18.05.2024

Analysts say Ethereum’s high fees won’t be resolved this summer

The experts of the analytical platform Coin Metrics have published a report titled «Ethereum Gas Report». The document was the result of a study on the formation of commissions in the Ethereum network and the reasons why it is still expensive to use the cryptocurrency network now. In their opinion, even the introduction of new upgrades in the ETH blockchain allegedly will not solve the problem at the root.

Recall that using the Ethereum network has recently been quite expensive, and this is due to three components. First, the maximum throughput of a blockchain – that is, the number of transactions it can process – is limited to tens of transfers per second. Accordingly, it simply cannot cope with the growth of the indicator until the update.

Secondly, due to the growth of the coin market, users began to use the Ethereum network much more actively, which affected the number of transactions carried out. Finally, thirdly, the cost of gas, which determines the high cost of transfers, is measured in ETH. This means that the higher the ETH rate, the more expensive it is to work with the network.

Sometimes the combination of these factors leads to incredible surges in commissions. For example, at the end of winter, tens of dollars had to be paid for a regular translation.

Coin Metrics experts believe that it will not be possible to fix the situation with expensive transactions. Here is their point of view.

Why is Ethereum so expensive?

The median fees on the Ethereum network have consistently exceeded the $ 10 level for most of 2021. In comparison, the average ETH transaction fee reached just $ 5.70 in the midst of the 2017/2018 bull trend.

This increase is partly due to the rise in the price of cryptocurrencies, which leads to the rise in gas prices – a measure of the cost of performing transactions on the network. Since the beginning of 2021 alone, the ETH rate has risen by almost 100 percent , despite the current correction of 21 percent from an all-time high of $ 2050 . However, over the same period, the average gas price increased by 532 percent.

This means that the intensity of use of the blockchain was higher than the growth in the value of ETH. That is, the increase in the rate attracted a lot of cryptocurrency lovers.

Ethereum cryptocurrency altcoin

Growth in the average transaction fee on the Ethereum network over the past year

As a reminder, different types of transactions require different amounts of gas. A simple transfer of ERC-20 tokens uses much less gas than a complex operation with a smart contract – for example, conducting a coin exchange on decentralized exchanges like Uniswap.

However, the report also noted that the main reason for the high fees is not the explosive growth of the DeFi sector, but simply the increase in the number of transactions in general. Here is a quote from analysts in which they share the results of the study. The replica is provided by Cointelegraph.

Since January 2020, the amount of gas used for transactions has been on a downward trend. This shows that the increased complexity of the transaction itself is not the reason for high fees.

Ethereum cryptocurrency altcoin

Change in Ethereum block occupancy

Transaction fees on the Ethereum network are currently based on an auction model. That is, those who value gas more expensive receive priority among miners and, as a result, faster confirmation of transactions against the background of those who set a lower cost. The report notes that the current high fees on the network are due to the fact that the blocks are constantly filled: the day before, the figure was about 95 percent.

This trend has continued since mid-2020 and the boom in the decentralized finance industry. According to the study, as of March 2021, Ethereum blocks are 97-98 percent full .

The experts explained that miners need to specify which transactions to include when new blocks are mined. Moreover, each block can include only a limited number of transactions – on average from 160 to 200 – due to the maximum block size. Here is a quote from the experts.

This way miners will naturally prioritize transactions with the highest gas prices as they will bring them more money.

The report concluded that the long-awaited upgrade of the EIP-1559 network, which was designed to change the auction mechanism and burn some of the commissions, is unlikely to solve the problem of high gas prices. Supposedly, only large-scale solutions can fix the problem completely.

Let us remind you that EIP-1559 will introduce the concept of a basic gas commission, which will be the same for all network users. When the intensity of use of the blockchain is higher, the indicator will grow, when it is lower, it will fall. At the same time, the base commission will be burned, which in theory would make Ethereum a deflationary asset. We have covered the topic of this update in detail in a separate article.

Analysts continue.

If Ethereum can only handle a few hundred transactions (on average) per block, fees will remain high as long as the use of decentralized apps continues to grow. Gas prices will remain high as long as there is high competition for space in the block.

This means that experts assume that the implementation of EIP-1559 this summer will not be able to fix the problem of high commissions in the network. We believe that the situation will change for the better in the spring – and the massive use of so-called roll-ups will help here. This is a technology of «rolling up» transactions and placing them in one block, which significantly saves network resources and allows it to cope with a large number of transfers.

In particular, in the spring, a second level solution from Optimism will be launched on the Ethereum mainnet.

The use of such technologies will be massive. For example, the third version of the popular Uniswap exchange will launch on May 5 on the regular Ethereum network, soon after which it will be released on Optimism. This means that it will be much cheaper to carry out exchanges using a decentralized exchange, and the network will fill up less.

Uniswap V3 exchange

Uniswap V3 Launch Announcement

At the same time, Uniswap currently consumes the most gas in the Ethereum network. And if this project starts spending less gas along with other large smart contracts, the load on the ETH blockchain will decrease. And this will result in a significant reduction in the cost of translations.

ethereum gas projects

Projects that spend the most gas on the Ethereum network

We believe that a significant decrease in the cost of fees in Ethereum will be noticeable in the spring. Well, the change in the principle of the formation of the commission after the implementation of EIP-1559 will make the situation even better. Therefore, conversations about the impossibility of solving the problem of the high cost of making transfers to ETH seem too one-sided.

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