Ethereum “buyback” upgrade on hold to ease tensions with ETH miners

  • The increase of demand from the DeFi industry has caused Ethereum fees to skyrocket, while NFTs could push ETH transaction costs even higher.

  • As tensions arose over EIP-1559, a new EIP has been put forward to ease Ethereum’s transition to proof-of-stake for the ETH miners.

  • Due to high fees, Ethereum projects could be slowly moving over to other smart contract protocols like Cardano, which expects over 100 projects to migrate.

With the rapid surge of decentralized finance (DeFi) and the latest developments on Ethereum 2.0, Ether’s price has been steadily rising. Ethereum (ETH) recorded a new all-time high in February, breaking the $2,000 barrier mark for the first time. Although Ethereum investors and hodlers have been able to benefit off of the ETH price surge, users on the network have been faced with challenges of high fees and network congestion issues.

Ethereum’s network fees have recently more than doubled the peak of transaction fees recorded during the DeFi summer of 2020. While the increase in fees correlates with Ether’s general rising price trend since the new year, it also reflects the growing demand for ERC-20 tokens, stablecoins, and the decentralized finance (DeFi) sector.

Ethereum miners have been able to benefit off of the fee surge, as their revenue has tripled previous highs seen during the DeFi boom. The average transaction fee reached a high of $38.21 on Feb 23, making the network unviable for smaller transactions which also affected DeFi activity for investors or traders.

Average Ethereum transaction fee 

The rise in popularity of non-fungible tokens (NFTs) could also continue pushing Ethereum transaction costs to new highs. Non-fungible tokens are a type of cryptocurrency that also runs on smart contract platforms such as Ethereum. Every NFT is unique, unlike more popular cryptocurrencies such as Bitcoin or Litecoin — where all the currency’s units are the same and equal.

An increasing number of NFT projects are launching and holding auctions. Until the Ethereum network implements a viable scaling solution, network congestion and high transaction costs are likely to continue while the NFT sector continues to grow. Many other applications are also becoming unusable on Ethereum Layer 1.

A solution for Ethereum’s high gas fees sparks tensions 

Ethereum gas fees will eventually see a solution as Ethereum 2.0 rolls out, enabling the platform to process thousands of transactions per second and to see improvements on the network’s efficiency, scalability, sustainability, and versatility. ETH 2.0 will eventually ease the pressure on fees in combination with Layer 2 scaling solutions, however, it could take years before it sees these issues resolved.

Vitalik Buterin, the co-founder of the Ethereum blockchain, has recently proposed the removal of gas refunds from the network. Currently, Ether enables users to store gas inside smart contracts using the function SSTORE. While users are also able to use the SELFDESTRUCT function to destroy a smart contract, this allows users to utilize gas stored inside the contracts to cover transaction costs when gas fees are high.

In a recently published proposal on Ethereum's Github page, titled EIP-3298, Buterin suggested that the removal of gas refunds for the "SSTORE" and "SELFDESTRUCT" functions for the London update.

This proposal could potentially have a huge impact on gas tokens such as CHI, which enables users to save on gas. If the proposal was to be passed in the London update scheduled for mid-2021, gas tokens like CHI would see its end as they would be useless without the refund function.

Along the same lines, ETH miners were not thrilled over the upgrade. There has been an alternative proposal put forward, and threats of a hard fork as revenue for miners would decline by 50%. EIP-1559 opposers and prominent miners have threatened to organize a “show of force,” which will see opposers divert their hash power to a single pool for 51 hours.

A new EIP proposal has come to surface to wind down tensions between Ethereum’s miners and developers. EIP-3368, the new proposal suggests that block rewards should be immediately increased to 3 Ether, and reduced by 0.25 ETH every quarter until it reaches 1 ETH over the next two years after the implementation of EIP-1559. This would help ease the impact of Ethereum’s transition to proof-of-stake for the miners.

Looking for alternatives 

While Ethereum continues to face issues including network congestion and high fees, other smart contract protocols, including Binance Smart Chain, Polkadot, and Cardano have benefitted.

Running in parallel with the Binance Chain, Binance Smart Chain is able to power smart contract functionality with the added benefits of faster transaction times and lower fee structures. Over 60 Dapps have already been operating on Binance Smart Chain has been proven to be more cost-effective than Ethereum. BSC has been encouraging the development of Dapps on the protocol by funding promising projects through its $100 million developer fund.

SingularityNET, the decentralized marketplace for AI algorithms has already begun the second phase of its migration from Ethereum to Cardano. The AI solution created by Dr.Ben Goertzel was originally built on Ethereum, and its cryptocurrency AGI is expected to be the first major token to be released on the Cardano Native Assets platform.

The migration plan was announced in early October 2020, Dr. Ben Goertzel cited that the speed and cost issues with Ethereum have “increased the urgency of exploring alternatives for SingularityNET’s blockchain underpinning.” He added:

“The transition of SingularityNET onto modern blockchains such as Cardano is a clear route to achieving scale and speed, and the completion of the fiat-to-crypto gateway will remove the requirement for end-users of SingularityNET-based services to deal with cryptocurrency infrastructure.”

Cardano’s creator, Charles Hoskinson said ADA’s blockchain security and governance are superior to Ethereum, and could enable features including voting and supply-chain tracking. According to Hoskinson, more than 10 companies are “in the pipeline,” to shift from Ethereum to Cardano when the blockchain’s functionality matures. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Cryptos feed

Latest Crypto News

Latest Crypto News & Analysis

Editors’ Picks

Bitcoin price not out of the woods as sidelined investors remain fearful

Bitcoin (BTC) price is still not yet set for a rebound as bears can trip bulls and push the price back below the pivotal level at $36,709. As markets are trying to catch a breather, it does not look like bears will be going away that easily and could pressure BTC price action to the downside. 

More Bitcoin News

Ethereum price at risk of slipping below $2,000

Ethereum (ETH) price action looked to be starting a rebound yesterday as bulls came in late in the US session and pushed price action back above the monthly S2 support level around $2,378. During the ASIA PAC session, however, almost half of the bull pop got erased, and bears are back, putting pressure on S2 to the downside. 

More Ethereum News

Solana beats all other blockchains despite degraded performance, says FTX Sam Bankman-Fried

The Solana network suffered an outage several times over the past two weeks. Users complained about failed transfers, and the Ethereum-killer revealed that DeFi investors drove a spike in complex transactions. 

More Solana News CEO Kris Marszalek predicts higher institutional investment in crypto CEO believes that institutional investment in crypto could continue rising in 2022. Analysts have noted that the native token of the exchange did not get negatively impacted after the recent security incident. 

More News

Bitcoin: BTC may capitulate to $30,000

Bitcoin price has dropped considerably over the last three weeks. The recent downswing has made things worse for BTC and hints that a steep correction could be on its way.

Read full analysis