...by Daniel Szego
"Simplicity is the ultimate sophistication."
Leonardo da Vinci

Saturday, December 9, 2017

Notes on the economics of Ethereum gas consumption

Surprisingly, the fact that code on the ethereum blockchain is based on gas consumption and the price of the gas is based practically on market mechanism implies that using Ethereum classic can be a much logical choice than ethereum itself. The reason for that is that ether in ethereum isn't only used for being a system for paying for performance on the system, but it actually acts as a way of investment and speculation. It implies the fact that the evaluated value of the platform directly implies the price of a transaction. As a consequence if the platform becomes main-stream, the transaction cost will be on a short run sky-rocketing due to the fact that computing power does not evolve so fast as the demand. On a long run, this effect could be stabilized with decreased transaction cost, however the surprising experience that is does not happen. As an example, comparing average transaction fee of Ethereum and  Ethereum classic, we see a 15 - 20 multiplication, that is actually the same as the price between ether and ether classic. Certainly, the higher transaction price is compensated by higher security, however not all applications do need this higher security that are running on the blockchain.