The continued decline in Ethereum gas is brewing huge risks.
During this period, Ethereum's gas has fallen below 1, and the current fastest speed is only 0.883gwei, equivalent to 0.05u, which has fallen to the lowest level in five years.
This is something that Ethereum users, once known as the rich chain, cannot believe.
Gas prices change dramatically in one or two years
Ju Zuo looked at the data and found that in 2022, the highest gwei even exceeded 500gwei. That year, the gas price of Ethereum remained high, with transaction fees of tens or even hundreds of dollars. Therefore, Ethereum was called the noble rich chain at that time.
But because L2 was not mature at that time and there were still relatively many opportunities to make money on the chain, everyone just rushed forward.
Even in early March before the Cancun upgrade, Ethereum’s gas price exceeded 145 gwei, but now, gas price is less than 1% of this year’s high.
It is in this context that Vitalik proposed the Cancun upgrade to solve this problem, aiming to expand capacity, reduce gas, and improve scalability.
The decrease in gas seems to be a good thing for on-chain users, which will lead to a significant decrease in on-chain transaction costs, but the reality is not like this.
Because the level of gas is proportional to the number of users, the reduction of gas on the Ethereum mainnet means that fewer and fewer people use Ethereum to transfer money, so the gas will become lower and lower.
According to L2Beats data, the transaction volume processed by Base and Arbitrum has exceeded that of Ethereum, with Base's TPS (transactions per second) at 39.80, Arbitrum's at 17.28, and Ethereum's at only 12.17.
That is to say, more transactions have been transferred to L2 rather than on the Ethereum mainnet.
Who says L2 is fast and cheap?
2. Low gas crisis
The high gas problem has been solved, with gas costs less than 1% of that year, but new problems have emerged.
I will simply list a few:
1. Ethereum’s inflation rate soared.
Although gas prices were high in the past, the amount of gas burned and the amount of inflation were relatively balanced, and there was even a period of deflation.
But now, due to the reduction of gas, the total amount of Ethereum burned has decreased, which has led to the inflation amount being much greater than the burning amount, forming substantial inflation.
It is estimated that if the current gas rate continues, the monthly inflation of Ethereum will exceed 57,000, with a value of more than 150 million US dollars.
If this data does not improve, inflation will soar further.
2. The decline in the number of Ethereum nodes and its impact on the price of the currency.
The reason is also affected by Ethereum's inflation. In the past, when POW was used, gas belonged to the miners. Now that it has been changed to POS, nodes can only obtain income by staking Ethereum.
I found a lot of data and only show you two of them:
A blogger pledged 32 Ethereums and earned more than 1.3 billion in profits, which is 4.1% annualized. This video was posted 4 months ago, when Ethereum was still 3,300.
Another data comes from imtoken. Their statistical results are not much different from this one. The average value is 4.51% and the median is 3.57%.
But this is not just about node staking, but about the entire Ethereum network’s on-chain revenue.
There are currently more than 860,000 nodes in the world, with more than 27 million Ethereum staked.
If gas remains at this level, high inflation will further compress Ethereum staking yields and the yield on the entire network chain.
If you are a staking node, would you choose to withdraw funds to seek more stable returns?
Once a considerable portion of these 27 million Ethereums are withdrawn, coupled with the 57,000 Ethereums issued each month, what kind of pressure will it put on the market?
It is no wonder that the price of Ethereum did not react much after the ETF was passed, because compared with Bitcoin's completely deflationary model, buying it means making a profit. Ethereum's inflation dam has not been resolved, and whoever takes over will be nervous.
3. Illegal activities such as phishing, fraud, harassment, etc. on the chain will surge.
After the gas price is reduced, it is absolutely good news for those who engage in illegal and gray industries and do bad things.
Because the cost for them to do evil has been significantly reduced, and Ethereum users are relatively wealthy - at least the price of Ethereum is still okay now.
In such a situation, the number of on-chain scams will surge, whether it is sending harassment or phishing through highly similar addresses.
For criminals, this is undoubtedly a good opportunity to catch big fish with little money.
Of course, there may be other impacts, which I have not thought of yet, but just based on these few points, if they continue to be unresolved, it is estimated that Ethereum will experience another wave of decline.
3. Gas is the interest rate
I would like to sum it up in one sentence: solving old problems creates new ones.
Ju Zuo believes that gas is not actually gas, but interest rate, which is the official monetary policy of Ethereum.
Just like the Federal Reserve’s control over interest rates will cause currency fluctuations.
Ju Zuo even believes that the high gas situation in the past was actually a pathological success.
The high transaction fees generated by high gas will certainly be criticized by all users, but you cannot deny that high interest rates have their benefits.
In the era of high gas (interest rates), there is overall deflation, node profits will not be diluted, and more funds can be locked on the chain. Everyone has a strong consensus.
It was also during this era that Ethereum hit new highs.
The gas price is lower now, but the overall inflation is higher.
When interests are diluted, consensus becomes fragmented.
Low-cost holders will choose to sell with the principal + profits. The impact on node profits will lead to a reduction in the number of nodes, which will in turn create greater selling pressure. Coupled with the continued inflation of new coins, it will be difficult for Ethereum holders to reach a consensus.
In addition, due to the explosion of L2, the value originally belonging to Ethereum was split and transferred to other chains. The L2 transaction volume soared, which actually consumed the existing transaction volume of Ethereum.
Now Ethereum has lost control over the L2 series of projects, just like the Zhou royal family after enfeoffment of princes - the declining royal family (Ethereum) and the rising princes (L2).
If Ethereum wants to change the current situation, it also needs to carry out a series of power recovery and reforms, otherwise it will be like a whale falling and everything changing.
Regarding the future of Ethereum, Ju Zuo has a feeling: something big is coming.
