Analysis: Ethereum’s gas fee will not decrease after switching to POS. Sharding and L2 are still needed to get rid of the “noble chain”

Wu said the author   |   Wu Zhuocheng

Editor of this issue   |   Colin Wu

People have great expectations for Ethereum 2.0, but there is a common misunderstanding that "Ethereum 2.0 will reduce gas fees."

There are two points that need to be explained in this sentence: First, the upgrade to 2.0 is a long process, and the "merger" expected to be completed within the year will not reduce the Gas fee. What can really reduce the Gas fee is "sharding"; secondly, even if the sharding is completed, it can only ensure the reduction of the Gas fee of L2. As for L1, it may always be a "noble chain".

Gas fees are essentially energy prices, so they are determined by supply and demand. The supply here is the space available for computing and storage, that is, scalability, and the specific measurement criteria are TPS and block size.

Of course, you can speed up Ethereum's block time by 10 times and increase the block size by 10 times, as Musk hopes, which will reduce the handling fee by 100 times. The implementation process is also very easy, just modify two parameters, but the final result is to transform Ethereum into another blockchain similar to Polygon or BSC. In fact, in order to take into account decentralization, Ethereum's block size and block time have basically reached the theoretical limit.

Therefore, the only remaining route is to increase TPS, but the merger of Ethereum 1.0 and 2.0 will not increase the computing power of the network. This explains the first misunderstanding. After the "merger" is completed, Ethereum's gas fee will not change at all, and only the block production method will change (the block production time will decrease slightly, but the impact is not significant). From another perspective, it may be more important to eliminate the accusation of "wasting energy".

Sharding is the technology that can really improve TPS, but sharding is a process, not a moment like merging, so it is difficult to estimate the final TPS. Based on the information we have, we can be sure that 64 shard chains will be launched in the first phase, but this does not mean that the capacity of Ethereum will increase 64 times, because the capacity of the shard chain is not equal to the current Ethereum. A reasonable estimate is that the capacity of each chain will be 1/3 to 1/2 of the current capacity, so the overall size will increase by about 21-32 times. According to the current progress, all this is expected to be completed by the end of 2023.

However, even if everything goes as planned, it does not mean that the Gas fee of L1 can be reduced. Going back to what was mentioned earlier, the price is determined by supply and demand. We just calculated the change in supply and ignored the demand. Even if we conservatively estimate that Ethereum's future transaction volume will increase by at least 5 times, if the price of the currency also increases by 5 times, then the Gas fee calculated in US dollars will not change much.

Some people may think that 64 shard chains are just in the first stage and will eventually increase to 1024. This is only in theory. In fact, there is a problem of "minimum number of nodes" involved. Sharding will disperse nodes, so the security of a single shard chain is not as high as the current Ethereum. In order to ensure that the shard chain cannot be easily attacked and that the network has sufficient redundancy (including data availability sampling), the minimum number of nodes is at least hundreds. Therefore, it is currently difficult to prove that a blockchain with hundreds of shard chains is reasonable.

As the demand gradually increases, the gas fee of L1 will only get higher and higher. What we call reducing the gas fee actually refers to L2. L2 will create an off-chain transaction execution environment independent of L1, and upload the calculation results to any shard chain after processing the transaction. In essence, this still reflects the impossible triangle problem of blockchain. The reason why Ethereum cannot significantly improve scalability is that it is restricted by decentralization. Rollups do not need to pay attention to these, but only need to focus on improving transaction efficiency, and L1 will be responsible for security and decentralization. Therefore, Rollups does not have the problem of the minimum number of nodes, and its maintenance cost is very low, so there is naturally no upper limit on the number.

The current Gas fee on OP Rollup is 1/8-1/3 of that on Ethereum, and the Gas fee on ZK Rollup is expected to be 1/100-1/40 of that on Ethereum. Therefore, after sharding is completed, the Gas fee on ZK Rollup will be further reduced to 1/7000-1/3000. Here we need to explain why sharding can significantly reduce the Gas fee of L2 but not necessarily that of L1. There are two reasons. First, there is a practical limit to the number of shard chains, while the number of L2 can continue to increase, so it can meet the unlimited expansion of demand. Second, Ethereum has storage value, and its price is likely to rise with the continuous expansion of the crypto market, but the governance token of L2 is just fuel. If it is too expensive, no one will be willing to consume it.

Moreover, the larger the transaction volume on L2, the higher the total fee paid for purchasing L1 block space. Therefore, in the future, the L2 Gas fee may gradually decrease while the L1 Gas fee may gradually increase. Perhaps by then, all transaction activities on L1 will come from L2 data uploads, and no individual users will be found.