One of the biggest narratives over recent weeks has been Ethereum extremely high transaction fees
One of the biggest stories in recent weeks has been Ethereum’s extremely high transaction fees. Because the number of users on the Ethereum Blockchain has witnessed a strong increase, moreover, the transaction and use of the network from DeFi also increases the cost of sending transactions.
Ethereum extremely high transaction fees
According to EthGasStation – Ethereum transaction fee tracking tool – on July 27, when Bitcoin increased by tens of percent higher over 24 hours, ETH transaction fees also saw a significant increase. At 130 Gwei – a measurement of the cost of Ethereum transactions – simple transfers of ETH cost over $ 1.00 while complex smart contract transactions cost upwards of dozens of dollars.
Although transaction fees have decreased slightly, the problem of high transaction fees remains. When you hear about network effects, most people think that is a positive thing.
Bitcoin’s growth is determined based on network effects, as well as those of Facebook, Youtube, and any other social media platforms or monetary assets.
However, according to Tushar Jain, a managing partner of cryptocurrency venture and hedge fund Multicoin Capital, Ethereum has reached the point where it has a negative network effect. That’s because with every new user, with every new application, blockchain slows down and becomes more expensive.
Ethereum 1.0 is now facing *negative* network effects. Every new user raises the transaction cost for other users.
Ethereum needs scaling solutions NOW or the negative network effects will drive many devs and users away.
— Tushar Jain (@TusharJain_) July 27, 2020
Jain’s comment is one of the reminiscent of two executives of Exponential Investments, a global investment firm with a crypto interest. Leah Wald and Steven McClurg from the company say that the way Ethereum is structured is the underlying cause for asset weakness when prices rise and when demand for trading increases:
“In summation, as more users join, the cost of gas increases, the network clogs, there are potential security issues, which ranks the value of the service, leading to poor user experience, and therefore users drop off and move to other blockchains.”
According to Jain, this unfortunate trend suggests that Ethereum, needing solutions to expand now or negative network effects, will chase away many developers and users.
Qiao Wang, a crypto analyst, has echoed this comment. Referencing how he spent lots of money and time trying to use decentralized finance products based on Ethereum, Wang recently remarked:
“So long as ETH 2.0 is not fully rolled out, there’s an obvious opportunity for a highly scalable blockchain to dethrone Ethereum. Paying $ 10 transaction fee and waiting 15 seconds for settlement is just bad UX.”
On-going scaling solutions include ETH2, arguably the farthest and called Ethereum roll solution, a short-term solution that moves transaction data off the main chain to reduce costs and increase speed.
- Ethereum Addresses In Profit Now Exceed The Total Number Of Addresses With A Bitcoin Balance
- Developers Released The Validator Launchpad For Ethereum 2.0 On July 27, Allowing Users To Participate In The Testnet’s Proof-Of-Stake
- With The Value Of Funds Locked In DeFi Almost Quadrupling In Less Than Two Months, The Community Is Debating Whether DeFi Is In A Bubble