Chicken And Egg Problem: Blockchain Transaction Fees

  • At the peak of 2017’s bull market, Bitcoin transaction fees became unbearable. Some users even had to pay a $50 transaction fee just to send BTC worth less than $3
  • Ethereum gas fee is now unbearable. Sometimes you have to pay over 200 GWEI just for the gas fees

When Bitcoin was promoted to the world by its creator, every of its earlier adopters thought it was a great alternative to wire transfer. How else can you transfer funds with very cheap transaction fees and very fast waiting time, huh? Most people had to wait 2 to 4 business days before the funds get deposited into the recipient’s bank account. With Bitcoin, payments are being processed in less than 20 minutes.

However, as Bitcoin and Altcoins became more popular, things started to become much more complicated. The blockchains often get clogged, the transaction fees became absurdly high, and the waiting time became much longer as well. This is the price that “decentralization” had to pay, basically, as mining became more and more expensive.

Read more about why the Bitcoin Network has a limit of 1mb and transaction fees become very high.

At the peak of 2017’s bull market, Bitcoin transaction fees became unbearable. Some users even had to pay a $50 transaction fee just to send BTC worth less than $3. It was insane and not manageable. Many developers had to think of second-layer solutions to solve this issue.

Unfortunately, second layer solutions have never become mainstream. Even until today.

One of the second-layer solutions that haven’t been widely used is the lightning network. Find out all about the lightning network, what it is, and how it works.

The Alternatives Are Not Exactly Better

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And then, there’s Ethereum!

A decentralized supercomputer intended to build DApps or smart contracts. Ethereum promised much more efficient transaction fees and faster transaction speed than Bitcoin. Well, it has been generally doing better than Bitcoin.

However, with the rise of DeFi protocols and stablecoins which almost all exclusively operate on the Ethereum network, now Ethereum has become overstretched. Ethereum gas fee is now unbearable. Sometimes you have to pay over 200 GWEI just for the gas fees. Along with the rise of ETH price, gas fees have become quite expensive in the Ethereum blockchain.

Sure, people say that this issue will be fixed as soon as we integrate the first few phases of Ethereum 2.0. However, there’s still no fixed date yet when can we enjoy these Ethereum 2.0 implementations beyond phase 0. It might still take years before we get into higher native integration of Proof-of-Stake (PoS) in Ethereum 2.0’s consensus (FYI, Ethereum 2.0 would start with a hybrid of PoW and PoS).

Of course, there are also other and newer blockchain platforms that utilize Delegated Proof of Stake (DPoS) and their variations. However, most of these blockchains are not really significant, as users don’t actually use them.

This entire situation is known as a chicken and egg problem.

Faster Blockchains are not used – Will this change anytime soon?

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There are faster and more efficient blockchain platforms such as EOS, Tron, or Cardano. So far, however, they are not really used for many activities. Tron had to create its own DeFi protocol, JUST, before users started to pay attention to it. And even then, Tron’s DeFi market share is still minuscule compared to Ethereum’s.

Most of the other next-gen blockchains have their own “fancy” names for their consensus algorithms but the basic is usually the same. It’s always similar to Delegated Proof-of-Stake, but with slight variations. These other next-gen blockchain platforms are also rarely used for any DApp. So, even though they are fast and cheap, if nobody actually uses them, how can we solve the high transaction fees that have been plaguing Bitcoin and Ethereum?

However, there’s some slight hope that this situation will get better soon. Besides Tron that has been mentioned above, there’s also Polkadot, which has been able to go live this year. Polkadot’s meteoric rise to the top of crypto market cap rankings has been prophesied by many people, as it’s the creation of Ethereum co-founder and inventor of Solidity, Gavin Wood.

Different from other blockchains, Polkadot actually has a decent amount of projects launching on top of it. Mantra Dao, Rio DeFi, Ocean Protocol, Sora, Akropolis, OpenANX, and so many others are all building on Substrate, the open-source framework in Polkadot ecosystem.

Whether Polkadot, Tron, or other ecosystems like Cosmos will be able to eventually solve and “migrate” the transaction fee problems plaguing Bitcoin and Ethereum, it still remains to be seen. But let’s just hope they will be able to do so.

With DeFi keeps getting more popular, it is time for the crypto users to find a more scalable platform.

Find out everything you need to know about Defi applications.

Written by https://remitano.com/

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