Are Ethereum gas fees strangling the crypto bull? Will PulseChain help to save the day?

Social media has been alive recently with many animated discussions and vitriol regarding the quite unpalatable gas fees that are being charged to transact on the Ethereum network. In this article I will put forward the notion that the Ethereum gas fees could end up being a contributing factor that strangles the crypto bull market and I will hypothesize that the launch of Pulse Chain could help to save the day.

Now I'm not very savvy when it comes to the different hashtags and jargon on social media, so when I first started seeing #LFG I thought to myself 'does this have something to do with the gas fees?' The world seems to love making up topical acronyms, so could it be that people are rising up against the Ethereum miners with a 'Lower Fu%#ing Gas' hashtag? A quick Google search put me straight; this actually refers to online discussions and chat by Massive Multiplayer Online Role-Playing Games (MMORPG) players to indicate their will of being invited in a group to do dungeons, cooperative tasks, kill a big boss, etc... Oh well it fits the narrative and is really quite apt don't you think?

This doesn't detract from the border line criminal fees being asked by the Ethereum miners at the moment. In actual fact the following Tweets are quite telling.

The chart below by Into The Block shows the price that is recommended for users who want their transaction to confirm in less than 5 minutes and is a good indicator of the fair gas price at the time.

As you can see between 29th October and 5th November the price didn't fall below 111 gwei and went as high as 273 gwei.

Let's put this in context

Gas is used to pay for transactions on the Ethereum blockchain. The amount of gas required for each transaction depends on the complexity of the transaction.

A simple transfer may use as much as 21,000 gas whilst a more complex transaction (for instance, those used in decentralized finance) could use in excess of 1,000,000 gas.

Each unit of gas has a price, simply referred to as the “gas price”. Gas prices are denoted in gwei, where 1 ETH = 1,000,000,000 gwei.

With a gwei price of 100, a 21,000 gas transaction would cost:

21,000 * 100 = 2,100,000 gwei (0.021 ETH)

0.021 ETH = $94.5 (ETH market price of $4,500)

Ethereum network upgrades

While the amount of gas required for any given transaction remains constant, the gas price is dynamic. Users set the gas price when sending a transaction (this is often done automatically by wallet software) and transactions are then sent to the “mempool” for Ethereum miners to include in the next block. Miners are then rewarded with the transaction fees inside a block and are therefore motivated to prioritize transactions with the higher gas price.

This incentive structure leads to an auction-style market where users bid up the gas price as a means to ensure that their transaction is picked up by a miner and settled quickly.

In the summer many people were excited about the prospect of lower transaction fees resulting from the EIP 1559 network upgrade, or the London hard fork as it is known. The price of transactions since then have however been swinging wildly, but in spite of wild variations — often between days — the gas fees on the network are definitely trending upwards.

The latest Ethereum network upgrade was the Altair upgrade at the end of October. This was seen as another step towards Ethereum 2.0 — a faster, greener, cheaper and more secure Ethereum network.

Altair is designed to facilitate the transition from a network that utilizes a proof-of-work consensus mechanism — where miners with the most computing power validate the most transactions — to proof-of-stake, where the miners who stake the most ETH validate the most transactions.

Clearly, the network still has some ways to go before it can truly deliver on its promise of cheaper gas fees.

Gas fees act as barrier to entry

With the growth of DeFi projects investors have been drawn to projects and platforms that offer the ability to stake a token in return for a reward. Those who have used the Ethereum blockchain for this purpose have found it extremely hard when the stake comes to maturity. They have are finding that they have to pay an exorbitant fee that can cost literally hundreds of dollars, which is sometimes more than what was actually staked at the beginning.

So small investors that invested a few hundred dollars find it impossible to realise a profit when it comes to withdrawing their money, which acts as a significant deterrent to actually want to participate in what should be a means to enable the average person to break free from the world of traditional finance and a broken legacy fiat based system.

The problem however doesn’t stop there. If the price of Ethereum continues to increase, then the gas fee will increase as well. It is a reasonable argument to suggest that paying such exorbitant fees for Ethereum transactions will most definitely be a massive barrier to entry into the space for smaller investors.

Fans of NFTs are also facing a similar problem. The NFT market has garnered an incredible amount of attention in recent months, but it is facing the same problem as well. Most NFT platforms also use the Ethereum network. Buying an NFT here is becoming extremely expensive, but minting an NFT is simply pricing the average person out of the space altogether. It is not unheard of for minting an NFT to cost several hundred dollars, and that is why many people will not even think about entering this field.

Alternative chains

As a consequence of the issues surrounding Ethereum alternative blockchains such as Polygon, Solana, Avalanche and Cardano are starting to gain a lot of attention. In fact a lot has been written about these blockchains and their ability to chip away at Ethereum’s dominant position.

Some of these blockchains are more advanced in there development than others. Cardano for example has existed since 2017 and altough during the summer there was a lot of hype surrounding the deployment of smart contracts the blockchain is still very much in the development phase and as such it will take some time for the it to be a viable working blockchain with fully functioning platforms and protocols operating on top of it.

The blockchains mentioned are undoubtedly working hard to establish themselves in the crypto space and as they stand they are able to present the market with higher specifications than what currently exists on Ethereum. They offer greater speed and scalability whilst at the same time being able to allow the user to transact significantly cheaper.

Whilst these blockchains offer attractive value propositions for new projects the growth of their respective platforms will take some time.

In the future as the crypto space evolves I envisage an eco-system where there will be multiple blockchains operating and users will be able to seamlessly move from one to the other. At the moment however Ethereum is clearly the leading smart contract based blockchain and as such it has the most decentralised applications built on top of it and the most capital deployed in its eco-system.

Institutional capital

In 2021 we have seen a growing acceptance by financial institutions that cryptocurrency is not going away and that they need to not only pay closer attention to it but also start to consider having some skin in the game, in whatever form that may take.

In time the inflow of institutional capital will increase massively, but that wave of new money into the market will only start to flow once the regulations become clearer and more defined.

It was inevitable that the growing popularity of exchange-traded funds or ETFs would meet up sooner or later with the cryptocurrency space. After the SEC gave the green light October saw the launch of 2 ETFs that track the price of bitcoin. This isn't exactly what the crypto space was hoping for as a fund that physically holds the asset would send out a much bigger message of acceptance, but it is without doubt a step in the right direction.

As it stands right now institutions are by in large ham strung by the current lack of regulatory clarity and as such they don't have the same flexibility and freedom that the average person has in being able to get involved in the space right now.

So what is going to sustain the market growth?

Cryptocurrency bull markets don't last forever. History has shown that after the bitcoin halving event there is a relatively short window afterwards where the market goes into over drive and the subsequent bearish turn in the market that follows is ultimately dictated by what happens to the price of bitcoin.

This year we have seen countries adopt bitcoin as legal tender, Tesla has bought bitcoin, fortune 500 companies have added bitcoin to their balance sheet and ETFs have been approved.

Now it might be a somewhat of simplistic assessment of the overall market but given the above and the barriers that are both restricting and deterring new participants into the market because of Ethereum's issues, where are the capital inflows coming from that will sustain the growth in the market and ultimately ensure that the bull keeps on running?

PulseChain, a potential beacon of light?

PulseChain is the brain child of Richard Heart, the enigmatic founder and creator of the hugely successful Hex project that was launched at the end of 2019.

Richard made a declaration and promise to the Hex community that if the Ethereum fees ever became a prohibiting factor for the community, as well as new users, he would look to find a solution.

The solution that Richard and his team have been working on is PulseChain.

PulseChain will not only ensure that users of the Hex platform will be able to transact quickly and extremely cheaply but it will present a unique and innovative offering to the crypto space as a whole.

Although PulseChain will be a brand new blockchain, its core code is based on what is the foundation of the tried and tested and highly secure Ethereum network. It will essentially be a fork of Ethereum but instead of running as a mining based proof of work system it will run a proof of stake consensus system with the stated goals of increased performance and significantly reduced transaction fees. But this fork will happen with a very unique twist.

When the fork occurs copies of all Ethereum contracts, tokens, and user accounts at the time of fork will be created on the PulseChain blockchain.

Essentially that means that exact copies of all smart contracts, ERC-20 tokens, ERC-721 NFTs, and user accounts will instantly exist on the PulseChain network. In essence this will be the biggest airdrop the space has ever witnessed.

The new blockchain will have its own native token called Pulse and that will be used in a similar manner to how Ether is used on Ethereum.

Some people have inaccurately stated that Pulse Chain will be an Ethereum killer, PulseChain will in fact take some of the load off of that network which should result in cheaper transaction fees for its users; so they should both complement each other.

However, what I find intriguing is the fact that ERC20 token holders will have 2 versions of the same coin and markets are very good at choosing winners and losers.

Consider this...

I like to keep things simple so I will use a basically analogy to represent how this could play out.

Consider a road that runs the length of a country. This road has been used for a number of years and in the past couple of years it has seen a significant increase in traffic travelling along it. It is normally very busy and at peak times of the day more often than not there are normally traffic jams, which is very frustrating for the road users.

Over time the different states that the road passes through have added tolls which has meant that using the road has become extremely expensive, however the road has been the best means of travelling across the country.

A number of towns have sprung up along the road and consequently these towns now offer a wide range of facilities that have attracted even more road users and businesses.

The different states have become complacent and although the tolls have been added the roads haven't seen any meaningful upgrades or repairs since it was built, in fact the road surface is quite atrocious. It means that cars are unable to travel anywhere near the speed limit and invariably vehicle owners are having to spend money on repairs due to damage that can be attributed directly to the poorly maintained and serviced road.

An entrepreneurial businessman who has used the road extensively for a number of years, out of frustration in not being able to run his business efficiently, has decided to build a new modern super highway that will allow him to operate his business far more efficiently. This road will also be open to the general public to use and although it will also be a toll road because the businessman sees the economic advantages to the country as a whole the toll fees will be significantly lower than what are charged on the old clogged up road.

The new road will follow an almost identical route to the old one, but it will be built with modern surface materials, traffic management systems will be employed and there will be good lighting. Vehicles will be able to cruise along it at high speed with ease, meaning journey times will be shortened considerably and because of the modern technology being employed traffic will be minimal. Essentially it will be a modern, upgraded copy of the old road.

In time it is envisaged that the service centers, businesses and other facilities that have grown as a result of the popularity of the old road will look to move operations and will start to cater to the traffic on the new road.

When the new road opens up which road do you think the vehicle owners will decide to use?

Now apply this analogy to PulseChain and Ethereum. They are both blockchains that perform the same function and purpose, in fact they will be identical. Do you honestly think that the users won't quickly make a determination that they perform the same function yet one is cheaper and faster? Then consider that they won't actually have to buy any new tokens as they will have duplicates on the new chain.

When it comes to market forces deciding winners and losers sentimentality is never a factor. Perhaps you remember MySpace or AOL, then again maybe you don't.

I am definitely not suggesting that Ethereum will disappear, however the market will have another option and those projects that will have their tokens appear on that PulseChain may feel pressure from their users and community members to allow them to operate cheaper and more efficiently.

PulseChain has definitely stuck a cat among the pigeons so to speak. Many people who are active in the crypto space are quite intrigued to see how this plays out, although many of the projects have remained relatively silent on the matter.

If the projects that will have their tokens appear on PulseChain value their communities and genuinely want to offer viable and usable products and services to the masses they would be extremely short sighted to not see the benefits of having some functionality on PulseChain. This in itself could bring a fresh wave of capital into the space and in itself could help to propel the space even further forwards towards mainstream adoption.

I know for certain that the Hex community for example is literally chomping at the bit for the launch of PulseChain. With the Ethereum fees it has become next to impossible for the average person to even consider using the staking mechanism on the Hex platform, however the lower fees will mean that anyone will be able to confidently set up staking ladders knowing that they won't be metaphorically raped by fees in the future.

An exciting future ahead

The coming months should be very interesting indeed; I firmly believe that what Richard is doing will have an incredibly positive impact for not only crypto users, but also for the growth of the space, which has to be good thing the long term.

There is some interesting game theory that will be deployed when the blockchain main net is launch which should help to drive value and there are raft of other new developments in the pipeline and it will certainly be exciting to see how they evolve.

If you are new to the space and you are looking to learn about cryptocurrency and in particular Hex and PulseChain please check out my gold course as I go cover these projects in depth as part of this course.

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I'm Paul

I am on a mission to help people start a journey to financial freedom. The key to long term success is education and understanding the incredible opportunity that exists right now.

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