How Ethereum network is in a fee spiral and Berlin update impact

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The forthcoming Berlin upgrade includes EIPs aimed at lowering processing prices, but this may not be a long-term solution.

While Ether (ETH) has shown growing signs of stabilisation in the $1,800 range over the last fortnight or so, users of the premier altcoin’s network have faced rising gas fees as well as increasing network congestion problems. To put this in context, Ethereum’s network payments have more than doubled since the summer of last year, when the DeFi bubble was at its height.

Although this fee raise is closely related to the the valuation of ETH, there is no doubt that it also strongly demonstrates growing interest for ERC-20 tokens, stablecoins, and other decentralised finance-based products in general.

The costs of facilitating transactions on the Ethereum network have risen dramatically in recent months, as shown by the chart below, with the total transaction fee hitting an all-time high of $39.49 on Feb. 23.

Furthermore, as of March 20, the average transaction fee is $16, a price point that is very high, especially for developers and those trying to encourage low-value transactions.

Furthermore, as nonfungible tokens achieve mass recognition, it stands to reason that transaction costs on the Ethereum network will increase in the near future. As a result, before a feasible scaling approach is applied in the near term, network congestion and high transaction costs are likely to persist, especially as the NFT sector thrives.

Is the network broken beyond repair?

Jay Hao, CEO of cryptocurrency exchange OKEx, told Cointelegraph that Ethereum, as other layer-one solutions, is at a tipping point, adding: “They are being forced to address their issues of the fees and network congestion quickly — or risk losing out to competitors who can provide lower fees and higher throughput.” He also added:

“Ethereum still has by far the largest developer community, as well as the number of DApps, built on it, but still, complacency is a killer.”

Although Hao believes that Ethereum will finally be able to deal with its problems, the crypto community does not want to wait until the transition to proof-of-stake and Eth2 is complete, particularly because a growing number of developers and other network users are beginning to extend their operations and turn to alternative ecosystems.

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Many sites, for example, have started to incorporate various iterations of Tether (USDT) and USD Coin (USDC) — a la Algorand, Tron — allowing stablecoin traders to transact rapidly and at a fraction of the cost currently imposed by the Ethereum network.

Furthermore, a growing number of EVM-compatible blockchains — OKExChain, Binance Smart Chain, and so on — have emerged, questioning Ethereum’s supremacy. “Competition is good because it forces incumbents to improve and work on supplying consumers with the service they deserve,” Hao believes.

However, Jack O’Holleran, CEO of Skale Labs, a decentralised Ethereum compliant layer-two PoS network, claims that as scaling attempts proceed, the network’s rising gas fee issues will be alleviated, adding:

“The Ethereum mainnet will evolve into a base layer of security and settlement. Scalability layers will sit on top of Ethereum, providing functionality for smart contract execution and low gas fees. We will also see the rise of application-specific blockchains, which provide more price efficiencies with greater predictability.“

What is the Berlin upgrade?

The Ethereum group recently carried out its implementation schedule for “Berlin,” with the update set to go live on the Ethereum mainnet at block 12,244,000, or on April 14. In this respect, it is worth noting that four Ethereum Improvement Protocols will be implemented as part of Berlin.

EIP-2565 aims to reduce the expense of the ModExp precompile, which would aid in measuring the gas cost; EIP-2929 proposes to “increase” some gas costs; EIP-2718 adds a new transaction module; and EIP-2930 provides a transaction form with optional entry lists.

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To assist with the impending switch, Ethereum node operators have been urged to update their operations to Berlin-compatible nodes before April 7. However, exchanges, wallet service providers, and Ether token holders are not allowed to make any improvements.

Will “Berlin” really help ease Ether’s growing pains?

According to Maxim Blagov, CEO of Enjin, a blockchain-based gaming and DApp ecosystem, to get a deeper understanding of whether the Berlin update would really shake up the Ethereum ecosystem and help mitigate many of its current problems. According to him, the Berlin update is a significant move towards improving the user experience on Ethereum, especially in terms of calculating gas costs, and he adds:

“We can’t assume that it will have a significant impact on cost per transaction. Deep structural changes will need to be made in order to bring Ethereum in-line with user expectations. Newcomers to the NFT market often expect free, instant transactions, and unfortunately, nothing like this will be achievable on the current state of Ethereum.”

Additionally, “Winston,” a moderator for yield farming aggregator Harvest Finance, told Cointelegraph that he does not see any major fee reduction happening as a result of the upcoming Berling upgrade, adding: “There are few EIPs included that can help users save gas, but there is also EIP-2929, which actually increases fees in some transactions.”

While the forthcoming upgrade will help to reduce gas fees, Hao claims that the community can only begin to see more satisfactory solutions to Ethereum’s problems in the mid-term. Furthermore, he mentioned that while Berlin will be able to temporarily alleviate gas fee concerns, it would be unable to resolve the network’s long-term scalability issues.

In his opinion, Ethereum would continue to focus on integrating rollups and other layer-two scaling solutions, such as Polygon, in order to offer practical and long-term solutions to its challenges once Ethereum 2.0 is completely implemented.

O’Holleran, on the other hand, reported that the forthcoming update is very stable and comprehensive in its outlook, and that when paired with EIP-1559, it is an attempt to make fees lower and more predictable:

“Miners will gradually be paid less over time, but in doing so, it will make Ethereum more usable and increase the value of the network, which, in turn, ends up being a win for both miners and developers if managed appropriately.“

EIP-1559 and more

EIP-1559, the most awaited update to the Ethereum network, is expected to go live in July. The plan, which will be bundled with the “London” hard fork, will aim to solve a range of problems with Ethereum’s user interface. To start, it will aim to divert Ethereum’s native gas fee to the network rather than miners. This charge would then be burned, eventually reducing the overall supply pool of ETH.On paper, the update seems to be a welcome change; however, it is supposed to cut reward ratios by a whopping 50%, which has irritated Ethereum’s mining community so much that many have called for a demonstrative network takeover — theoretically jeopardising the network’s protection.

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With all of these steps aimed at resolving the fees problem on the table, it remains to be seen if the Ethereum network will accommodate the increased demand and how it will be able to provide a solution that is welcomed by all in a timely manner.

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