The Ethereum 2.0 update is a highly anticipated event with broad implications for commuters and street hawkers alike. This update can influence gas fees and transaction costs on the largest blockchain network by market cap on Earth. The scalability and efficiency issues of the Ethereum network have historically affected its cost and speed of transactions. This opinion piece will briefly discuss how Ethereum 2.0 affects these key parameters, and what it means for users and developers.
Understanding Gas Fees and Transaction Costs
First, it is useful to explain what gas fees are, and why they exist. This is a reward users must pay miners to convince them to have their transaction processed and added to the chain. Miners verify every single transaction on the Ethereum network. Moreover, the demand for these miners affects costs – when there is high demand on the network, more miners are interested in your transaction, and therefore you pay more. Conversely, when fewer people are using the network, the transaction costs are lower.
The Transition to Proof of Stake
Ethereum 2.0 brings about a fundamental change in the way it verifies financial transactions, from the ‘Proof of Work’ (PoW) mechanism that underpins the original network, to ‘Proof of Stake’ (PoS). This isn’t just a technical upgrade. It’s a ditching of the old way of doing things entirely. Where PoW relied on a competitive mining process that requires energy-intensive expenditures, the PoS mechanism allows the network to be secured by users who lock up their Ether – the network’s tradable digital currency – as ‘stake’ as collateral for ensuring the system’s integrity. It requires less energy to do, and may allow itself to process more transactions at the same time as a result.
Reduction in Gas Fees
Perhaps the most straightforward upside to Ethereum 2.0 is its potential to help reduce gas fees. The network’s efficiency and increased throughput due to sharding should translate to Ethereum 2.0 being able to handle many more transactions per second, making the network less likely to become overwhelmed with traffic in periods of high demand. This load-reduction should alleviate many of the issues that have plagued Ethereum in the past, such as skyrocketing gas fees from users competing to have their transactions confirmed first.
Enhanced Network Capacity
Sharding is a process in which the primary blockchain is partitioned into multiple small blockchains, known as shards, each of which can process transactions and smart contracts separately. As a result, the network’s capacity is increased, resulting in greater scalability for Ethereum, allowing for faster transaction speeds and lower transaction costs across all shards.
Impact on Developers and Users
If Ethereum 2.0 works as designed, it will be both cheaper and faster for developers and a fertile ground for innovative applications that require high transaction velocity that was not financially viable under the PoW system. For ‘normal’ users, this means cheaper and more efficient transactions, making Ethereum-based projects more accessible and viable for use in everyday life.
Future Outlook
Though the change to Ethereum 2.0 will occur in many phases, in the near future, to the extent that this upgrade does what it’s supposed to do, there are no reasons to expect that gas fees and transaction costs for Ethereum will not continue to drop while transaction speeds continue to rise. This is not just a positive thing for Ethereum as the leading blockchain but for blockchain technology in general, as the tech continues to mature, and its growth begins to accelerate.
Ethereum 2.0 ushers blockchain technology toward a period of increased sustainability, scalability and usability, but as the network develops, we’ll be curious to see what these changes mean for applications written on top of the network and people’s digital livelihoods.
