Ethereum, Bitcoin users reignite scalability debate as gas fees surge

November 10, 2023 Coin Telegraph

Ethereum gas fees reportedly breached the $200-mark for certain high-priority transactions in the last 24 hours.

A recent spike in transaction fees on Ethereum and Bitcoin appears to have reignited the debate around solutions for scalability and the role of layer 2s.

Over the last 24 hours, cryptocurrency users began sharing screenshots showing double, occasionally triple-digit transaction fees on Ethereum and Bitcoin.

One screenshot showed gas fees were as high as $220 for a high-priority transaction on Ethereum while other screenshots showed figures around the $100 mark.

Bitcoin users meanwhile, reported fees that were around $10 for high-priority transactions. While this is relatively low, the average Bitcoin (BTC) transaction cost has hovered around $1 over the last three months, according to BitInfoCharts. BTC fees haven’t been this high since May.

#Saitama #SaitaRealty

To Add to Below Post

This isn't even Height of Bull Run

Already #ETH Gas Fees are Extortionate $175.79

This is why 1st Chance I get my #SaitaRealty #Saitama Will Go on #BNB Chain

2 Live Transactions Now if i Processed Now

One on #ETH Gas Fee is… https://t.co/GYZy6L78Ku pic.twitter.com/JnOzNCK35X
— POWELLY (@MPowelly01) November 9, 2023

At the time of writing, a transaction from an Ethereum hot wallet comes with a network cost of $45.65 for a $300 transfer on decentralized exchange Uniswap, according to a test transaction conducted by Cointelegraph.

*Network cost on Ethereum hot wallet Rabby Wallet. Source: Rabby Wallet*

The rise in gas fees have prompted proponents of Solana and other blockchains to flaunt how much cheaper transactions are on those respective chains.

One X (formerly Twitter) user, “Bobby Apelrod” noted that Solana only charges $55-60 per minute for all Solana users, while each “poor Ethereum user” had to pay that much for a single transaction.

Lol $SOL charged only 1.2 Sol ($55-$60) per min in TOTAL fees for the ENTIRE SOYLANA PLANET

while the median gas fee on $ETH spiked to 160+ gwei, charging each poor ethereum user US$60 fees PER transaction

Mental illness imwo pic.twitter.com/WAtxjk1gzH
— Bobby Apelrod / / nicefeet.sol (@tofushit888) November 9, 2023

“Currently, #PulseChain gas fees are 4'000X cheaper than Ethereum and 14'000X cheaper than Bitcoin,” said “KaisaCrypto.”

The price of network fees is dynamic and is a product of demand or how congested the network is. An increase in on-chain activity often occurs in bull markets or when market sentiment is strong, but an added side effect is the impact on lower income users.

“How does this help the unbanked and lower income population,” Lopez iterated in a post which showed a “high priority” Bitcoin transaction fee of $10.50 on Nov. 9.

It now costs $10 to transfer money on Bitcoin.

How does this help the unbanked and lower income population? pic.twitter.com/0OBKCFZu3E
— Hector Lopez (@hlopez_) November 9, 2023

Prior to the fee spike, transaction costs on Ethereum averaged out at $11.35 on Nov. 8, according to BitInfoCharts. A few weeks earlier on Oct. 14 it fell as low as $1.40 — the lowest level recorded in 2023.

Gas fee on Ethereum peaked at $196 on May. 1, 2022, while fees were consistently above $20 between August 2021 and February 2022.

*Gas fees on Ethereum over the last three years. Source: BitInfoCharts*

Scale the base layer or rely on L2s?

Bitcoin and Ethereum developers chose to prioritize decentralization and security at the base layer and offload much of its execution environment to layer 2s to make transactions cheaper.

The Lightning Network is used to scale Bitcoin, while Ethereum has a handful of layer 2s specifically focused on making Ethereum faster and cheaper, such as Arbitrum, Optimism and Polygon.

Transactions are often less than $1 on these layer 2 networks but not everyone agrees it is the right way to tackle scalability.

Justin Bons, founder of cryptocurrency investment firm Cyber Capital believes the base layer should be the only transaction environment.

L2s are a terrible replacement for L1 scaling

In fact, L2s do not scale the L1 at all; if anything L2s compete with the L1 over fees

Weakening the security & economics of the L1

All while delivering worse UX, lower security & fragmenting liquidity

"L2 scaling" is parasitical!
— Justin Bons (@Justin_Bons) October 28, 2023

He advocates for monolithic blockchain architectures in which consensus, data availability and the transaction execution is all handled on the base layer. Solana is an example of this.

Bitcoin and Ethereum on the other hand, are modular blockchains because they offload some transactions to a second layer.

All major scaling methods can be divided into a spectrum with five categories:

1. Modular side chains: ATOM, DOT, AVAX
2. Modular layer two: BTC, ETH, ADA
3. Monolithic enshrined roll-ups: XTZ
4. Monolithic execution sharding: EGLD, NEAR, TON
5. Monolithic single chain: SOL, BSV
— Justin Bons (@Justin_Bons) May 19, 2023

However, critics have pointed to several outages on Solana due to network congestion, arguing that a modular blockchain design is a better approach to solve scalability.

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‘Not even a single TX has been censored on ETH’ — Cyber Capital founder

October 18, 2022 Coin Telegraph

Anthony Sassano

Bons noted that even with 50% OFAC compliance among Ethereum validators, blocks will still be produced within 30 seconds.

Ethereum bulls have hit back against claims the network has become prone to censorship post-Merge, with one arguing that “not even a single” transaction has been censored on the network.

In a 19-part thread to his 29,100 followers on Oct. 17, Cyber Capital founder and CIO Justin Bons argued that contrary to “what some Bitcoiners are falsely claiming,” not a single transaction on Ethereum has been stopped as a result of Office of Foreign Assets Control (OFAC) sanctions.

Bons was referring to recent reports suggesting Ethereum has become too reliant on OFAC-compliant Miner Extractable Value (MEV)-Boost relays since the Merge.

Last week, it was reported that more than 51% of Ethereum blocks are now complying with the U.S. sanctions after transitioning to proof-of-stake (PoS).

The crypto-fund manager argued that despite the increasing presence of OFAC-compliant MEV-Boost relays, it only becomes censorship when producers refuse to build on non-compliant blocks, though that would result in forking and splitting of the chain, explaining:

“Even with 50% OFAC compliance, a non-compliant ETH TX will be confirmed within 30 sec! Compared to BTC's more variable 10min!”

Bons further argued it only takes one contributing validator to include what may be an OFAC-sanctioned transaction in the canonical chain.

“This means that a very small minority of validators/miners can counter such censorship over both ETH & BTC! Easily less than 1% can prevent censorship,” he explained.

Having attributed most of this backlash to “Bitcoiners,” Bons also argued that Ethereum with its new PoS consensus mechanism is “less vulnerable” and “far more secure” than Bitcoin under proof-of-work (PoW) because institutional players are not economically incentivized to try split the chain.

Ethereum developers have also working to improve Ethereum’s censorship resistance too — with Ethereum developer Terence Tsao of Prysmatic Labs on Oct. 17 announcing that he and fellow developer Marius van der Wijden had begun building a solution to address the issue:

Together with the legend @vdWijden, we have started prototyping features to enable the proposer to select between a local block and a builder block with the highest fee.
The first step for censorship resistance️https://t.co/HyzUBZuB6V https://t.co/GGuAIegW5H
— terence.eth (@terencechain) October 17, 2022

Ethereum co-founder Vitalik Buterin recently proposed a Partial Block Auction solution, where a block builder only has the right to decide some of the contents of the block.

Ethereum research and development organization Flashbots is also looking to soon roll out its fully decentralized and EVM-compatible block builder — Single Unifying Auctions for Value Expression (SUAVE) – in order to combat censorship issues.

Ethereum protocol upgrades in order of importance over the next 6-12 months:

- Beacon Chain withdrawals
- PBS/crLists/related censorship-resistance upgrades
- Proto-danksharding (EIP-4844)

Just my humble opinion - censorship resistance is more important than scaling right now
— sassal.eth ️ (@sassal0x) October 15, 2022

On Aug. 8, the United States Treasury Department added more than 40 cryptocurrency addresses allegedly connected to controversial mixer Tornado Cash to the Specially Designated Nationals list of OFAC, effectively barring U.S. residents from using the mixing service.

Bitcoin is ‘one of the worst cryptocurrencies’ claims Cyber Capital founder

August 29, 2022 Coin Telegraph

Bitcoin Whitepaper

The comments come as Ethereum and Cardano are soon undergoing significant upgrades, while Bitcoin has remained largely unaltered.

Founder and CIO of crypto-focused fund Cyber Capital Justin Bons have called Bitcoin “technically one of the worst cryptocurrencies,” and a “purely speculative asset without utility” in comparison to other cryptocurrencies due to its lack of technological progress.

Bons added his two cents in an 11-part Twitter thread on Aug. 28, stating that Bitcoin and BTC’s value proposition has long deteriorated due to a broken long-term security model, comparatively weak economic qualities, and lack of capacity, programmability, and composability.

1/11) BTC is unique in that it is technically one of the worst cryptocurrencies

It has a broken long-term security model

It lacks capacity, programmability & composability

With comparatively weak economic qualities

BTC is, in fact, a purely speculative asset without utility
— Justin Bons (@Justin_Bons) August 28, 2022

Bons has been an outspoken figure in the crypto community for several years now, having established one of Europe’s oldest cryptocurrency funds (Cyber Capital) in 2016 and considering himself a full-time crypto researcher since 2014. In addition, Bons has run nodes on the Bitcoin and Bitcoin Cash networks.

While Justin said he vigorously defended BTC in 2014, he said “the reality is that BTC dramatically changed since that time," with the decision to not increase the block size limit representing a “major departure from the original vision and purpose of Bitcoin.”

“The world has also moved on and progressed. I remember it used to be said that BTC would just adopt the best technologies. This thesis has obviously completely failed as BTC has no smart contracts, privacy tech, or scaling breakthroughs.”

Bons however, doesn’t appear to address the Bitcoin Lightning network, which is one of the more obvious solutions to the network's scaling problem.

Bons added that competitor networks have adopted superior token design methods, with some smart contract networks adopting fee-burning mechanisms that can trigger negative inflation rates for the token:

“BTCs economic qualities are also incredibly weak [...] BTC is competing with cryptocurrencies that can achieve negative inflation [...] due to fee burning, high capacity & high utility [...] such as ETH post-merge & alternatives such as AVAX, NEAR & EGLD.”

Without any significant technological advances or utility, Bons argues that BTC has for many people become a purely speculative asset, who continue to invest “contrary to fundamental reasons of revenue, utility & use case analysis.”

7/11) BTC has become a purely speculative asset

People, for the most part, only invest in BTC because they believe the price will go up

Operating on the same modus operandi as a Ponzi scheme investor

All contrary to fundamental reasons of revenue, utility & use case analysis
— Justin Bons (@Justin_Bons) August 28, 2022

Bons isn’t the first to use such strong language to describe Bitcoin.

In Jun. 2022, Chair of China’s Blockchain Service Network (BSN) Yifan He told Cointelegraph that “all unregulated cryptocurrencies including Bitcoin are Ponzi schemes.”

Former U.S. Treasurer and current Ripple Board Member Rosa Rios said last year in September that Bitcoin is nothing more than a speculative tool in comparison to other digital assets like XRP, which is primarily used to facilitate cross-border payments.

When it was originally launched in 2009, Bitcoin was designed as an electronic peer-to-peer cash system. Satoshi Nakamoto’s Bitcoin whitepaper addressed that any speculation regarding its value as an investment is simply a by-product of its main purpose.

The narrative surrounding Bitcoin has changed over time, with the leading cryptocurrency being seen as an inflation hedge, store of value and digital gold throughout the years.

Cyber Capital

Scale the base layer or rely on L2s?

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