High gas prices in Ethereum make it impossible for ERC-20 projects to make microtransaction payments for Ethereum. This goes against the idea of using the Ethereum network for one of its main use cases.
Gas fees are part of Ethereum. This is the price that miners need to carry out transactions. This fee is not constant, but fluctuates depending on network needs. A transaction can be delayed or immediately rejected if it does not meet the miners' threshold.
https://www.coindesk.com/events/invest-ethereum-economy Michael Garbade is co-founder and CEO of Education Ecosystem. He is a serial tech entrepreneur who previously worked at Amazon, General Electric, Rebate Networks, Photobucket, and Unicredit Group. CoinDesk's Invest: Ethereum Economy Event starts on October 14th.
The miners' threshold depends on the network usage and congestion. In a way, miners prefer the grid to be congested so they can benefit from high gas tariffs. Currently, the decentralized financial movement (DeFi), the path to Ethereum 2.0 and the rising Ethertransactions (ETH) are partly responsible for this unsustainable position.
While miners would love to see gasoline charges go to the moon, it's not good for Ethereum in the long run. There are organizations that pay their contractors in ether because of cheaper transaction fees. However, under the current conditions, this is economically impossible. Ultimately, there is no incentive to use the Ethereum network. In the worst case scenario, it becomes liability.
A solution has to be found that can be outside the Ethereum network. There are many possible candidates. In response to the high gas charges, Ethereum co-creator Vitalik Buterin tweeted that "more people should accept payments directly through zkSync / loopring / OMG".
But first, let's take a look at some of the main drivers behind Ethereum's soaring gas prices and convergence, as well as some solutions.
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The DeFi movement
DeFi, or decentralized finance, is an umbrella term for financial services that use smart contracts to facilitate transactions without relying on intermediaries. Last year the ecosystem exploded – at this point last year, the total value set across all DeFi applications was around $ 530 million. Today it's around $ 11.3 billion.
The DeFi train, powered by high yield farming, shows no signs of slowing down. If anything, it will continue to rise with new projects popping up from every corner. In early September, SushiSwap, a fork of Uniswap, caused a spike in transaction fees even though it was only a week old. This is an exceptional case, but it shows that any new DeFi project, with the right marketing and economic model, can easily lead to gas wars.
High gas fees offer Ethereum's competitors the opportunity to secure a fair share of the market.
The DeFi boom reveals Ethereum's scalability issues and its ability to cope with its increasing usage. Of course, this surge creates congestion on the network, which in turn results in miners charging higher gas fees to process transactions on the network.
You can't blame miners for profiting from the DeFi boom. It is human and business nature to identify opportunities and seize them.
The Ethereum 2.0 upgrade, originally known as Serenity, is one of the most anticipated updates in protocol history. Ethereum is switching from Proof-of-Work (PoW) to Proof-of-Stake (PoS).
Due to its consensus mechanism, Ethereum can only process 15 transactions per second (TPS) compared to 1,500 TPS from VISA. By migrating to PoS, the network increases its throughput.
The migration to PoS also replaces miners from Ethereum with examiners who use their ether to maintain the network. This changes the economic model of the protocol. While the incentive structure for the PoS architecture has yet to be worked out, miners are mainly concerned about the present moment. You want to take care of yourself rather than the long-term interests of the network.
The miners feel that their days are numbered and that the equipment will soon be out of date. They can only maximize their profits. A classic case of making hay while the sun is shining.
See also: Will a Sharded Ethereum be flexible enough for decentralized finance?
Bull is running
According to TradingView data, Ethereum is bulling and is up more than 177% against the US dollar since the start of the year.
Other assets like Chainlink (LINK) have outperformed Ether this year, but Ethereum than Ethereum will be attracting more attention. It's the second largest digital asset by market capitalization, making it a great choice for traders and speculators.
Temporary solution: zkSync
Developed using Matter Labs' zkRollup technology, zkSync is a trusted protocol for scalable, low-cost payments on Ethereum. The main reason for the release, launched on Mainnet in early 2020, was to improve the wide adoption of public blockchains. Six months later, Matter Labs launched a zkSync beta product on the Ethereum mainnet that allows users to send tokens without worrying about high Ethereum gas fees or network congestion.
When it was introduced, zkSync was able to process more than 200 transactions per second and be gradually scalable up to 2,000 transactions per second. Due to the scalability of this Layer 2 implementation, zkSync can potentially match Visa processing speed.
Matter Labs' zkRollup technology is responsible for this feat. The rollup enables the generation of zero evidence of knowledge by third-party validators who do not have access to the underlying transaction data in the rollup.
ZkSync fees are under $ 0.01 per transaction and are expected to stay low for the foreseeable future. The fees must also be paid with the transferred ERC-20 token. This is good news as the Ethereum transaction fees were previously only payable through ETH. zkSync transactions are completed within minutes and confirmed instantly.
See also: Ethereum's top dapps are increasingly turning to rollups: Here's why
How it adds up
The high gas fees offer Ethereum's competitors the opportunity to secure a fair market share. The failure, however, shows that Ethereum dominates or other smart contract platforms fail to outperform the world's second most important blockchain.
At some point the DeFi hype will run out of breath, just like the first coin supply bubble in 2017. Miners fees will of course go down, or if that happens, Ethereum will use a PoS mechanism. The high gas fees are a sign of how many people are into crypto for the money. Money is created out of nowhere, and miners who do their part to facilitate asset transfers make money through exorbitant gas fees.
At some point, normalcy will return because those who really care about Ethereum will make sure that Ethereum becomes Ethereum. If this doesn't happen, however, there is a chance that a new blockchain could emerge to compete with Ethereum and leave it behind. At the moment all platforms that are touted as potential "Ethereum killers" have failed.
Or maybe Ethereum is unlikely to capitulate under the weight of its own growth.
See also: Matthew Finestone – Ethereum enhancers, not Ethereum killers
CoinDesks Invest: Ethereum Economy is a fully virtual event on October 14th that will examine the impact of the profound changes in the Ethereum ecosystem for investors.