State of the Ethereum network

In the previous posts, I wrote about several versions of a simple financial contract to be implemented on the Ethereum network. The contract was easy to run back in the summer of 2016, but things changed in September and October. This post is about the events and the current situation on the network.

What has happened to the Ethereum network? The easy way to understand this is by imagining the Ethereum network as an email system, where each person can send emails, and each email is broadcast to anybody else, creating a long "email chain". The consensus algorithm ensures that everybody agrees on the sequence of emails. In essence, the system is designed to cryptographically evidence and verify this chain.  Early on in the network history, the emails or transactions were easy to send and process, and the transaction fees were low.

Unfortunately, the ease of my access to the Ethereum chain also meant that spammers, hackers, or other enemies could easily spam the network with useless transactions. Imagine an email system where anybody can send millions of emails to everybody on the internet - the system will not survive long once people start abusing it. However, by design, each transaction in Ethereum costs money - and the developers have changed the cost of each command, as well as the maximum cost allowed, to make it prohibitive to spam the network.

Now it is only possible to send a very short, simple transaction - in the email analogy, anything longer than "Hello" gets rejected, because the cost of several words' emails is too large compared to the current limit.

As a result, the contracts that I wrote earlier could not be run, because the cost of commands in the contract methods, or functions, were greater than the network limit. So each function would run until that command cost limit is reached, and then stop/fail. The (relatively simple) futures contract that I wrote was too complex for the network to handle. However, it appears that all the tokens that were built on top of the Ethereum platform continue to trade successfully. So we all have to dust off our programming skills from the 80's, when the computer memory and processing power was very limited and when the code needed to be optimized to run successfully.

At this point, the Ethereum developers will probably continue to fine-tune the transaction pricing and other features. It is also good to see that the price of Ether has stabilized at levels between USD 8 and USD 10. However, the future applications depend on the ability to process reasonably complex transactions, so the limits and transaction pricing should become more accommodating.




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