Ethereum’s Negative Network Effects Require Solutions NOW: VC Jain

Ethereum’s negative network effects require scaling solutions right now, according to a managing partner of crypto venture hedge fund Multicoin Capital, Tushar Jain. Some of the most frequent narratives over the week have been the issues of high transaction fees on the ETH network. Following the Ethereum latest news, we take a closer look at the analysis.

Although the blockchain has seen a strong uptick in the active users, network utilization, and transactions thanks to Defi, the cost to send one transaction increased dramatically. ETH transaction cost reached 130 Gwei which means that a simple transfer of ETH costs over $1.00 while the complex smart contract transactions cost up to a dozen dollars. The transaction fees dropped since but the issue of high costs remains.

Ethereum 1.0 is now facing *negative* network effects. Every new user raises the transaction cost for other users.

Ethereum needs scaling solutions NOW or the negative network effects will drive many devs and users away.

— Tushar Jain (@TusharJain_) July 27, 2020

Bitcoin’s growth is predicated on the network effects as well as one of YouTube, Facebook, and other social media platforms or monetary assets. Yet, according to the crypto venture Tushar Jain, Ethereum’s negative network effects require scaling solutions as fast as possible because with every new user, the blockchain will slow down further and will become more expensive:

 “Ethereum 1.0 is now facing *negative* network effects. Every new user raises the transaction cost for other users.”

Jain’s comment is one reminder of a previous comment made by two executives of Exponential Investments which is a global investment company with interest in crypto. Also, Leah Wald and Steven McClurg from the company said that the way ETH is structured is that the fundamental cause for the asset is weakening as the price rises:

 “In summation, as more users join, the cost of gas increases, the network clogs, there are potential security issues, which decreases the value of the service, leading to poor user experience, and therefore users drop off and move to other blockchains.”

According to Jain, the unfortunate trend indicates that Ethereum needs a scaling solution now or the negative network effects will drive away from the users and developers. The comment was echoed by Qiao Wang, as he said that he spent a lot of money and time trying to use decentralized finance products based on ETH:

 “So long as ETH 2.0 is not fully rolled out, there’s an obvious opportunity for a highly scalable blockchain to dethrone Ethereum. Paying $10 transaction fee and waiting 15 seconds for settlement is just bad UX.”