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The masses have a high expectation towards “Ethereum 2.0”. But a common misperception is “Ethereum 2.0 will reduce gas fees.”

Two things you need to know: First, Ethereum upgrade is a long process. It’s estimated that “the Merge” will be completed in the first half of 2022. However, “the Merge” only has minimal effects on reducing gas fees. What truly lowers gas fees is “sharding”; Second, sharding aims to only lowers gas fees for Layer2, Layer1 may still be of high cost even when sharding is delivered.

Essentially gas fee is the price of energy, it is determined by market supply and demand. The “supply”is the space available for computing and storage — scalability. The specific measurement criteria for it are the TPS (Transaction Per Second) level and block size.

Ethereum can speed up its block time by 10 times and increase the block size by 10 times, as Musk wants, so that the fees are reduced by 100 times. And implementation is relatively easy — only need to modify two parameters. But it’d result in transforming Ethereum into another blockchain like Polygon or BSC. In fact, in order to maintain decentralization, the block size and block time of Ethereum have basically reached the theoretical limit.

That makes raising TPS the only option. However, “the Merge” only alters the way blocks are generated (and a slight optimization on block generation time, but it only has a minor impact), and doesn’t affect gas fee. From an alternative perspect, it maybe aims to remove the accusations of energy waste.

What truly promotes TPS is sharding. Sharding is a long process, and it’s hard to estimate how high it can bring TPS to. What’s certain now is that there will be 64 sharding chains in the first stage. But it doesn’t mean Ethereum size will expand 64 times, since sharding chains’ sizes don’t equal to that of Ethereum. It’s estimated that every chain is of 1/3–1/2 size of the current Ethereum, that makes the total size 21–32 times more than now. It’s estimated that sharding chains will be completed some point in 2023.

Even if we have sharding chains, it doesn’t mean Layer1 gas fees will be lowered. As we mentioned above, price is determined by supply and demand. Though with sharding chains we can have more supply, conservatively speaking, Ethereum trading volume will expand at least 5 times. By then, if ETH price also increase 5 times, then gas fee will not have big changes if converted to USD.

Some believe eventually there will be as many as 1024 sharding chains, but large sharing chain quantity raises a problem: nodes will be scattered leading to weakened security. To reduce vulnerability and also to ensure that the network has sufficient redundancy (including data availability sampling), one chain must have a minimum of 100 nodes. It’s not all about chain quantity.

As demand gradually increases, Layer1 gas fee is nowhere to go but higher. What we call gas fee reduction actually refers to Layer2. Layer2 will create a off-chain trading environment independently from Layer1, and it uploads the results to a random sharding chain.

Essentially, this reflects the impossible triangle dilemma of blockchain. The reason why Ethereum struggles to improve scalability is due to decentralization.

While Rollups do not need to focus on these, but only need to focus on improving transaction efficiency, and L1 takes care of security and decentralization. Therefore, Rollups does not have minimum nodes quantity problem, its maintenance cost is very low, and naturally there is no upper limit.

The current gas fee on OP Rollup is 1/8–1/3 than that of Ethereum, and the gas fee on ZK Rollup is expected to be 1/100–1/40 of Ethereum. Therefore, after the 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 cost of Layer2 but not necessarily reduce Layer1’s. There are two main reasons:

First, the number of shard chains is practically limited, while the number of L2 isn’t, so it can meet the infinite expansion of demand; Second, Ethereum has a store of value, and its price is likely to rise as the crypto market continues to expand. While L2’s governance token is just fuel, and if it turns expensive, no one will be willing to consume it.

Not only that, the larger the transaction volume on Layer2, the higher the total fee paid when purchasing Layer1 block space. So it might be the case in the future that Layer2 Gas fee gradually decreases and the Layer1 Gas fee gradually increases. Perhaps by then, all the transaction on Layer1 will be data uploaded from Layer2, and there will be no trace of individual users.

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