Ethereum network congestion

Miners raise block size to increase transaction throughput

With the Ethereum network still congested and transaction gas fees skyrocketing, miners have decided to raise the gas limit in all new blocks by 25%, from 10 to 12.5 million. The previous increase from 8 to 10 million occurred in September 2019. The gas limit essentially determines the maximum size of new blocks, and can be increased by roughly 0.1% in each new block due to protocol restrictions.

Historically, block size limit has been a topic of many debates in the crypto space. On one hand, a 25% increase in the block gas limit will allow the Ethereum network to handle ~44 transactions per second, instead of ~35. On the other hand, larger blocks will inflate a total blockchain size, increase centralization, make the network more vulnerable to denial-of-service (DoS) attacks, and can pose a threat to the long-term health of the network.

Many developers, including Péter Szilágyi and Vitalik Buterin, oppose a gas limit increase, calling people to use “layer 2” scaling solutions instead. Others argue that large transaction fees turn away many users, so raising a block size is a temporary solution, which can buy more time.

Ethereum transaction fees have significantly spiked this year due to an increased usage of stablecoins and DeFi applications. However, high transaction fees make it too expensive to interact with DeFi apps.

According to Trustnodes, even amid congestion, a few large Ethereum mining pools are clogging the network with millions of small transactions, accounting for gigabytes of data. Trustnodes speculates that pools are sending penny transactions to miners so they can collect the fees by mining these transactions.

It’s worth mentioning that an upcoming Ethereum 2.0 upgrade will change a consensus algorithm from a Proof-of-Work to Proof-of-Stake, essentially making miners obsolete. Thus, they are not financially motivated to think about the long-term health of the network.

When the scaling gets tough...

Major blockchains struggle with scaling solutions amid growing adoption

Blockchain scalability is arguably the Achilles’ heel of major blockchain projects, such as Bitcoin and Ethereum. As time passes and cryptos are being used by more and more people, their infrastructures begin to get clogged in transactions pending for confirmation, prompting users to compete for a spot in the next block and thus, triggering a spike in transaction fees that, ultimately, renders small transactions unviable.

Several scalability solutions have been released (or at least proposed) for both major blockchains in the past. However, mass adoption or approval of these solutions is yet to be seen, as the trade-off for these solutions is currently a point of debate among crypto users.

Recently, popular social sharing website Reddit announced a scaling competition on the r/Ethereum subreddit, in an attempt to find a solution that will suit its recently added Ethereum-based community points. The tokens are currently in beta on the Rinkeby testnet chain, and a migration of Reddit’s tokens to the Ethereum mainnet would trigger a significant spike in gas prices.

Meanwhile, Bitcoin’s Liquid Network is under a storm after blockchain developer James Prestwich pointed out that Liquid’s emergency 2-of-3 multi-sig operators had an opportunity to seize 870 Bitcoins — worth around $8 million — which were stuck in a queue since June 11. Blockstream stated that it was a known issue and a fix was delayed due to the COVID-related lockdowns.

Liquid is one of the main scaling solutions developed by Blockstream, alongside with Lightning Network. Both solutions could help Bitcoin scale to thousands of transactions per second, but they are currently struggling to get wide adoption. At press time, there are nearly 10 times more Bitcoins locked in the Ethereum-based token WBTC, than in the Lightning Network.

In other news

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