Why Ethereum’s skyrocketing fees are great for the crypto industry
I’m a software architect working in the crypto industry for many years now.
My work and individual passion for blockchain tech provided plenty of opportunities to try a multitude of different wallets and blockchains. However, I didn’t see much need to experiment because Bitcoin and Ethereum were more than enough to cover my crypto needs.
This happy and tranquil crypto life was disturbed at the point when Ethereum transaction fees started to go out of control completely. As Ethereum fees skyrocketed, my patience wore thin, and it was ETH gas fee drama that finally pushed me to try alternative blockchains.
First, I tried Binance Smart Chain (BSC) because it was easy to get into using my regular Metamask wallet. Of course, once the experimentation started, there was no stopping it. Since then, I’ve regularly used many other blockchains besides Ethereum for regular crypto transfers, including Polygon and Solana, just to name a few.
Ethereum sharply losing the market to altchains
Looking back at the crypto market graph from mid-2020 to early 2022, in just one year, the dominance of Ethereum dropped from 97% to 61%:
From late 2020 to early 2022, you can see a massive shift in market adoption of alternative blockchains and cryptocurrencies. Their usage increased significantly for transacting funds and miscellaneous dApps (distributed applications) like token swaps, NFTs, gaming, etc.
In less than a year, we have seen most existing blockchain applications adapting to support several alternative blockchains, establishing cross-chain bridges, and integrating external tokens and cryptocurrencies.
The diversity of Blockchains stimulates innovation
As Ethereum’s grip on the market weakened, many alternate blockchains took the opportunity to innovate, release new features, and expand their position under the sun.
Polygon has released Proof of Stake (PoS) and Sharding features in production and demonstrated how they help scale blockchain technologies. These long-awaited enhancements constitute a significant milestone achievement for the Polygon network.
Solana took a radically different approach, providing an outstanding user experience with meager transaction fees and almost instant transaction execution.
Polkadot decided to poke the developers and see what they could do, focusing on a developer-friendly ecosystem with the deployment of parachains.
We can see now that Ethereum is not the only blockchain able to innovate en masse.
What’s going on with Ethereum in 2022?
Ethereum 2.0 is still on its way. The Kintsugi update has been deployed on the Testnet and should be released on Ethereum Mainnet somewhere in 2022.
This release will finally shift the Ethereum network from PoW (Proof of Work) to PoS (Proof of Stake). It’s a significant milestone, it will be an excellent achievement for the Ethereum network, but it’s not going to fix the skyrocketing fees problem.
Having faced significant backlash from the community related to the Ethereum issues, Ethereum founder Vitalik Buterin has talked about Ethereum Endgame for some time now.
You can check out this episode of Bankless for a whopping two-hour interview with Vitalik on how the Ethereum project is going to unfold in 2022 and beyond:
For a massive reduction of fees, we will need to wait for the Ethereum sharding deployment that should come along the way in 2023. Considering it’s early 2022 outside the window, what gives plenty of time for other chains to steal some more Ethereum market shares, but it doesn’t mean the end for the Ethereum chain.
So is Ethereum dying? Hell no. Ethereum’s age and developer loyalty still give it an advantage against competitors, and it has been battle-tested extensively, unlike newer and flashier chains.
Ethereum is still by far the number two after Bitcoin in terms of market capitalization; it has the significant number of dApps deployed and the highest number of users.
All these advantages are well understood by big players and institutions who have a long-term vision of investment and can afford Ethereum’s high fees at the moment.
And if you’re still on the fence, let’s take a look at some more numbers. The TVL (Total Value Locked) in all those alternate chains has risen from $18.7B to $250B in less than a year, whereas during the same period, Ethereum’s TVL alone has risen from $18.1B to $150B.
So Ethereum is a victim of its success, hitting the same wall as Bitcoin did when exposed to a significant amount of transactions without proper scaling mechanisms.
Ethereum having to stop and take a breath allowed other chains to deploy innovative solutions and attract users and bite off some market shares, but let’s not forget they also had issues scaling, like Solana:
Overall, this is a fascinating moment for the whole blockchain industry, and I’m looking forward to seeing how it evolves.
Blockchains must interconnect and interoperate for the sake of users
The alternative chains like Polygon, Solana, and Polkadot will stay for a long time and grow their user base regardless of what Ethereum does at this stage.
There are so many crypto activities that it’s next to impossible to cover them all in one blockchain. People will keep using several chains simply because you can play a game only on this specific chain and take part in a staking pool on that particular chain, for example.
Now, blockchain interconnections can’t be just managed by bridges — they should be considered from the application design standpoint to improve the user experience.
Instead of deploying different instances of the application on different blockchains without connection with each other, we need to review our approach to dApps design to be able to communicate with varying instances from other chains. So a user coming from a specific chain can have the same experience as if he came from any other chain and eventually leave the application through another chain.
Right now, ZK-Rollups is presented as the solution of Ethereum scalability. Now don’t get me wrong, it’s a great technology, and I can’t wait to see it in action, but it won’t help much in making chains interoperable, especially non-EVM compatible chains (not based on Ethereum smart-contract technology).
I believe the real blockchain scalability solutions can be built using state channels and sidechains, but that’s a topic deserving its own in-depth explanation.
Thanks for reading, give me a clap if you liked the article, and let me know your thoughts in the comments!
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