Is Ethereum a victim of its own success?

Ethereum (ETH) is the most used blockchain network at the moment. Some would think this is good news, but unfortunately it isn’t.

Many people are unable to execute their transactions due to a sharp rise in the price of Ether and gas, a price any user must pay to validate their transaction, and are starting to look for alternatives on other networks.

So, if Ethereum is having success and people are using it, why could this be detrimental to its adoption?

First, we need to go back, look at how Ethereum-based transactions work and understand why we have to pay for every transaction we send to the network.

Why are there gas fees to pay for transactions?

There are two basic reasons: rewarding miners who validate transactions and avoiding “useless” transactions. If they were free, anyone could make millions of transactions a day and crash the network, as miners would find no economic benefit or incentive to validate.

Ethereum introduces two concepts when sending transactions: gas and gas price. Transactions don’t always have the same price.

We can explain this by making a comparison with a car. If a car went at the same speed every day to make the same journey, it would consume the same volume of gasoline. Now, the price of gas is not the same every day, so the cost of the same transaction at the same rate is different depending on the price we paid for the gas.

Ethereum has the same concept. Transactions always consume the same gas depending on the destination of the transaction. But on the network, gas is not always sold at the same price, as the price depends on how much the network has collapsed. If you want to learn more and trade ETH, you can use a trading platform known as bitcoin-up.io. Since the blockchain is a technology in which incentive mechanisms are essential for its proper functioning, the network uses the price of gas to protect it from collapse.

When the network is heavily used, it is designed to raise the price of gas and thus discourage transactions. Similarly, when its use is very low, the price of the gas is very low to incentivize its use.

The increase in the price of Ethereum negatively affects the network

We have a blockchain network which, thanks to the new DeFi ecosystem, is generating a high volume of transactions. This high volume of transactions drives up the price of gas and, moreover, this gas has to be paid for in a currency that has also risen sharply.

This is what is causing severe damage to Ethereum adoption and forcing many projects to seek a blockchain network with a lower cost per transaction or to wait for the price of gas to drop and stabilize.

In October 2020, certifying a document using Ethereum cost around $ 1, generating a new collection of non-fungible tokens (NFT) cost $ 10 to $ 15, and swapping Uniswap could cost around $ 3.

Now, the cost of certifying a file has gone up to about $ 15, the cost of generating a new NFT collection is over $ 120, and on Uniswap we found a cost of about $ 200 for a swap.

For this reason, projects that have used Ethereum to certify information, perform process traceability or create NFT sets, have moved to other blockchain networks, such as Cardano, Stellar or xDai, among others, or are looking for a solution in Ethereum Layer-2.

If the price of Ether continues to rise, as some experts predict, Ethereum could remain a large specialized DeFi network, but certification, traceability, or video game projects will seek out other economically viable ecosystems.

The question remains: if Ethereum specializes in DeFi, will it do it good and confirm its definitive take-off as a large global financial network, or it will cause users to lose interested in other use cases, and all of this will harm the adoption and use of the net?