All currency must have an exchange value, that is, it can be exchanged for products or services. The cryptocurrency has been trying to bridge this usability gap for some time now; however, to make it popular as a means of payment, the industry has been marked by periods of high transaction fees. Ethereum, the second largest cryptocurrency and leader in altcoins, has become synonymous with high gas fees. Acknowledging the same, Ethereum co-founder Vitalik Buterin noted that crypto payments will “make sense” again as transaction costs shrink to pennies due to Layer 2 rollups.
CoinTelegraph quoted Buterin during the ongoing Korea Blockchain Week [KBW], adding that blockchain data compression is the final hurdle to reducing gas fees. Although Layer 1 is slowly working towards reducing gas fees, the real wonders of the Ethereum ecosystem have been seen on Layer 2 scaling solutions. For example, the cheapest L2 alternatives were Loopring and ZKSync. Loopring charged $0.01 per transaction, while the cost of a single transaction on ZKSync was $0.02.
During his keynote, Butering highlighted Optimism’s Layer 2 solution, which reduced the size and cost of data in blockchain transactions by introducing zero-byte compression. He noted,
“So today with roll ups the transaction fee is usually between $0.25, sometimes $0.10, and going forward with roll ups with all the efficiency improvements that I have spoken. Transaction costs could drop to $0.05 or even as low as $0.02. So much cheaper, so much more affordable and a complete game changer.
While Ethereum was at the center of allegations of “high transaction fees”, Buterin pointed the finger at Bitcoin and noted that its “peer-to-peer electronic payment system” had become expensive over time. Until 2013, it was cheaper than traditional payment methods; however, the blockchain transaction has become expensive given its adoption.
“It’s a vision that’s been, I think, kind of forgotten and I think one of the reasons it’s been forgotten is basically because it’s been overpriced in the market.”
Nevertheless, Bitcoin’s Layer 2 Lightning Network has been hard at work solving this problem and could eventually reduce the cost to fractions of a penny.
Ethereum and Other Crypto Use Cases
Buterin set his sights on “low-income countries or places where the existing financial system is not very efficient” to solve the problem. Thanks to cheap crypto transactions, citizens will have access to vital payment structures on the Internet, which have already been widely adopted despite the cost of international remittances.
However, if we zoom out, Ripple was already working to connect many such countries through its on-demand liquidity technology. By using XRP, Ripple offers payment solutions to crypto users and the world. Thanks to its on-demand liquidity [ODL] services, Ripple has largely filled the financial gap by offering remittance services. Recently, Ripple signed a partnership with FOMO Pay, one of the leading payment institutions in Singapore, to improve its cash payments by leveraging ODL.
Nonetheless, his vision for Ethereum was to reduce transaction costs and help accelerate the adoption of non-financial applications like the domain name system. [DNS] web3 servers, proof of presence protocols and account management services.
“You actually have to send a transaction to create a DNS name, you actually have to send the transaction to recover your account, you actually have to send a transaction to meet some of these adaptations. If doing each of these operations costs about $11, then people don’t get into it.
While many have repeatedly questioned Ethereum’s scalability plan, Butering noted that it’s not “just a boring thing that you need as costs come down. I think scalability I think that in fact it enables and unlocks entirely new classes of applications.”