Ethereum Expands Transaction Capacity as Validators Approve Gas Limit Increase

05. Feb 2025 Posted by Laurent C. on News

Ethereum has taken another step toward scalability, as validators on the network have approved an increase in the gas limit—the first adjustment since 2021 and the first since the Merge upgrade. This change, which took effect late Monday, pushes Ethereum’s gas limit to nearly 32 million units, with a projected maximum of 36 million.

Validators automatically enacted the increase after reaching a majority consensus, bypassing the need for a hard fork. The last comparable adjustment occurred in 2021, when Ethereum’s gas limit jumped from 15 million to 30 million.

Gas on Ethereum refers to the computational effort required for executing transactions and smart contracts. The gas limit dictates the maximum capacity of each block, meaning that a higher limit allows more transactions or complex operations to be processed within the same timeframe. This increase could ease congestion, reduce transaction costs, and enhance Ethereum’s viability for decentralized finance (DeFi) applications.

By expanding network capacity, Ethereum could regain investor confidence after a challenging year. The ETH/BTC exchange rate has tumbled, with ETH hitting a multi-year low of 0.03 BTC—almost 50% lower than a year ago—while Bitcoin surged. The ETH/BTC ratio peaked above 0.08 in 2022 but has steadily declined since.

Meanwhile, Ethereum’s upcoming Pectra upgrade is set to further enhance scalability, particularly for layer-2 networks. The update will double the blob target from 3 to 6, increasing the temporary storage capacity for large data packets and improving transaction throughput. These developments position Ethereum for a more competitive future in the blockchain ecosystem.

Ethereum’s latest gas limit increase and the upcoming Pectra upgrade are poised to reshape the network’s economic landscape. Here’s how these changes could impact transaction fees, investor demand, and ETH’s long-term value proposition:

1. Lower Transaction Costs & Higher Network Activity

Increasing the gas limit allows Ethereum to handle more transactions per block, reducing congestion during peak times. Historically, high gas fees have been a deterrent for users, leading many to switch to alternative blockchains like Solana (SOL) and BNB Chain.

  • Short-Term Impact: Fees could become more predictable, especially for users interacting with DeFi protocols and NFT marketplaces.
  • Long-Term Impact: More affordable transactions may attract new projects and businesses, increasing overall adoption.

2. Stronger Demand for ETH

Ethereum’s economic model relies on ETH being used as gas to process transactions. More transactions per block mean more ETH is burned under the EIP-1559 fee structure, potentially creating a deflationary effect.

  • If demand for Ethereum-based applications rises, ETH supply could shrink, making the token scarcer over time.
  • A higher burn rate could offset selling pressure, supporting ETH’s price recovery.

3. Potential ETH Price Rebound Against Bitcoin

ETH has struggled against BTC, with the ETH/BTC ratio hitting a multi-year low of 0.03 BTC in January 2025—nearly 50% lower than a year ago. A more efficient Ethereum network could attract renewed investor interest, helping ETH regain ground.

  • The last major gas limit increase in 2021 coincided with a bull market for ETH, pushing its price to an all-time high of $4,800 later that year.
  • If the increased capacity results in higher network usage, ETH’s value proposition could improve, potentially reversing its decline against BTC.

4. Boost for Layer-2 Ecosystem

The Pectra upgrade will double the blob target from 3 to 6, making layer-2 solutions like Arbitrum, Optimism, and Base significantly more efficient. This could lead to:

  • Lower costs for rollups, making Ethereum’s layer-2 networks more competitive.
  • A higher rate of ETH staking rewards, as increased activity translates to more transaction fees distributed to validators.

Final Thought: A Long-Term Play for Ethereum

While the immediate effects of the gas limit increase may not be dramatic, the combined impact of lower costs, improved scalability, and increased ETH burning could create a stronger economic foundation for Ethereum in the long run. If network activity picks up, ETH’s price may reflect these improvements over the next few quarters.