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Ethereum's Resiliency - The Daily Gwei #422
Ethereum is the world's strongest decentralized settlement layer.
Whenever there’s extremely volatile market movements (like we’ve been seeing over the last few days), the on-chain ecosystem gets slammed with activity. Some chains get very expensive to use, some slow to a crawl and some go offline altogether. Though in the midst of all of this the one thing Ethereum does very well is guarantee that users can get their transactions into a block - as long as they pay the price - and this is an incredibly underappreciated feature of the network.
Ethereum is able to achieve this level of resiliency for a few reasons but the main one is because the network limits the load it can process by way of the gas limit and fee market. Currently, the Ethereum network processes about 13 transactions per second and if you want to be one of those 13 transactions then you’ll need to outbid everyone else for Ethereum’s precious blockspace. By having this mechanism in place, the Ethereum network ensures that it can remain online and available no matter how extreme market volatility gets (as it’s very hard to DDoS the chain) and I think this is a very underappreciated feature of the network.
I believe that resiliency or “liveness” is the number 1 feature a smart contract blockchain should strive for because it is critical for a proper functioning DeFi ecosystem. For example, if Ethereum was to go offline for a few hours and the price of ETH falls from $2500 to $2000 during that time, people would not be able to update their on-chain leverage positions and so could be at risk of instant-liquidation the moment the network came back online. This could then have on-flow effects to the rest of the DeFi ecosystem as everything updates to accommodate the new ETH price as to the network and DeFi apps, it looks like ETH basically teleported from $2500 to $2000. Ethereum going offline would also be very bad for layer 2 networks as it would prevent them from settling their data and proofs.
I think that any network that cannot guarantee 99.99% uptime and cannot guarantee that users can get their transactions into a block will never be a global settlement layer. By going offline or having degraded performance, the chain erodes any goodwill and trust that it has which scares people off of using it. Why would a layer 2 network choose to settle on a layer 1 that cannot guarantee uptime or performance? Why would people risk opening on-chain leveraged positions if there’s a chance they couldn’t interact with it during highly volatile periods? This all rings especially true for any enterprise or corporate entities - they are not going to settle their transactions on anything but the most resilient network.
I hope that the Ethereum ecosystem keeps choosing to preserve the resiliency the network has by not taking shortcuts to achieve some short-term “scale”. It is critically important for the network to maintain its level of decentralization and security while also scaling in the right way (via sharding and other means). This way, Ethereum can keep its 100% uptime record and continue to build credibility as the world’s strongest decentralized settlement layer.
Have a great day everyone,
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All information presented above is for educational purposes only and should not be taken as investment advice.