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Here’s why high fees are good for the Ethereum ecosystem (self.ethereum). 16 . . . JokerTheBond


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Wether high transaction fees are good or bad is a controversial topic. In this post I want to explain why high transaction fees not only are good for the Ethereum ecosystem, but they will also cause the ETH price to go up in the long run.

First of all, we should ask ourself: what is Ethereum and what brings value to ETH? Ethereum is a decentralized computer that offer decentralized services in exchange for fees. The value of what the Ethereum network produces can be quantified as the sum of all the daily fees paid by all the Ethereum users. That's how much people are willing to pay in order to be part of the Ethereum ecosystem, so that represents the demand.

In the Ethereum network users pay fees for gas at a certain gas price that is decided by the market. The math behind gas fees can be explained with just 3 metrics:

DAILY_PAID_FEES = AVG_GAS_PRICE * DAILY_GAS_USED

Lately, DAILY_PAID_FEES have reached record highs in ETH by almost doubling the fees of 2017, which is extremely good. This basically means that the ratio between what Ethereum produce and it's price is at its peak. Please notice that daily network fees have NOT broken the 2017 record in USD, as the ETH/USD ratio was much higher back then.

data from etherscan.io

To understand better why high DAILY_PAID_FEES will increase ETH price in the long run you can think about this analogy: when PoS will be available, DAILY_PAID_FEES will be the "dividend" that is paid to stakers. Of course ETH is also an inflationary currency so that's another incentive for the stakers, but a large part of their reward will come from fees. If DAILY_PAID_FEES are high people will want to stake ETH in order to earn a yield, and this will cause the ETH price to increase.

An argument against high gas fees is that they will cause users to run to other ecosystems where fees are lower. And while this is true, we should look at the big picture in the long term. The solution to this problem is scalability. Today DAILY_GAS_USED is capped so the only way DAILY_PAID_FEES can go up is if AVG_GAS_PRICE increase. But with ETH 2.0 DAILY_GAS_USED will be able to increase much more. 10x, 100x, 1000x, or even more? No one really knows. But what's important is that today the demand for Ethereum gas is really high and so DAILY_PAID_FEES will be able to increase much more while keeping AVG_GAS_PRICE low.

here we go again, same damn logic as bitcoin. next thing we know eth was meant to be a store of value all along.

Good one dude 👍😆

Please expand your thoughts. Did you read the post? How is this the same logic as bitcoin?

sure, ill touch on a few points.

" The value of what the Ethereum network produces can be quantified as the sum of all the daily fees paid by all the Ethereum users. That's how much people are willing to pay in order to be part of the Ethereum ecosystem, so that represents the demand. "

Not necessarily, while some can and dont mind to pay that amount, others are simply forced to pay it, and they arent happy about it. also, the network doesnt produce anything but blocks and rewards. and because blocks are limited in space, the only measure that really impacts fees is transaction velocity. for instance, take a network that can only clear 10 tx per minute, and feed it 10 tx per minute, itll be almost free fees constantly, never rising. than ad just 1 more tx per minute, to 11, and within a fairly short amount of time you'll be able to notice a constantly rising fee, and itll never go down as long as 11tx are fed to the network per minute. this means that a handful of people can ''force'' everyone else on the network to have to use high fees if they want to use it, even if that use is simply cashing out.

then you go on assuming that it matters how high fees are now when we go to pos because those fees will be an incentive for stakers, except 2.0 comes with scalability so high fees will vanish just as it drops, negating ur entire argument that high fees on eth NOW is a good thing. if ur pos network has high fees, nobody will use it because the only real reason to accept high fees is high security on a pow network.

then you go on to say the solution is scalability, well no shit Sherlock, lower fees and high capacity, that's the whole fucking point of ditching more secure but less efficient proof of work and going to proof of stake.

Not necessarily, while some can and dont mind to pay that amount, others are simply forced to pay it, and they arent happy about it.

Please read better: "That's how much people are willing to pay". My statement is correct. I'm not saying they are happy to pay, I'm saying they do. It's simple economic. Some people are willing to pay 1000$ for a smartphone. I bet most of them are not happy to pay that much, but as long as they do smartphone producers can keep selling their products for that much. If users weren't willing to pay smartphone prices would go down.

also, the network doesnt produce anything but blocks and rewards.

Do you know what DAPPs are? 46 of the largest 100 cryptocurrencies by market cap are built on Ethereum, 47 if we include Ethereum itself. That's what the network produce, a service, and it comes with a price.

then you go on to say the solution is scalability, well no shit Sherlock, lower fees and high capacity, that's the whole fucking point of ditching more secure but less efficient proof of work and going to proof of stake.

Your math is way off on this. If we had 100x more transactions and 10x lower fees, the total of fees paid would still be 10x more.

You're just assuming that there is a wall, a number of transaction that the network can process per second. And if we don't hit that wall the fees are basically zero, and as soon as we hit the wall fees are going to infinity. That's not how it works. As I was saying initially there's only a certain amount that users are willing to pay for fees. And fees will also never be near null. Even if we could scale to infinity a block producer could still decide not to insert a transaction in a block unless it paid a minimum gas price. If enough block producers apply this policy, suddenly there is a minimum gas price if you want to send a transaction.

It's the same logic as bitcoin in that it rationalizes bad things to be good things based on the problems of the day. Your entire comment is motivated reasoning. You want to believe the price will go up, so you construct an argument that supports that, starting from the conclusion, rather than the evidence. Then you cherry-pick the evidence and lines of thinking to support that conclusion.

Look, you can think what you want I don't care. Did you even read the whole post or just the first line? I don't need to convince myself of anything, I just wanted to explain other people why high fees should not be seen as a bad thing but instead they represent the interest that lays behind the Ethereum ecosystem. Who wants to understand will understand.

I read the entire post, and it doesn't logically follow from point to point. You assume your conclusion to be true, then proceed to restate it using more assumptions that you assume to be true. For example, your first assumption is presented entirely without evidence or rationale:

The value of what the Ethereum network produces can be quantified as the sum of all the daily fees paid by all the Ethereum users.

You state it as if it were self-evident, but it isn't. You define terms to be true such that your conclusion is true; that's why I call it what it is: motivated reasoning.

Ok, I tried to simplify things as much as possible or I should have written a much longer post. So you can see at the Ethereum ecosystem as built on many logical layers. The first layer is the Ethereum network. It is made of transactions, validators and fees. Over this layer there are DAPPs that brings a value on their own. They are built and rely on the Ethereum network, however that come at a cost. That cost is basically the fees, that on the Ethereum blockchain are higher than in other blockchains like EOS or Tron, and that cost is sustained by the users of these DAPPs. Let's forget about DAPPs for the moment, how much value does the Ethereum network layer on its own bring in? That value is how much the users pay for it -> the sums of all the fees. This is just a simple way to evaluate something based on its cost. Let's say you work for someone for 20$ an hour. How much value does your job bring to you? 20$ an hour, that is quite self-explanatory. If you worked for 100$ an hour you would bring in more value. However you don't decide that, you need someone to give you that much. In the case of Ethereum that's decided by the gas market. As long as someone is willing to pay more for Eth gas, the Ethereum network will bring in more value.

Let's say you work for someone for 20$ an hour. How much value does your job bring to you? 20$ an hour, that is quite self-explanatory. If you worked for 100$ an hour you would bring in more value.

This is 100% false and entirely bullshit. Your argument hinges on this as if it were fact, but it's not. There is a huge body of evidence that people who do the same job at the same level for different rates are providing the same amount of value to the company–but one is being compensated less for it.

This is classic "efficient market hypothesis" reasoning, and it's readily disproven by real-world examples. "But market inefficiencies" is what you'll probably respond with, to which I say "these are persistent inefficiencies that do not go away". Companies, in general, endeavor to pay their employees as little as they can get away with for some particular level of quality; they do not pay their employees proportional to the actual value they bring in.

Please take a little more time to actually test your models against the real world. Any objective assessment of your model would reveal that it does not fit the data, and therefore is a bad model.

TL;DR you're using "value" as a weasel word that means different, non-equivalent things in different contexts in order to draw false equivalencies.

Please take more time to read what other people are saying. "How much value does your job brings TO YOU?". If you worked for more It would bring more value TO YOU, that's a fact. My model does not fit the data simply because for now cryptocurrency market are only driven by speculation and PoS Is not implemented yet on Ethereum. It will fit the data in the long run, when real world adoption comes in in the next 20/30 years. That's not anything new, methods to evaluate companies value by their revenue have always existed.

Please take more time to read what other people are saying. "How much value does your job brings TO YOU?". If you worked for more It would bring more value TO YOU, that's a fact

Incorrect. Plenty of people work jobs that pay them less because they enjoy them more. That implies that the lower-paying job is more valuable than the higher paying one. Value is not just monetary.

My model does not fit the data simply because for now cryptocurrency market are only driven by speculation and PoS Is not implemented yet on Ethereum.

This is more rationalization. If your model does not fit the data, your model is wrong. That is a fact.

It will fit the data in the long run, when real world adoption comes in in the next 20/30 years.

This won't happen.

That's not anything new, methods to evaluate companies value by their revenue have always existed.

And those methods are also known to be very flawed and wrong over the long term.

You sound like someone who doesn't understand why things like Goodhart's law exist.

Dont waste your time w this guy. Hes an old bitcoin maxi that lurks around here to get to irritate people with pedantic arguments.

I love how no matter how many times I tell you I'm not particularly fond of Bitcoin either, you still turn around and call me a maximalist.

Like… are you stupid, or just malicious?

Good post.

we should look at the big picture in the long term. The solution to this problem is scalability.

The blockchain world remains defined by rampant information asymmetry, and Ethereum is no exception.

The average crypto-enthusiast who's active & interested in the space but not necessarily in "the weeds" of Ethereum tends to have a poor understanding of how incredibly powerful layer 2 scaling solutions on Ethereum have recently proven themselves to be.

ZK-Snarks, optimistic roll-ups & Plasma implementations are live now and growing exponentially. Scalability is no longer contingent mostly on E2: it's happening in front of our eyes.

My bet is that we'll see see large increases in thoroughput on E1, with steady progress toward the exponential step forward that sharding represents.

I completely agree with you, I just simplified scalability so that everyone could understand. Scalability is certainly not something that can be reconnected only to E2. It is a long journey that has already begun and that will continue long after the release of ETH 2.0.

What are the layer 2 that have the best chance. I see matic is very organized but idk.

Introduction to various Layer 2 implementations. – Raiden network

No specific order:

Ahahahahahahahahahahahah

In this post I want to explain why high transaction fees not only are good for the Ethereum ecosystem, but they will also cause the ETH price to go up in the long run.

It was at this point I knew that this post would be 100% motivated reasoning.

Users will flee to more reasonably priced alternatives. You remind me of my college economics professors. Out of touch with reality.

You assume alternatives already exist. EOS and Tron are the best alternatives from a fee perspective, but their low adoption explains that what you're stating is just not true. That's because they do not solve the scalability problem, they just make it better with a more centralized network. In future more alternatives that bring true scalability will be developed, but so will ETH 2.0.

Pushing users out because of fees at this stage of crypto is a bad thing. We need to grow the network, not close it.

Find a better more scalable network. Shutdown eth

It's not high fees that are pushing out users, it's the limited scalability. There is an high demand and a limited supply, fees are just a way to adjudicate that supply through an open auction. So the problem are not the fees on themself, but the performance of the network. And as I wrote on my post this will be solved with ETH2.

Ethereum: Making up shit as they go along

Ethereum will not scale. It will be delayed all the way up to its death

Surprising the responses here and it is clear none of them have tested or played with ETH2. I thought I was in r/CC at first. I do not really agree with you that the fees will drive the price but rather ease of use as we move to ETH2. This should speed transactions, lower fees, and also incentivize decentralization via validator node rewards.

high gas fees are historically bad….. idk why this is still seen as a good thing…. when has paying more for something even been good. some idiotic logic in reddit i swear lmao…

Mate I don't know about everyone else, but I completely agree.

If people don't need to buy ETH to actually USE the service that ETH provides, then WTF is the point in ever buying ETH, other than speculation? It's literally the sole purpose, surely?! It's also crucial for PoS to become lucrative enough for people to speculate on it.

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