You live in the up-and-coming suburb of Cryptoville and you want to buy a house. It costs $1m.
There might be some transaction fees involved, but you won’t actually know how much the fees will be until you complete the transaction. Oh, you are not competing with anyone to buy the house, it’s just a transaction fee. Can’t be too bad right?
On the day of closing, the transaction goes through. The transaction fees are $250,000! And there was no way to tell until you tried to buy the house. It’s just the way things work in Cryptoville..
This is pretty much what happened on Saturday when Yuga Labs, the company behind the Bored Ape Yacht Club, held a much anticipated virtual land / NFT sale on the Ethereum network. Gas fees (i.e. transaction fees on Ethereum) spiked as the network coped with thousands of ApeCoin holders looking to buy some virtual land for their virtual Apes.
The shocking thing was that it caused the entire Ethereum network to clog up – raising transaction costs for everyone – not just those looking to buy virtual land. Folks looking to buy NFTs valued at under a dollar were seeing transaction fees of $3,500!
This points to a serious, and well-known, issue with throughput on Ethereum. It does not scale under load. Perhaps the long-delayed migration to Proof of Stake may change this – when it happens.
But – do you know what happened to the “high-performance” blockchain Solana on Saturday? You see where this going..
Links:
Ethereum Gas Prices Spike
Solana Performance Issues
Introduction to Ethereum Scaling
Footnote
Ethereum can only process about 15 transactions per second. It is just the way it is designed. However, miners can be incentivized to process transactions by increasing gas (transaction) fees. This is what happened on Saturday – as the demand to mint NFTs skyrocketed, so did the transaction fees. Gas fees have since come down, but it shows the big issues that Ethereum continues to face as it remains the de-facto standard for blockchain development.