Living in risk and uncertainty is nothing new. We go about our lives knowing that certain accidents or misfortunes could happen, just as we know that we might get unseasonably lucky. We try to manage our risk as best we can, reducing it as much as we reasonably can, then learning to live with the risk that remains.
It’s different, though, when something is not just incredibly risky but also volatile. Knowing that something will probably go wrong is easier to deal with than knowing something could swing either way wildly. Trying to set up a business model in this climate is a losing battle. It’s like setting up an inflatable boat rental shop—in shark-infested waters. It’s like deciding to become a professional gambler—at the roulette table.
It’s like setting up a business where there is a huge cost uncertainty for transaction fees. Welcome to Ethereum, home of the high-to-ridiculously high gas fees.
The Problem with cTransaction Fees
Economics can be fascinating in its ability to describe what forces are driving a business situation. In the case of Ethereum and its unwieldy fees, there are a number of key drivers that have led to this point. First, it’s a top contender in terms of simple popularity, with more and more projects launching and operating on Ethereum. Because the current version of Ethereum is run on PoW, this greatly limits the bandwidth of transactions per minute. Think of an island-based metropolis like NYC, growing and growing, but having only a few roads for everyone to share. Because transaction fees are based in part on congestion, we can see why fees have jumped to such high levels. And more projects continue to join, because just like New York’s financial district, it’s important to be where the action is.
It’s easy to point in shock at the high ETH transaction fees, watching new record highs reached regularly. While the hope of Ethereum 2.0 should solve these problems, that upgrade seems a long way off and is not certain given all the work that needs to be done for billions in investment to migrate seamlessly. However, the transaction fee situation is more complex and actually causes two very real problems for crypto traders and businesses alike.
First, it is true that for many of the aspiring businesses that have set up on Ethereum, having to factor in fees that have grown almost exponentially is a challenge. More than a few business models are now defunct because costs are significantly higher than revenue. While these businesses will be looked at as casualties of rapid evolution, real people and real livelihoods are linked to these businesses. People have seen their dreams crushed because of exorbitant fees, and potential solutions have only now begun to emerge.
Second, and less obvious, is that the volatility of the transaction fees poses an equal threat to businesses. This is the definition of an inefficient market. Businesses have to plan for price spikes. In doing so, they overprice their services and are outbid by competitors who are risk-takers and offer a better price. Sometimes it works out for the more conservative; other times, it works for the risk-taker. Others try to set up their business while predicting where the transaction fees will be at any given moment. For some businesses, waiting for congestion lulls can work. For others, transactions need to happen now and can’t wait. Over the long run, everyone suffers.
To recap, the core of the problem is that the fees are high and volatile. The reason so many put up with these problems is for the benefit of being inside the blockchain metropolis, where the action is. They pay significant amounts in transaction fees to attract customers and be near their partners.
— ETH Gas Bot ? ⛽ (@EthGasPrice) September 12, 2021
Given this, a good solution is one that can lower fees while making them more predictable while at the same time keeping a strong connection to Ethereum and other top ecosystems. Thankfully, the last few months have shown a lot of promise in finding true solutions that can fit these criteria. Let’s look at the most promising.
DIY Solutions for Individual Traders
While not a complete solution, there is a checklist of common sense (but sometimes overlooked) ways to save on ETH fees, especially if you must stay in the Ethereum ecosystem. Consolidating wallet addresses, holding off on collecting rewards, using tools that help predict congestion and fee amounts, and simplifying/minimizing smart contracts can all bring Ethereum fees down. Does this solve the problem completely? Perhaps for those with the flexibility to wait on congestion and whose business models allow them to modify smart contract structure. However, it’s a partial solution at best.
The most popular solutions have been those L2 or hybrid ecosystems that build the key structure themselves, with an easy model made to onboard blockchain projects. Most are built using PoS to allow high bandwidth and low transaction fees. For some, this method is mostly solid, but the volatility in fees is still a risk.
QANplatform has made a name for themselves by creating a hybrid consensus protocol called Proof of Randomness (PoR), which allows for extremely lightweight processing power for nodes to operate. In addition, the platform has set up fixed transaction prices (in USD) as a way of helping blockchain projects to maximize their business model. As the larger blockchain economy evolves, trends like these may become the norm.
It reveals that #AMD aims to create a system utilising quantum teleportation to reduce the number of qubits per calculation thus, increasing system reliability. #QANplatform #QANX $QANX pic.twitter.com/MSrliH8wWf
— QANplatform (@QANplatform) September 9, 2021
Create Your Own
While it can make it more difficult to connect to Ethereum, creating your own stand-alone blockchain is certainly an option. This option is only recommended for the most tech-savvy and ambitious teams, and those with specialization constructing bridges to Ethereum and other major ecosystems. Still, doing so would allow a change of protocol to PoS, allowing for more bandwidth and very low fees. While this option is not viable for most teams, it’s still worth keeping on the board. Does this solve the problem completely?
Well… in terms of high fees and volatile pricing. In terms of staying linked with the Ethereum ecosystem, that depends on the months of work your team will be spending building out the blockchain and creating a strong bridge. Given the hybrid platform offerings listed above, this could be akin to designing and building your own car because fuel prices are too high: Sure, that might work, but there are cheaper, viable options for sale that will have you on the road quickly.
While high fees and uncertainty are the norm for those stuck in the Ethereum ecosystem, that frustration doesn’t have to be permanent. More and more solutions are becoming available depending on the level of freedom desired, and the amount of work users are willing to put into migrating. From DIY checklists, moving to a hybrid network, or building your own, the frustration of volatility doesn’t have to dominate your blockchain experience.