Gas Prices, Currencies, and Enabling Economies to Scale
If you've been following Ethereum at all you will see that Gas is Too Damn High. Gas prices, or the fee miners charge to use the Ethereum network has been at an elevated level since mid-summer, as DeFi and general speculation is driving more activity on the blockchain. Ethereum charges a gas fee so that it doesn't get "spam" or unwanted, noisy, activity in its network/economy.
There's a great article on this phenomenon over at Coindesk:
High Ethereum gas prices make it impossible for ERC-20 projects to run any microtransaction payments on Ethereum. This defeats the idea of using the Ethereum network for one of its principal use cases.
Gas fees are part of Ethereum. They are the price required for miners to execute transactions. This fee is not constant, it fluctuates depending on network demand. A transaction can be delayed or outrightly rejected if it does not meet the miners’ threshold.
The miners’ threshold depends on network usage and congestion. In a way, miners prefer the network to be congested so they can benefit from charging high gas fees. Currently, the decentralized finance (DeFi) movement, the road to Ethereum 2.0 and soaring ether (ETH) transactions are partly to blame for this unsustainable position.
While miners would love to see gas fees going to the moon, this is not good for Ethereum in the long run. There are organizations that pay their contractors in ether because of cheaper transaction fees. However, under the current conditions, it is economically impossible. In the end, there is no incentive for using the Ethereum network. At worst, it becomes a liability.
Ethereum's currently undergoing a move to Ethereum 2.0 which uses Proof of stake (PoS) to presumably address this issue and allow the Ethereum network to scale.
It's absolutely fascinating to watch this play out in real time as it feels like watching an emerging market or simply a virtual economy play out in real time.
Recently, I wrote somewhat of an ode to fiat currency in which I was skeptical of a Bitcoin based currency regime. Ethereum on the other hand is a currency regime that interests me greatly, because they seem to see money as a service and is fiat by nature.
In terms of the Ethereum Gas Prices, there is demand for activity on their network, but miners are extracting rent to access the economy. This is not uncommon in any commodity based currency regime where those that hoard the thing the currency is based off of control supply. In the case of Ethereum they are currently going through an inflationary period - reminiscent of perhaps the late aughts, when oil was ripping on the back of a strong global economy.
As I highlighted above, it's the move to Ethereum 2.0 that I found particularly interesting in that it used economic language that then became Silicon Valley gospel and applied it to an currencies and economies - the network needs to be able to scale to be successful.
In terms of currencies and economics, thinking of fiat money as that which enables an economy to scale is a really strong one, and something I particularly enjoy.