Get the weekly summary of crypto market analysis, news, and forecasts! This Week’s Summary The Crypto Market ends the week at a total market capitalization of $1,071 trillion. Bitcoin is up by over 3% after a successful week. Ethereum decreased by almost 2% over the past seven days. XRP gained nearly 2% in value this week. Almost all altcoins are trading in the green, with very few exceptions. The DeFi sector decreased the total value of protocols (TVL) to around…
There are over 4,000 crypto coins globally, and Ethereum is the second-largest and currently trading slightly above $3,500. Ethereum has maintained its position since its launch in 2015. If that makes sense to you, I guess we both know the platform behind the decentralized finance world is nowhere close to a scam project.
As you probably know, Ethereum is an open-source platform running on its Ethereum blockchain that has been monumental in the crypto space. It has been a pretty impressive force in the crypto market and has made incredible changes quickly. The idea was first conceptualized by a Russian, Vitalik Buterin, in 2013. Ethereum eventually launched in 2015 with the price of its native coin Ether trading at $2. At the time of this writing, ETH just reached a new ATH, crossing over $4,000.
Is Ethereum Really an Open-Source Project?
Ethereum runs on the Ethereum blockchain, which is a decentralized ledger network. Its inception provided its users with an open-source, decentralized platform for its coin Ether, plus the recently developed smart contracts and dApps capabilities. Today, there are over 700 Ethereum based open-source projects.
Despite its presentation as a decentralized network, a few aspects of the blockchain raise questions about whether it is really open-source. For instance, a claim suggests that operations on Ethereum are vulnerable to centralization due to the unfair distribution on its Crowdsale. The Crowdsale was very unfair, with much favor for early investors, which led to highly skewed wealth distribution.
The network’s founder Vitalik Buterin is also believed to have a disproportionate impact on the Ethereum network. The network is in the process of scaling to Ethereum 2.0, and Buterin’s proposal seems to get quickly embraced. Buterin suggested reducing the shard count from 1024 to 64, and it fast integrated his opinion into the network’s roadmap. The quick embrace raises concerns about whether it would incorporate another researcher’s proposal regarding a significant network feature that fasts.
According to reports, more than 60% of Ethereum nodes run in the cloud. Most of the nodes are hosted on Amazon Web Services, which is a threat to decentralization when Amazon Web Services indirectly controls a quarter of all Ethereum nodes. A situation will probably arise if Jeff Bezos decides he is not for the blockchain anymore.
Over the last couple of months, Ethereum’s biggest challenge has been the spike in gas fees. Ethereum transactions cost $68.86 on average at the time of this writing, up from $0.2848 one year ago. It’s a slightly above 24,000% change and is now a significant concern. Transactions on the Ethereum blockchain are entirely uneconomical, especially low volume transfers. The current spike is way above the 2017-2018’s when the fees reached $5 during the crypto boom and even raises questions about the credibility of Ethereum.
What’s Behind the High Gas Prices?
Ethereum’s current situation is not ideal for its extensive use. The skyrocketed gas price makes the entire Ethereum blockchain not fit for its purpose. However, it is understandable given the pace of innovation of Ethereum’s network and the subsequent congestion. Most of the activities and projects in the crypto space occur on Ethereum’s blockchain, including the most recently introduced decentralized finance that is almost an industry by itself. It is nearly impossible to use ERC-20 tokens for micro-transactions, making Ethereum fail in one of its most significant use cases.
The gas fee is usually the price paid to miners for them to execute transactions on a block. The gas price does not remain constant but fluctuates depending on the network’s demand. Therefore, transactions on Ethereum’s network are delayed or rejected if they do not meet the miners’ threshold. The current increase in gas price is attributable to the high demand for Ethereum that is evident even in its native coin’s bull run. The increased demand could be occasioned by the increased usage of decentralized finance projects and Ethereum 2.0.
Ethereum 2.0 is an upgrade made to the Ethereum blockchain in December 2020. The transition is not spontaneous but a gradual process that could take years. It launched on December 1st, 2020, with the Beacon Chain and was successful. The significant changes of Ethereum 2.0 were the introduction of a new consensus mechanism and data sharding which the founder significantly contributed. The development can be a concern whether Vitalik Buterin could heavily influence Ethereum. The latest version was hoping to bring down gas prices and eliminate the wasteful mining associated with the proof of work consensus algorithm.
However, with its advantages, such as increased scalability, the blockchain will only awaken more interest in Ethereum. It could mean more congestion on the network, and perhaps one reason developers are yet to address the gas price issues.
EIP-1559-Ethereum’s New Gas Mechanism
Ethereum Improvement Proposals (EIPs) refer to the standards for the specification of potential new features on the Ethereum network. They come with all the technical proposals for the proposed changes and are usually the sources of truth for the community of network users. It is the basic process for network upgrades on Ethereum and involves:
- Idea generation- Usually, a pre-draft idea not tracked on the EIP repository
- The draft- The first formally tracked stage of the proposal. The proposal gets merged by the editor on the repository after proper formatting.
- Review- The EIP is set and ready for peer review
- The last call- This marks the final review stage for the EIP. The editor places the proposal in the review status and sets a date for the review, usually within 14 days.
- The final stage- The final stage presents the final EIP standard.
The EIP may get moved to a stagnant stage if it remains inactive for six months. However, the authors can revive it by returning it to the draft stage. Authors can also withdraw the EIP with finality.
Anyone can develop an EIP following specific guidelines and ultimately ensure there is consensus within the Ethereum community. However, the technical bar for a well-defined EIP is too high. An EIP comes to effect once the set of proposals get implemented by all Ethereum clients.
While gas price continues to be a problem on the Ethereum blockchain, developers are working round the clock to find a solution. A new Ethereum Improvement Proposal (EIP-1559) is the new hope for gas prices. The proposal aims to change the Ethereum gas price mechanism from a user-defined gas price to an algorithmically computed fee dubbed the base fee and increase the block target size.
The block size mechanism targets maintaining blocks at their 50% capacity but double the size from 12.5M Gas. The base fee will be algorithmically computed based on the size of the preceding block. If the last block is larger than the next block, the base fee will increase to make it expensive to transact, reduce the number of transactions, and reduce block fullness. Also, if the last block is smaller, the base fee will decrease to encourage more transactions, thereby pushing the block up towards the 50% capacity. The base fee will also not get paid to miners but instead burned to remove them from the supply.
Despite speculations about Ethereum’s decentralization, the network remains the most widely used network in the crypto space due to its features and the functionalities it supports. The platform had scalability issues due to its vast use cases, but the launch of the Ethereum 2.0 version could eventually end the problems once fully integrated. Although it could mean more congestion on the network from increased acceptance and use, the developers are up with a new proposal to ensure the congestion does not continue to skyrocket gas prices.
The EIP will seemingly change the Ethereum user experience with gas fees, but Ethereum 2.0 must come fully into force to decrease transaction fees. All in all, Ethereum is just facing scalability problems due to its wide adoption, and a long-term solution is on its way.