- Ethereum is still dealing with the issue of rising transaction fees
- The network needs new scaling solutions now more than ever
- New users raise transaction costs unknowingly for other users
Ethereum News Today – one of the biggest stories that have rocked the digital asset space in recent weeks is the report of Ethereum’s skyrocketing transaction fees which solutions can be implemented. Even though the Blockchain network has seen a strong rise in its overall number of active users, the number of transactions, and overall network usage due to DeFi, the cost to completing transactions has also risen.
The surprising thing about it is that has risen at a dramatic rate. At 130 Gwei (that is a measurement including the cost of Ether transactions), simple transfers of the ETH network cost well over $1.00. Meanwhile, the more complex smart contract transactions may cost up to dozens of USD.
Ethereum’s Negative Network Effect
When you hear of the term network effect, we will assume that it is a positive thing. For example, Bitcoin’s growth is usually predicated according to network effects. The same thing applies to Facebook and Youtube. Yet according to a managing partner of hedge fund and crypto venture Multicoin Capital, Tushar Jain, Ethereum has now reached a position where it is experiencing “negative” network effects. The reason is that when a new user joins, and there is a new application, the network slows down and becomes costlier. According to Jain in a tweet:
“ETH 1.0 is currently facing negative network effects. New users always raise transaction fees for other users.”
Jain’s comment is reminiscent of a comment echoed by two executives of the cryptocurrency-based global investment firm Exponential Investments. According to an earlier report, Leah Wald and Steven McClurg who are executives at the firm said that the way Ether is structured means the fundamental cause for the digital asset will weaken as its prices rise and the overall demand for transactions goes higher.
Ethereum Needs Scaling Solutions ASAP
According to Jain, the current unfortunate trend affecting Ethereum is a sign that it urgently needs scaling solutions. If it doesn’t get a solution fast the negative network effects could drive many developers and users away. Jain’s comment was echoed by cryptocurrency analyst Qiao Wang. According to Wang who referred how he spent much money and time to use Ethereum-based DeFi products:
“As long as ETH 2.0 hasn’t been launched fully, there is still an opportunity for a highly scalable network to dethrone ETH. Paying $10 in transaction fees and waiting for up to 15 seconds for settlement isn’t a good deal.”