Spike in Bitcoin and Ethereum Transaction Fees Ignites Scalability and Layer 2s Debate
Summary:
Recent hikes in transaction costs on Bitcoin and Ethereum have reignited discussions about scalability solutions and layer 2s necessity. Cryptocurrency users reported double or even triple-digit transaction fees on both Bitcoin and Ethereum, with Ethereum gas fees soaring as high as $220 for priority transactions. This rise in costs has led to debates about the affordability of transactions on chains like Solana. The discourse also focuses on questions of scalability and whether transactions should be processed in the base layer or via layer 2s to lower transaction costs. Critics argue for a monolithic blockchain architecture, while others praise the efficacy of modular blockchains.
A surge in transaction charges on Bitcoin and Ethereum has recently stirred up discussions on scalability solutions and the need for layer 2s. In the past day, there has been a notable rise in double or triple figure transaction fees on both Ethereum and Bitcoin, as revealed by cryptocurrency users. One such excessively high fee was reported to be $220 for an Ethereum transaction that was poised high-priority, while other reports showed amounts around $100. Similarly, Bitcoin users reported paying roughly $10 for high priority transactions, which is striking as the average Bitcoin (BTC) transaction for the last quarter has circled around $1, as per BitInfoCharts data. These BTC fees haven’t climbed this high since May.
As per the latest data, an Ethereum transaction from a hot wallet is currently costing about $45.65 for a $300 transfer on the Uniswap decentralized exchange, as per a transaction test conducted by Cointelegraph. Consequently, the inflated gas fees have triggered intensive debates, with Solana and other blockchain proponents hailing the affordability of transactions on their chains. For instance, “Bobby Apelrod” pointed out on X (formerly Twitter) that Solana charges a total of $55-60 per minute for all Solana users, contrasting that to the exorbitant amounts 'unfortunate Ethereum users' have to shell out for a single transaction.
“KaisaCrypto” added to the conversation by stating that the gas fees on #PulseChain are 4'000X cheaper than Ethereum and 14'000X cheaper than Bitcoin. It's important to note that network fee pricing is dynamic and directly proportional to network congestion or demand. Network activity tends to rise when market sentiment is positive or in bull markets, however, this can have a negative effect on users with lower income. The topic was clearly illustrated by Hector Lopez's post stating, "how does this help the unbanked and lower income population?" pointing out that it now costs $10 for a Bitcoin money transfer.
Before this surge, Ethereum transaction fees were averaging at about $11.35 on Nov. 8, according to data from BitInfoCharts. A few weeks prior on Oct. 14, the fees had plummeted down to merely $1.40, marking the lowest point recorded in 2023. Moreover, Ethereum's gas fee had peaked at an astronomical $196 on May. 1, 2022, and fees were consistently over $20 between COVID-19-stricken August 2021 and February 2022.
As to the scalability question, Bitcoin and Ethereum developers chose to prioritize security and decentralization at the base layer, pushing a significant part of the execution to layer 2s to minimize transaction costs. Bitcoin uses the Lightning Network for scaling, whereas Ethereum uses several layer 2s, including Arbitrum, Optimism, and Polygon, to boost its speed and affordability. Transactions on these networks often cost less than $1.
Despite these efforts, the scalability solutions remain a contentious issue. Justin Bons, founder of Crypto investment firm Cyber Capital, asserts that all transactions should occur in the base layer. He proposes a monolithic blockchain architecture where the base layer handles all transaction executions alongside data availability and consensus, citing Solana as a fitting example. Contrary to this, Bitcoin and Ethereum function as modular blockchains, offloading some transactions to a second layer.
Nevertheless, Solana's resilience has been questioned following several network congestion-induced outages, indicating that a modular blockchain design might be better suited for tackling scalability.
Published At
11/10/2023 4:38:31 AM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.