As some users saw gas prices skyrocket, Eth2.0 proposes an elegant solution.
Scalability issues have long been heralded as one of the biggest concerns growing amongst Ethereum investors. The problem isn’t solely relegated to the long-term and well performing network, however, but is experienced by many cryptocurrencies that use a similar validation method, bitcoin being one of them. Proof-of-work validation systems have long been under fire for their energy consumption as well as inherent scalability issues.
Recently a new problem has arisen with their functionality- gas prices are skyrocketing as investors flock to the network looking to lock up some liquidity in DeFi. No, we’re not talking about petrol, if this seems a bit confusing, it may be time to turn towards Bitvavo– or any other platform that helps novice investors sort through industry jargon. Besides useful exchanges, the ethereum network itself is looking to help new investors soothe the burn of inflated fees, by introducing the scalability solving Serenity and their companion, Shard Chains.
What is Gas
Gas is essentially equivalent to a bitcoin transaction fee. It is the fee that is incurred when you transact, or successfully complete a smart contract on the ethereum network. Generally, gas is a fractional amount of Ethereum’s token, ether. Usually amounting to something called a “gwei” or “nanoether”. This is a denomination of ether that is so incredibly small, it’s actually difficult to conceptualize. While we are used to simple denominations- like a hundred pennies to a dollar, or 100 single cents to a Euro, a gwei is a fraction of that. Gas is necessary for anyone that hopes to interact with the ethereum network.
What is Gas Used for
Gas was originally produced to compensate miners for their expenses generated by the computational power that was used. This kept gas prices in strict opposition to ether, meaning that the value of the token would not be degraded, and the computational cost would not be bulked into the value of ether. “Gas Limit” refers to the absolute maximum amount a user is willing to spend to complete a particular transaction. As transactions that are larger, or need to be done quicker, can incur higher computational energy costs.
What are Gas Fees
Gas fees, or the price of gas at any given moment is largely controlled by Ethereum’s mining population. In the original ethereum network, transactions are validated by a system called “proof of work” (PoW), similar to bitcoin. Miner’s compete using computing power to solve complex mathematical equations that validate transactions and enact smart contracts. Miners are rewarded for their efforts in gas. Gas serves as the incentive for miners to mine. If the public is willing to pay more gas per transaction, miners can choose to ignore the transactions that are worth less.
Why Gas Fees Matter
As you can see- gas prices are not only subject to the whims and needs of miners- but they can also increase drastically when the network is busy. Allowing users to choose a gas limit works somewhat similarly to bidding on an item in eBay- the highest bid will win the prize. While it’s not to say that a gas limit will always be reached, many miners will pick and choose the transactions that will be the most lucrative for them.
Finding Serenity in Eth2
Ethereum 2.0, or the network’s newest functionality program (also called “serenity”), is hoping that integral structural changes to how the network process transactions and stores data will help solve scalability issues, and reduce gas fees- all at the same time. This is largely because Serenity will no longer feature a proof of work validation method, instead, using a proof of stake (PoS). PoS no longer requires miners to compete for proof, expending tons of energy- but instead allows validators to “stake” their Ethereum holdings for a chance at validation.
The feature of Serenity that really stands out however, isn’t it’s we validation system, but the introduction of shard chains. Which could, once fully introduce, tackle scalability concerns, reduce network congestion and help quell insanely high gas fees. Unlike a standard blockchain, which consists of a single chain of data, shard chains present multiple chains that run parallel to one another.
This means that more than one transaction can be validated and added to the network’s ledger at a time. Requiring more validators, but also freeing up their time and allowing for a bigger pool of transactions (and their associated gas limits) to choose from. While shard chains aren’t due to take full effect until 2022, the network has already begun to implement these new functional programs- and investors seem to be positive.