Scaling Blockchains

A long time ago, the Ethereum community used to laugh at Bitcoin and it’s congested network and high fees. The tables have certainly turned. The whole Defi ecosystem has outpriced every day cryptocurrency users. The most popular applications like Uniswap suddenly cost over 100 USD per swap. At those prices, you’d need to move 10 thousand to call it a good deal. And, while Bitcoin has it’s own issues, the smart contracts on Ethereum are the worst offenders.

Where Do Fees Come From

On the Ethereum network, your major expenses come from Gas. Ethereum fees are actually flat like any other blockchain (in that they are not scaled by amount of funds), but there are varying computational costs that smart contracts accrue. Gas fuels the smart contracts and gas has a cost associated with it that the user must pay (the fee).

When executing anything on the ethereum network there is the amount of gas required. 21,000 gas would be a very simple computation such as sending Ether from one address to another, for example. Then you multiply that by the average gas price/ the gas price you’re willing to pay if you set a custom price such as 100 gwei (a gwei is 0.000000001 eth). Multiply that together and you get your fee.

21000*100*0.000000001 = 0.0021 eth fee ~4 dollars currently.

That’s a cheap example but that’s currently as low as fees get. A basic smart contract function will use 10 times that much gas and huge applications such as Uniswap will use even more.

Moving Off Chain

Ethereum 2.0 launched a couple months ago. While scaling is one of the things addressed, it will likely be one of the last things to take effect.

The current ideas for scaling blockchains is to move the computations off the chain. This is how Bitcoin‘s Lightning network works and how Ethereum 2.0 will likely turn out. Put simply, we create another blockchain. We develop applications on top of this new chain we‘ll call a side chain. Everything intensive task is done on the side chain where it is cheap. Then these transactions are finalized by putting them back on the main chain. Moving from the main blockchain to the side chain is still expensive, but at least the transactions inbetween are not.

Some Layer 2 Technologies Already Available.

For those of you trying not to get left behind among the fee fiasco, there are some potential solutions available. Binance’s smart chain is up and operational on their own side chain platform. They’ve got their Uniswap equivalent in Pancake Swap. The set up of the Binance network in MetaMask is quite awful and confusing, but it’s functional.

ZkSwap launched just last week. It’s a little easier to get started with (neither is truly intuitive) and it seems to work. They claim to have had their smart contract audited.

Both of these exchanges are extremely new however. The danger of smart contract bugs is very real, although I‘m sure Binance has enough funding to cover that risk. Regardless, I‘d still suggest extreme caution with new technology such as this. Don’t put any more money than you would a lottery ticket.