As the Ethereum economy — a complex metaverse of DeFi protocols, NFT markets, and other smart-contract apps — has grown, so have prices for “gas” (fees users pay to make transactions).
Users are paying higher fees
As a result, interest in theoretically faster and cheaper “ETH killers” like Solana and Cardano is growing. Simultaneously, developers are working to increase capacity and lower fees on the main Ethereum network, both through “layer 2” scaling solutions like Polygon and Arbitrum (which allow users to conduct cheaper transactions that ultimately settle on the main Ethereum blockchain) and through the continued rollout of ETH 2.0.
The latest news on Ethereum
ETH flirted with all-time highs of more than $4,000 before plummeting nearly 25% on a volatile Monday morning. ETH had been on a roll since August, when a significant upgrade known as EIP-1559 went live.
One advantage of the upgrade? With each transaction, some ETH is “burned,” removing it from the supply permanently.
More spikes means more ETH burns
When network traffic spikes, it is possible that more ETH is burned than is issued. This occurred for the first time this week, owing in part to an increase in interest in NFTs. At current rates, the total supply of ETH may actually decrease over time, potentially raising prices if demand remains high.
NFTs burn the most ETH
As of Wednesday, over 240,000 ETH worth nearly $850 million had been burned. After a record month of activity in August, the largest NFT marketplace, OpenSea, is currently in the lead for burning the most ETH, with monthly transaction volumes exceeding $3 billion.
Gas fees are spiking
ETH fees are currently increasing, but solutions are on the horizon. Arbitrum, a layer 2 scaling solution that can handle many more ETH transactions at lower costs, recently launched a beta version. The project has been integrated into major DeFi projects such as Uniswap and Aave. Another layer 2 solution, Polygon, has nearly 60 million unique active addresses.
Ethereum “Killers” loom
Newer smart-contract compatible platforms, such as Cardano and Solana, have seen price increases in recent months, owing to the allure of lower fees and faster transactions. Solana already runs a number of DeFi and NFT applications and has a total value locked (money deposited in protocols) of more than $7 billion. Cardano will enable smart contracts on its main network on September 13th and has potential to process 1 million TPS compared to Ethereum’s current TPS of about 30.
As cryptocurrency potentially scales to billions of users, a variety of technological approaches will be required to make transactions quick, simple, and affordable. There are already some strong contenders, including layer 2 solutions and alternative blockchains such as Solana and side chains like Polygon. Which will serve the greatest number of users in the end? Stay tuned.
Jay Speakman is a technology writer based in San Francisco, California. He writes on the topics of blockchain, cryptocurrency, DeFi and other disruptive technologies. Clients include Avalanche, Be[in]Crypto, Trust Machines and several blogs devoted to blockchain gaming. He will not rest until fiat currency is defeated.