Ether's supply has been increasing since mid-April. This is a result of lower transaction costs in Layer 2 networks. Ethereum's faithful survived this problem.
The exorbitant transaction fees that plagued the Ethereum blockchain have become a thing of the past.
In recent weeks, fees on the network have dropped to around $0.06 for a typical transaction.
It is said that some cost has been incurred.
Rock-bottom fees mean Ethereum no longer destroys – or “burns” – more Ether tokens than it creates. In other words, its economics are now inflationary — a dirty word among crypto users who often revile money printing rooted in the traditional economy.
Still, some Ethereum developers don't see it that way.
“I'm very confused that people think that Ethereum having low gas fees is a problem,” said Marius van der Wijden, an Ethereum core developer. News.
“This is what we are working on. Combustion, in my opinion, has never been considered an economic indicator.
These conflicting opinions reveal the differing priorities of Ethereum stakeholders.
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Developers are happy that the network can now handle many transactions without charging users high fees.
Some investors, on the other hand, see inflationary economics as undermining their investment in ether — the volatile token used to pay for Ethereum transactions.
Ultra sound money?
When users send Ethereum transactions, the Ether they pay for is destroyed or burned.
If the amount burned from transaction fees exceeds the amount of new Ether rewarded to validators for processing those transactions, the total supply shrinks and becomes deflationary.
This condition is often referred to as the ether”Ultrasound money,” is favorable to the network because it rewards those who help run it without increasing the Ether supply.
However, if users do not spend enough Ether on transactions, as is the case now, the supply of Ether will increase indefinitely, breaking the economic model of the network.
“The Meme of 'Ultra Sound Money' Has Been Broken,” Ethereum Core Developer Preston Van Loon Says News.
Van Loon says this is all due to a March upgrade that made Ethereum layer 2 networks much cheaper to operate, such as Coinbase's Base or Offchain Labs' Arbitrum.
Layer 2s are separate blockchains built on top of Ethereum. In recent years, most of Ethereum's operations have left the main network and moved to the comparatively cheaper and faster Layer 2.
Some worry that the move to Layer 2 means that Ethereum will not deflate again.
“Layer 2s are constantly outmaneuvering each other to avoid creating a high-fee environment for themselves,” a DeFi developer nicknamed 0xbreadguy said in a widely publicized post. X post.
The result? Fees on Ethereum are low unless the network significantly increases transaction demand.
Van Loon said he was “not entirely convinced” by the argument.
He said he believes that as Ethereum grows through Layer 2 networks, more and more activity will eventually make its way to the Ethereum mainnet.
“The mainnet becomes the settlement layer and a place for end users to hold assets for long-term storage, while Layer 2s become the user activity layer,” he said.
Deflate Ethereum again
Among those who believe low transaction fees are the problem, there is one popular solution: get more users to transact on the Ethereum mainnet.
“You need to balance scaling through Layer 2s by keeping your power users on the mainnet – not pushing them indiscriminately into one of a dozen ecosystems,” 0xbreadguy said.
That can be a tough sell. No matter how well Ethereum balances demand, Layer 2 transactions will always be cheap.
Martin Koppelmann, founder of Ethereum sidechain Gnosis, says one way. Increase mainnet utilization By increasing the network gas limit.
Doing so will increase Ethereum mainnet transaction efficiency and lower fees. It also risks increasing operating costs for validators who run the software that helps process transactions on the network.
Ethereum co-founder Vitalik Buterin also suggested increasing the gas limit during the January “Ask Me Anything” event. session On the online forum Reddit.
Whatever solution the community chooses, they should do so very quickly.
As more DeFi protocols and users move to Layer 2, they are less likely to want to go back.
There is Tim Craig News' Edinburgh-based DeFi correspondent. Reach out with tips at [email protected].
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