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What is Ethereum and why do we need it? Ethereum is the leading decentralized global computing network that can get congested, but why? In this guide, we explore why the Ethereum network gets congested.
What is Ethereum
Ethereum is the leading decentralized global computing network, functioning as a platform for smart contracts and dApps built on blockchain technology. It is one of the most popular blockchain networks, responsible for the unprecedented Dogecoin price rise around a decade ago, and now home to several growing altcoins including USDC, USDT, LINK and, of course, ETH. However, its popularity has resulted in network congestion and scaling difficulties.
Ethereum is an open-source, decentralized blockchain-based platform that allows anyone to build and deploy permanent and immutable decentralized applications, known as dApps. It utilizes smart contracts, which are programmable transaction protocols that automatically execute when specific conditions are met. These smart contracts run exactly as programmed and are stored on and executed by the Ethereum blockchain.
Ethereum has its own native cryptocurrency called Ether (ETH) which is digital money that can be sent or received anywhere in the world. ETH is the second largest cryptocurrency after Bitcoin. It operates via a global peer-to-peer network that maintains a distributed ledger called the blockchain. The blockchain records all transactions taking place on the network. Developers can build and deploy decentralized applications on Ethereum using programming languages like Solidity and Vyper that compile into bytecode that is executed on the Ethereum Virtual Machine (EVM).
Ethereum was first proposed in 2013 by Vitalik Buterin and went live in 2015. Since then, it has grown to become the most actively used blockchain, with the largest developer community working on the platform. The goal of Ethereum is to become a ‘world computer’ that replaces centralized intermediaries and runs decentralized applications, enabling censorship resistance, trust less transactions, and economic innovation on a global scale.
Core Causes
There are a lot of elements of Ethereum that might be the cause of congestion, such as limitations of Proof-of-Work consensus. The PoW algorithm used does not efficiently scale as transaction volume increases. Block size and block time remains constant at capacity regardless of demand. The consensus algorithm does not scale well. Block size and block time is static regardless of transaction volume.
And then there is a lack of native sharding. Unlike later generation blockchains, Ethereum 1.0 has no native sharding or parallelized transaction processing capabilities. This restricts TPS. More users and activity – As Ethereum has grown, more transactions like token swaps, DEX trades, NFT mints happen, filling blocks.
The gas auction model is also a factor. The use of gas fees auctioned via first-price auction means users bid up prices during high demand periods, further congesting the network.
Additionally, popular decentralized apps like CryptoKitties, decentralized exchanges, and DeFi protocols overload the network with transactions far exceeding baseline capacity. Games have clogged the network with transactions. DeFi apps also overload the network. Steadily increasing wallet addresses, daily active users and new dApps bring more total transactions over time as adoption grows.
NFTs have also grown in popularity. In fact, you might say they exploded. This explosive growth of NFTs attached to digital items like profile pictures, artwork, collectibles minting millions of tokens on-chain causes bottlenecks.
Finally, the ICO craze of 2017 congested Ethereum with token transactions, followed by their collapse which left abandoned dApps. The 2017/2018 ICO craze congested Ethereum with token transactions and drawn-out sales.
However, these are accidental causes. There is also the purposeful clogging by hackers and spammers. Spammers intentionally clog up transaction capacity through attacks with unnecessary transactions and data. Attacks or abuse of cheap gas fees intentionally clog up bandwidth with unnecessary transactions.
Effects of Congestion
So, what are the effects of this clogging? Why should we care?
Well, for a start, average transaction confirmation times can go from minutes to hours during peak congestion periods and congestion can lead to significantly higher gas fees. Users are forced to overbid on gas prices to prioritize transactions, pricing out smaller users. Users compete through gas price auctions to get priority, driving up costs significantly.
Congestion combined with gas price uncertainty leads users to set gas too low, causing TX failures. Transactions with lower gas fees may get rejected entirely when capacity limited.
Additionally, the overall user experience suffers due to delays, costs, and uncertainty during congestion. There are constrained capabilities because congestion limits the ability to scale dApps and overall network functionalities. This also affects scaling, since congestion limits practical use cases and dApp development on Ethereum.
Solutions
There are a number of solutions that can be deployed to handle this congestion, like:
– Layer 2 scaling: Solutions like roll ups and side chains move activity off-chain while leveraging Ethereum security.
– Proof-of-Stake: Consensus upgrade to Proof-of-Stake aims to handle more transactions per second at lower costs. Consensus upgrade planned to increase transaction throughput and efficiency.
– Sharding: Planned upgrade that parallelizes transaction processing across multiple chains to increase throughput.
– Limiting blockchain bloat: Restricting certain NFT mints or identifying network spam transactions during congestion.
– Allowing some failed transactions: This can relieve network capacity pressure during peak congestion.
– Limiting blockchain bloat: Restricting certain activities like minting NFTs during peak congestion.
– Higher gas fees: Increasing the minimum gas price helps reduce network abuse.
Conclusion
Managing extreme congestion events while scaling Ethereum for the long-term with upgrades like Eth2 is critical to realizing its full potential. Ethereum’s popularity has strained capacity limits. But network upgrades like Eth2 and new L2 solutions will help scale Ethereum to meet growing demand in the future. Careful management of congestion and gas fees is key for stability.
