tl;dr: Scaling solutions to Ethereum show us that demand and thus adoption are growing. Gradually…then suddenly.

As Ethereum has gained in popularity, market forces are at play in a variety of ways.

The first, and most obvious, is that because space in a given block of transactions is limited, the supply/demand feature for a spot has driven “gas fees” (how you pay miners to be included in a block) have gotten huge.

Kind of like seats on an airplane…there are only so many to go around so, in a completely free market, which Ethereum blocks are…prices respond.

The multi-year push to get Ethereum 2.0 out the door, which has gained significant momentum in the past few months with the launch of the Beacon Chain and the amount of Eth locked in the Staking contract (Ethereum will move from Proof-of-Work to Proof-of-Stake) going over $3bn (and counting), is a move towards scalability.

The Eth 2.0 chain, however, is anywhere from a year to two (or more) away and meanwhile the birth of the Decentralized Finance (DeFi) industry is happening in real time.

As of this writing, there are over 6.9 million Eth “locked” in DeFi contracts. This is up from 3 million a year ago and zero 2 years ago. Those are respectable growth rates.

With increased demand for DeFi services ranging from lending, borrowing, derivatives, and more, comes an increase in gas prices. I can tell you firsthand, some of the fees I’ve paid are painful and there were times where I couldn’t make a trade I wanted to make because the fees were just too high.

The good news about the crypto industry is that it’s about as free market as you’ll get and because the software is open source, innovation can happen at a faster pace. To be sure, there are downsides to this in terms of risks, auditability, and security of smart contracts, for example.

So, it’s been really exciting to see different “Layer 2” solutions that have been deployed to help the “Layer 1” Ethereum base chain scale. These are known as “roll ups” because, I believe, of the way they take a bunch of transactions that happen at “Layer 2” and then roll them up and confirm them all on the “main chain” of “Layer 1.”

One of them is Loopring, which uses zk-snarks (the security mode that sits behind Zcash. Another type of roll up is known as “Optimistic Rollups” which the Synthetix protocol has just deployed for its staking mechanism. And then there is Matic which uses something called “Plasma” to create an Ethereum sidechain.

The technical details don’t matter all that much for the purposes of this post and, frankly, I’m confident that I don’t understand all of them anyway.

What’s important to note is that the market is responding to the needs of the users. We all want lower gas fees and we knew that, at some point, congestion was going to be a problem.

Today, congestion (and thus gas fees) are a huge barrier to realizing the dream of a permissionless, low-cost economic environment, so it’s really nice to see that the next phase of the cryptoeconomic revolution is underway.