A recent increase in transaction fees for Ethereum and Bitcoin appears to have reignited the debate about solutions to scalability and the role of Layer 2.
Over the past 24 hours, cryptocurrency users have started sharing screenshots showing double, occasionally triple-digit transaction fees for Ethereum and Bitcoin.
One screenshot showed that gas fees for a high priority transaction on Ethereum were as high as $220, while other screenshots showed figures around the $100 mark.
Bitcoin users, meanwhile, reported fees hovering around $10 for high-priority transactions. Although this is relatively low, the average Bitcoin (BTC) transaction cost has been around $1 over the past three months, according to BitInfoCharts. BTC fees haven’t been this high since May.
#Saitama #SaitaRealty
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That’s not even the height of Bull Run
#ETH gas fees are already a horrendous $175.79
This is why I’m getting my #SaitaRealty #Saitama on the #BNB chain at the first chance
2 live transactions now when I processed them now
One on #ETH gas fee is… https://t.co/GYZy6L78Ku pic.twitter.com/JnOzNCK35X
— POWELLY (@MPowelly01) November 9, 2023
According to a test transaction conducted by Cointelegraph, at the time of writing, a transaction from an Ethereum hot wallet incurs a network cost of $45.65 for a $300 transfer to the decentralized exchange Uniswap.
Network costs for the Ethereum hot wallet Rabby Wallet. Source: Rabbit Wallet
The rise in gas fees has prompted proponents of Solana and other blockchains to flaunt how much cheaper transactions are on these respective chains.
One
Lol $SOL only charged 1.2 Sol ($55-$60) per minute in TOTAL fees for the ENTIRE SOYLANA PLANET
While the average gas fee for $ETH rose to over 160 gwei, every poor Ethereum user was charged $60 in fees per transaction
Mental illness imwo pic.twitter.com/WAtxjk1gzH
— Bobby Apelrod // nicefeet.sol (@tofushit888) November 9, 2023
“Currently, #PulseChain gas fees are 4,000 times cheaper than Ethereum and 14,000 times cheaper than Bitcoin,” said “KaisaCrypto.”
The price of the network fees is dynamic and depends on the demand or utilization of the network. During bull markets or strong market sentiment, an increase in on-chain activity often occurs, but an additional side effect is the impact on lower-income users.
“How does this help the unbanked and low-income population,” Lopez reiterated in a Nov. 9 post citing a “high priority” Bitcoin transaction fee of $10.50.
It now costs $10 to transfer money using Bitcoin.
How does this help the unbanked and low-income population? pic.twitter.com/0OBKCFZu3E
— Hector Lopez (@hlopez_) November 9, 2023
According to BitInfoCharts, transaction costs on Ethereum averaged $11.35 before the fee increase on November 8th. A few weeks earlier, on October 14, it fell as low as $1.40 – its lowest level in 2023.
Ethereum gas fees peaked at $196 in May. 1, 2022, while fees were consistently above $20 between August 2021 and February 2022.
Ethereum gas fees over the last three years. Source: BitInfoCharts
Scale base layer or rely on L2s?
Bitcoin and Ethereum developers have chosen to prioritize decentralization and security at the base layer and offload much of their execution environment to layer 2 to make transactions cheaper.
The Lightning Network is used to scale Bitcoin, while Ethereum has a handful of Layer 2 specifically designed to make Ethereum faster and cheaper, such as: B. Arbitrum, Optimism and Polygon.
Transactions often cost less than $1 on these Layer 2 networks, but not everyone agrees that this is the right way to approach scalability.
Related: Ethereum gas fees are cooling off after the memecoin frenzy in May
Justin Bons, founder of cryptocurrency investment firm Cyber Capital, believes that the base layer should be the only trading environment.
L2s are a terrible replacement for L1 scaling
In fact, L2s don’t scale the L1 at all; If anything, L2s compete with L1 for fees
Weakening the security and economics of the L1
All this with worse UX, lower security and fragmented liquidity
“L2 scaling” is parasitic!
— Justin Bons (@Justin_Bons) October 28, 2023
He advocates for monolithic blockchain architectures where consensus, data availability and transaction execution are handled at the base layer. Solana is an example of this.
Bitcoin and Ethereum, on the other hand, are modular blockchains as they outsource some transactions to a second layer.
All major scaling methods fall into a spectrum with five categories:
1. Modular side chains: ATOM, DOT, AVAX
2. Modular layer two: BTC, ETH, ADA
3. Monolithically Anchored Roll-Ups: XTZ
4. Monolithic execution sharding: EGLD, NEAR, TON
5. Monolithic single chain: SOL, BSV
— Justin Bons (@Justin_Bons) May 19, 2023
However, critics have pointed to multiple Solana outages due to network congestion and argued that a modular blockchain design is a better approach to solving scalability.
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