Why Ethereum users tolerate such high gas costs

Ethereum is a pricey smart contract blockchain, but Konstantin Anissimov believes it is worthwhile.

The variable and occasionally exorbitant gas fees associated with Ethereum have been a hot topic of discussion. The network’s fees are frequently cited by critics as a fatal defect that renders it ineffective, allowing a “ETH killer” to dethrone it as the principal smart contract execution platform. The obligation to pay hefty fees in order to perform transactions, at its most basic level, contradicts the blockchain’s primary pillar of inclusion.

Not every user can afford to pay large transaction costs. Ethereum, on the other hand, cannot be dismissed due to its high operating costs. To grasp this viewpoint, you must first comprehend the network’s pricing structure as well as the current innovations being created and deployed.

What is gas and how does it work?

On the Ethereum network, gas is used to complete transactions. The cost of performing a transaction on the Ethereum blockchain is referred to as gas. Depending on their complexity, different types of transactions cost different amounts of gas. A simple ETH transfer, for example, uses less gas than an ERC token transfer or asset swap on an ETH-native decentralized market (DEX).

Each block on the network has a maximum amount of gas it can receive before becoming invalid (a gas limit). The gas limit of blocks varies over time and is influenced by a variety of factors. As a result, not all transactions will wind up in a given block at any one time.

Because every operation on the network takes gas, and each block’s gas usage is limited, miners confirming transactions prioritize those with the most gas (reward). The others are either postponed to later blocks or aren’t chosen at all. As a result, gas is a user’s offer for block space.

What exactly do high fees imply?

Most crypto users do not want to spend $10, $50, or $150 per transaction. Ethereum 2.0, a network-wide upgrade that will increase the blockchain’s scalability, cannot come fast enough. Nonetheless, the current high fees indicate that users place a high value on ETH block space. High fees may be ephemeral, but it’s worth considering why people put up with them in the first place.

Users of ETH can conduct identical transactions for pennies on the dollar on Solana, BSC, or any other smart contract platform. However, the vast majority do not because they believe Ethereum is a superior platform for which they are ready to pay a premium. This is encouraging evidence that fees aren’t as bad as many people believe.

Why do people continue to utilize Ethereum?

Ethereum’s fundamental advantage over its competitors, and consequently its price, is that it is relatively decentralized. Decentralization is essential for network security and preventing validators from hijacking a chain. (Network security refers to the blockchain’s overall security rather than the security of the chain’s smart contracts.) On any chain, a contract is only as secure as the developer makes it.

This isn’t to say that other chains aren’t decentralized. However, with alternate chains, validators are more likely to work together to restructure blocks, reverse transactions, and carry out other nefarious operations. Ethereum is the most decentralized smart contract blockchain in the space, according to a comparison of its closest competitors.

With Ethereum’s current proof-of-work (PoW) consensus model, anyone with the ability to set up a miner can validate transactions. Decentralization and, as a result, network security gain from the low barrier to entry. Furthermore, PoW requires computational input to authorize transactions, which separates supply control from network control. Validators can’t simply buy additional ETH to obtain more control over the network. Instead, they must purchase more than half of the network’s total computational capacity in order to take it over. Because the incremental cost of doing so is considerable and would ruin the network (and hence the investment made to obtain computational power), validators of PoW networks are discouraged from attacking it.

To validate the network after Ethereum converts to proof-of-stake (PoS) consensus, you’ll need 32 ETH. At the current market price, that translates to $84,400, and at ETH’s all-time high, it equates to $155,800. The capital needed to validate transactions after ETH 2.0 is released appears imposing, and it may lower the number of validators on the network, hence reducing Ethereum’s decentralization, yet it is minimal in comparison. According to Glassnode, there are 107,700 addresses containing 32 ETH, implying that after the migration is complete, there will be over 100,000 potential validators. From the standpoint of desired decentralization, this is a good.

Ethereum’s Technologies

Because of ETH’s high pricing, innovations in and around Ethereum have been set in action. Serenity, also known as ETH 2.0, is a network upgrade that prioritizes scalability, sustainability, and efficiency. The upgrade’s centerpiece is a move away from the present PoW consensus technique and toward PoS. PoS will allow ETH 2.0 to have a lower environmental effect and implement scaling features with just minor security risks.

Lower prices and greater scalability will be the goals of sharding. However, given the network’s gas fee mechanism, if demand continues to climb, the net impact on fees could be negligible or even negative in some cases. The network will be split into 64 shards, allowing it to expand to 100,000 transactions per second (TPS). This would be a significant improvement above the existing network capacity of 30 TPS. However, the exact timing of these functionalities’ implementation is yet unknown.

The development and use of layer 2s (L2s) has aided in the current scaling of ETH by lowering transaction costs and increasing transaction throughput. L2 transactions are done off-chain (not on the Ethereum blockchain), which protects them from the current Ethereum mainnet issues (Ethereum layer 1).

Uniswap just announced v3 of its platform on Polygon, and CEX.IO also merged with the layer 2 scaling solution. Decentralize finance (DeFi) applications and centralized corporations alike have moved to L2s. Despite being in its early stages, Ethereum L2s have surpassed $5.5 billion in value locked (TVL) (1.7 million ETH divided across the ecosystem).

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