Ethereum is a game changer because it is the de facto blockchain of decentralized finance (DeFi). This is great for Ethereum, but the blockchain has one major problem:
Gas fees (read: transaction fees) are too high.
This is partly because Ethereum is so popular at the moment of DeFi, but it’s also become a problem because Ethereum has not yet moved to Ethereum 2.0 and sharding.
Anyway, these high gas fees bring hope to other cryptocurrencies with lower fees that do the same thing. This article will cover some of the other protocols that offer the same thing as Ethereum with much lower fees. We will also cover the reason that Ethereum has such high gas fees.
Why Ethereum Has High Gas Fees
Ethereum has high gas fees for a combination of two separate reasons. This section will cover the two reasons.
The primary reason Ethereum has high gas fees is because of blockchain bloat. Now, a lot of blockchains are bloated, but the problem with Ethereum is that it does not have an effective way to break up each individual block.
What this means is that every block contains all data – that includes ERC-20 tokens, dApps, non fungible tokens, and DeFi protocols.
This results in a massive amount of data on each block, which clogs the network and results in higher gas fees. And this brings us to our second point.
Ethereum, and all the apps and tokens built on top of it, has exploded in popularity. This has resulted in the blockchain simply having so much data on it that gas fees are simply too high.
It’s great for miners because they can charge more for the same amount of work. However, it has resulted in users searching for alternatives outside of Ethereum.
Before we cover alternatives, we’ll first cover what Ethereum is doing to resolve the high gas fees.
Is Ethereum 2.0 The Solution to High Gas Fees?
Possibly. For those that don’t know, Ethereum 2.0 will switch Ethereum 2.0 from a proof of work cryptocurrency to a proof of stake (PoS) cryptocurrency.
PoS blockchains are generally regarded as faster because they don’t rely on users mining blocks. Instead, users stake a certain amount of cryptocurrency to a validator in order to maintain the network.
The mechanics of PoS vs PoW are beyond the scope of this article, but Ethereum 2.0 will certainly be a more efficient blockchain than the current PoW Ethereum blockchain.
The problem with Ethereum 2.0?
It’s still a long time away and not much improvement seems to be occurring on the timeline. In fact, the timeline on Ethereum 2.0 keeps getting pushed back.
This is great news for Ethereum alternatives, and there are plenty of Ethereum alternatives. The next section will cover some of the most promising Ethereum alternatives.
As mentioned previously, Ethereum has problems with high gas fees that it cannot seem to resolve in a timely manner. This has led to an emergence of cryptocurrencies billing themselves as “Ethereum killers.”
Well, no one has killed Ethereum, yet. But here are some of the most promising cryptocurrencies that could usurp Ethereum’s reign as the top smart contract cryptocurrency.
Polkadot (DOT) is the most popular Ethereum alternative. The upstart cryptocurrency was founded by Dr. Gavin Wood, a co-founder of Ethereum, to offer a solution to the high gas fees on Ethereum.
What was the solution?
Something called sharding. In simple terms, sharding means that each node on the blockchain runs a part of the blockchain rather than having every node on the blockchain run the entire blockchain.
Sharding reduces redundancy, lowers fees, and greatly increases the transactions per second of the blockchain. The downside is that sharding is slightly less secure, but with enough validators checking the nodes this is not really that big of a problem.
In our opinion, Polkadot is the clear frontrunner of blockchain projects that have the potential to knock Ethereum off it’s platform.
NEARProtocol is in a similar situation as DOT, but with a lower profile founder than Polkadot. Anyway, NEARProtocol has a similar blockchain as Polkadot with a proof of stake (PoS) model and a sharded blockchain.
It’s more efficient, cheaper, and faster than a non-sharded blockchain.
From a fundamental angle, NEAR does not have any problems. It’s faster, cheaper, and more efficient than Ethereum.
However, fundamentals are not everything. The major problem that NEAR, and other Ethereum competitors, face is that it does not have many projects on its blockchain and few users.
It’s obviously a major problem because a fast blockchain is useless if no one uses it. Not to mention that the true strength of the blockchain cannot be tested if it does not have enough users on it to stress the system.
That said, NEARProtocol is a blockchain to watch out for in the future because if it does get mass adoption, then it has the potential to destroy Ethereum.
Cosmos (ATOM) is a slightly different take on the problem facing Ethereum. Of course, Cosmos uses the same PoS solution that other Ethereum competitors and Ethereum 2.0 uses, but the focus is not really on low transaction fees.
Instead, the focus with Cosmos is creating interoperability, which is the ability to connect multiple separate blockchains together. This means that a dApp on one blockchain does not have to be monopolized on that blockchain, but can actually be connected to other blockchains.
It’s an interesting solution and a big selling point for the next generation of blockchain technology. If it’s actually practical is a different question, though.
Anyway, Cosmos has certainly benefited from the rising gas fees of Ethereum as evidenced by its increase in price. But it still lacks the amount of developers and projects on its blockchain needed to vault it above Ethereum.
The Problem With Ethereum Alternatives
We hinted at this in the previous section, but we’ll come out and say it here.
The problem with Ethereum alternatives is that they do not have many projects on their blockchain.
So, people can complain about high gas fees on Ethereum. However, no one has built a viable DeFi solution on an alternative blockchain, which means that people are stuck using Uniswap and simply have to eat the high fees.
On the bright side, it is promising that the Ethereum alternatives are popping up. All it takes is one major DeFi protocol to launch on an alternative blockchain and Ethereum will start to weaken.
That covers it for the high gas fees in Ethereum bringing hope to other blockchains. These blockchains still do not have many projects on them, but all it takes is one major project to launch on one of these blockchains for things to change.
Will it happen?
It seems likely at this point. The launch of Ethereum 2.0 keeps getting pushed back and questions have arisen about the compatibility of Ethereum 2.0 with projects built on Ethereum.
Our best guess is that Polkadot will begin to eat market share from Ethereum in 2021. If things go right for Polkadot, then it certainly has the ability to make Ethereum irrelevant over the next five years.
In this case, only time will tell if these other smart contract blockchains have what it takes to attract developers and projects to their blockchain.