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Ethereum Suffers from a Gas Crisis, and It’s by Design

It is far from the first time, but gas prices on Ethereum skyrocketed again last week, this time as a result of a silly marketing gimmick most Ethereum users shouldn’t have cared about in the first place. Apparently, Vitalik Buterin and Vlad Zamfir have been looking into alternative transaction pricing models to mitigate such crises.

Assuming it can be implemented, this could be good news for Ethereum users — the pricing strategy in a second-price auction is much more intuitive for the average user (instead of betting “what would be the minimum gas price I can offer that will get my transactions through”, user should ask herself “at what gas price would I prefer my transactions not to go through”). Yet, both methods fail to deliver what users really need: predictable and economical pricing.

The problem lies in the fundamental assumption of market-determined fees: Transaction processing is a resource in short supply. Indeed, the only way to distribute a limited resource fairly and efficiently is by determining a market price. But processing of transactions doesn’t have to be a limited resource. It was so in blockchain’s early generations, and perhaps it remained so in newer networks just because it is profitable to miners and investors.

Diseconomies of Scale: Why it is Bad to Consider Block Size a Limited Resource

In the end, public blockchain networks are platforms that should enable the dApps built on top of them to thrive. Mostly, success means growth in user-base and customer reach, letting apps enjoy network effects and create more value as they grow.

Normally, software products enjoy economies of scale — as their user base grows, the per-user cost declines, allowing them to reach wider audiences. However, platforms in which capacity is a limited resource creates a state dubbed a diseconomy of scale. In these ‘diseconomies,’ cost disadvantages increase as a company or project scales. Per-unit costs increase as the audi...

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