When it comes to high gas prices, it’s not drivers of combustion-engine vehicles that are doing all the complaining. Turns out, Ethereum (CCC:ETH-USD) users have their own gas problem, too.
As you may know, cryptocurrency has evolved from the days when merely the ability to facilitate cross-border transactions was good enough to get you on the front row of the blockchain revolution. Ethereum represented one of the early pioneers of what you might term utilitarian blockchains or decentralized networks that could replace multiple centralized components of traditional economies.
For Ethereum, it brought to the crypto lexicon the concept of the smart contract, a binding agreement between two parties minus the middleman. In its place, an immutable protocol would determine (perfectly and without bias) whether the parties fulfilled he terms of the underlying contract. If integrated into mainstream functions, the smart contract innovation could forever revolutionize business transactions.
Except that there’s one problem: as the Ethereum network became increasingly popular, so did the transactions that undergirded the ETH community. Obviously, any expenditure of effort or energy comes at a cost. For ETH users, this cost materializes in the form of transaction fees, known as gas.
Website Ethereum Price explains it as follows:
“Gas is used to pay for transactions on the Ethereum blockchain. The amount of gas required for each transaction depends on the complexity of the transaction. A simple transfer may use as much as 21,000 gas whilst a more complex transaction (for instance, those used in decentralized finance) could use in excess of 1,000,000 gas.”
According to reports covering the Ethereum ecosystem, gas fees have gone through the roof — similar to its physical counterpart. Among users and developers participating in the nuts and bolts of the ETH blockchain, the fees have become onerous. This dynamic implies that competing blockchain applications — colloquially referred to as Ethereum killers — could upend the number-two crypto.
To be fair, the concept of Ethereum killers — such as Polkadot (CCC:DOT-USD) — have circulated before the gas fees skyrocketed. Of course, the rising costs only serve to fuel cries for an ETH replacement but should stakeholders be worried?
Ethereum Fees Only Part of the Story
On the surface, high gas fees could be the undoing of Ethereum. As developers build on the network, they may encounter an economic conundrum where the exorbitant gas could drive out applications or services that depend on high-volume, low-price transactions.
Instead, Ethereum could become an aristocratic giant, a Ritz-Carlton of the blockchain. That might appeal to the snobby crowd but it will likely diminish innovation discovery lurking outside the mainstream and in the outliers of statistical calculations. In other words, ETH could become a victim of its own success.
Therefore, the outpouring of movement away from Ethereum toward faster, cheaper and more efficient blockchain networks like Solana (CCC:SOL-USD) has stymied ETH while boosting SOL. The more this migration occurs, the more the smart contract originator is at risk of failure through irrelevance.
With well over 16,000 cryptos currently available, irrelevance is a very real threat. But is Ethereum sh*t outta luck?
While not denying the risk to ETH, I believe the issue about high gas fees is a nuanced, multidimensional dynamic. True, transaction fees in Ethereum are outrageous much like real estate in metropolitan California is outrageous.
But there’s a reason for that, isn’t there? Californians don’t have to deal with that other sh*t: no tornadoes, no snowstorms, no alligators and other weird things that make life interesting in other parts of the country.
But they pay for that through taxes, lots and lots of taxes. And Governor Gavin Newsom… I love that man (not really).
California will always be expensive because it’s California. Similarly, I don’t expect a Lamborghini to go on discount because it’s a Lamborghini. By now, Ethereum has built a cachet that is worthy of its high gas fees.
The Other Possibility
I don’t want to cause an uproar but it could also be possible that the drama behind Ethereum gas could be due to lack of awareness of market forces. Since we’re dealing with a decentralized (and as of this moment uncorrupted) network, the fees reflect the perfect mechanization of supply and demand.
There’s no government oversight here, no plunge-protection team. The fee is what the market will bear.
Now, developers could choose to complain about that and move to a cheaper network. But that network (whatever it may be) doesn’t have the cachet that Ethereum does. ETH is the second-biggest crypto by market capitalization by a momma-flippin’ big margin.
Therefore, if you want to win big, you go with Ethereum. If you want to win small (and improve your probabilities of said victory), you go with the alternatives. But at the end of the day, nobody is an ETH killer. Different utilitarian blockchains can co-exist because they will ultimately serve different end games.
On the date of publication, Josh Enomoto held a LONG position in ETH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.