Vitalik Buterin, co-founder of Ethereum, argued that cryptocurrency payments would once again “make sense” because transaction costs would soon drop to fractions of a cent due to the buildup of the second layer.
The Cointelegraph team currently on the ground at Korea Blockchain Week (KBW) quoted Buterin as saying that the final hurdle to reducing transactions to fractions of a cent on a large scale is blockchain data compression.
He noted the “serious work that’s going on” with scaling right now such as Optimism’s Layer 2 expansion solution for Ethereum, which has reduced the volume and cost of data in blockchain transactions by introducing zero-byte compression.
“Today with rollovers, transaction fees are generally somewhere between $0.25, sometimes $0.10, and in the future with all the efficiency improvements I’ve been talking about. Transaction costs can go as low as $0.05, or maybe as high as $0.02.” Much cheaper, affordable, and completely game-changing.”
Although it operates primarily as a speculative store of value, Buterin emphasized that the main use case for Bitcoin (BTC) presented in its White Paper from 2008 was to provide a “peer-to-peer electronic cash system” that was cheaper than traditional payment methods.
However, while this was true until 2013 according to Buterin, this is no longer the case in 2018 when adoption increased and blockchain transactions became very expensive.
“It’s a vision that, I think, has been a bit forgotten and I think one of the reasons it’s been forgotten is mainly because it was priced from the market,” he said.
In the Ethereum co-founder’s view, BTC and other assets will soon be able to provide this use case again as scaling solutions — like the Lightning Network in the case of BTC — that gradually bring costs down to fractions of a cent.
Cryptocurrency payment use cases
Buterin identified two different areas where cheap crypto transactions would be of particular interest. First, he referred to “low-income countries or places where the current financial system is not very efficient,” as it would allow citizens to access the vital online payments structure, something that has already been adopted despite the cost of international remittances.
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Second, he notes that in the context of Ethereum, cheap crypto transactions will also help ramp up the adoption of non-financial applications such as Domain Name System (DNS) servers, Proof of Human Presence Protocols and Web3 account management services.
“You really need to send a transaction to generate the DNS name, you really need to send the transaction to retrieve your account, and you really need to send a transaction to satisfy some of these modifications. If it costs $11 to do each of those operations, people are not going to go for it.”
“Scalability is not just a boring thing where you just like cost numbers need to reduce scalability, I actually think it enables and opens up completely new classes of applications,” he added.