Ethereum Performance BottleNecks

in #blog2 years ago (edited)

Tether, a stable-coin has been consuming Ethereum blockchain bandwidth and filling up possible transaction-space making it extremely expensive to execute actual business based transactions. The tragedy of commons on the Ethereum block chain possibly has no solution - nevertheless - several solutions based on bandwidth thresholds such as sharding, creating silo-ed data-sources that are separate from the common blockchain, etc...

Each public blockchain facilitates multiple markets - each of which has different actors engaged in a game that has a dynamic equilibrium - dynamic because the supply, demand and prices in each market varies according time based on exogenous factors. Below I highlight a few of these markets:

1. The first market is a token market - these tokens keep markets alive and provide direct fungibility to business processes, models, etc, in addition to providing liquidity to teams executing these projects. They embody the value to the business model, often provide incentives for governance (DAICOS), and facilitate fungibility directly.

2. The second market is a transaction market - where transaction fees are determined by prevalent market prices that miners are willing to accept to include a transaction into their next block, which has to be mined. This is a perennial market and determines when and how markets function - for example, if transaction fees peak, then authors of smart contracts will be forced to look elsewhere or reduce their dependence on the blockchain.

There is perennial demand and supply in this transaction market The transaction bandwidth - defined as the maximum number of transactions per second can cause a spike in price and reduce supply (i.e., number of transactions) and is limited by the technical architecture, design and support in this market.

3. The third market - the miner's market which consists of actors with specialized equipment and whose roles are critical to the operation of the entire blockchain. They are incentivized per block mined. These miners bring tremendous value are significantly specialized in their operations - they search for geographic locations that have the lowest costs for electricity , maintain huge powered networks of specialized computing equipment (e.g., ASIC based computers). The more the number of miners, the lesser will be the transaction fees in this market, provided the underlying technology supports it.

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