While a few months ago it was thought that the cost of gas required to make transactions on the Ethereum blockchain would gradually fall, the unexpected spread in its size, thanks in part to DeFi and NFTs, has not caused this descent to occur and indeed gas has, at times, even increased.
The cost of gas on Ethereum
It is precisely the high transition costs of the blockchain founded by Vitalik Buterin that have allowed the widespread diffusion of other rival blockchains, such as Solana, Avalanche and Polkadot, which have made low transition costs and speed their strong points.
Many have decided to abandon Ethereum precisely because of the high transaction costs, such as cryptocurrency investor and co-founder of Three Arrows Capital, Su Zhu, who wrote in a tweet in November:
“Yes I have abandoned Ethereum despite supporting it in the past. Yes Ethereum has abandoned its users despite supporting them in the past”.
According to a report by a French cryptocurrency research firm, the high transaction costs are driving small and medium-sized investors away from Ethereum, which is now only used by large investors.
A note in the weekly report published at the end of November reads:
“Average trade sizes have increased on all DEXs over the past few months while the actual number of trades has stayed flat, which suggests that the profile of the average trader now skews more whale”.
Kaiko analysts are convinced that this dominance of whales is solely down to transaction costs on Ethereum, which are still considered too high by most users.
“The large trades are likely due to Ethereum’s high transaction fees, which prevents more retail traders from using DEXs. Every trader on a DEX must pay Ethereum transaction fees for each trade, which frequently surpass $100 due to congestion and scalability issues”.
Joe Lubin: fees are a sign of success
But Joe Lubin, co-founder of Ethereum and CEO of ConsenSys, rebuts these accusations in a rather unique way, saying that these costs are driven by the huge growth and success of the Ethereum blockchain.
He said in an interview:
“High gas fees are a measure of success. They’re a growth pain, they’re something that can’t be avoided. When a new technology becomes successful, it always has scaling issues. So whether it’s CPU cycles, or screen real estate, or memory, you’re basically going to have software engineers max out the capabilities of the technology. And it turns out we’re seeing consumers max out the capabilities of the technology”.
Lubin also added that Ethereum 2.0, which is expected to arrive by Q2 or at most Q3 2022, will definitely help overcome both the transaction cost and high power consumption issues.
“We’re already seeing scalability happen at Layer 2, and at Layer 2 we’re seeing hundreds and soon tens of thousands of transactions per second that are actually very inexpensive—they’re Solana-inexpensive, Avalanche-inexpensive. Those are both cool systems, by the way, Solana and Avalanche, and as they get more utilized by consumers, we’re seeing transaction fees creep up to $1 and $2 for those technologies. Ethereum is going to be the blockchain of blockchains. It’s going to be the major digital asset settlement layer, it’s going to be the coordination layer for many different Layer 2 technologies”.