, including Alipay and Peking University, are actively investing in the potential of the Ethereum protocol.

Furthermore, the Enterprise Ethereum Alliance (EEA), connecting Fortune 500 enterprises, startups, academics and technology vendors with Ethereum, recently announced its expansion into China with a new office in Hangzhou. It will focus on providing Ethereum-based infrastructure to ensure Chinese enterprise can meet domestic market needs.

“There definitely is a fairly large Chinese Ethereum community and there are several companies based in Shanghai and Hangzhou that have been working on Ethereum applications for a couple of years. There has been increasing amount of interest in the technology and the platform. In general, it is continuing to grow,” said Buterin.

He noted that while the Chinese community used to concentrate its interest solely on Bitcoin, that has changed. “But more recently, it does seem like more people are starting to look at both Bitcoin and Ethereum. The one thing that’s made me feel optimistic over the last year is that there is a lot of interest, not just on the cryptocurrency side and buying ether and holding it, but actually using it to build applications.”

Buterin also explained that developers of Ethereum are trying to match the rising demands and expectations from its investors. In the past week, Ethereum has surged exponentially in market cap, accounting for around 50 percent of Bitcoin’s market cap. He noted that the Ethereum Foundation and its developers are working to live up to the expectations of investors and rising demand in regions such as Asia.

“I think the success that Ethereum has seen is definitely putting a lot of pressure on the core developers of the actual protocol of the platform to step up and deliver on the admittedly high expectations that the community has of us,” he said. “That’s an expectation that we’re eager to see if we can match.”

Ethereum-based companies are also coming to the forefront at a time when the ICO market is growing at a rapid rate, creating new opportunities for startups and investors alike.

“I’m definitely very interested in all these applications, particularly the semi-financial ones with some components of finance and monetary value but also some components outside of it” said Buterin. “The general idea that we can create this economy where we micro-tokenize and let people have their own micro-ownership, I think that is definitely a very interesting and promising idea.”