What’s with Ethereum’s Insane Fees?

By Violet64 | cryptochat | 14 Aug 2020


A quick intro to Gas

Any operation performed on the Ethereum network requires the user to pay a fee called Gas to the miners who run the network. Your actual Gas fee is made of two components, Gas cost and Gas amount. Gas cost is how much ether you are willing to pay for 1 unit of gas (this is denoted in gwei), this changes depending on how many transactions are pending and how congested the network is. The second is Gas amount, and that is how many units of Gas you will pay, this is determined by the complexity of the action you wish to perform. The simplest action on Ethereum which is transferring ether between 2 wallets costs 21000 units of gas. The more complex the action is (such as locking up 5 assets into a smart contract), the higher your Gas amount is.

So why the surge in fees?

Over the past 2 weeks or so the Ethereum blockchain has suffered from insanely high fees. Gas cost rose to near 400 Gwei at one point (compared to most of 2019 when the network was clear, and it was closer to 10 or less Gwei). Unless you live under a proverbial rock, you will have heard of the crazy rise of DeFi. A large system of smart contracts and platforms (mostly on Ethereum) that provide decentralised financial services. In 2020 these platforms have seen a massive surge in popularity and thousands of users are flocking to them. Due to the complexity of some of these smart contracts and the fact that you can earn money from them has made fees skyrocket. After all, why not pay $10 in gas if you can make back $30. Because of this any user who isn’t using Ethereum for the express purpose of high returns has found that they need to pay insane fees to achieve almost anything. Luckily, this fee fluctuates a bit throughout the day and week, so on some days at sometimes you can find opportunities of low fees to do your bidding.

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The future of Ethereum

Obviously, these insane fees can’t be sustained, users can only make so much profit before the fees catch up with them. Additionally, the DeFi craze is bound to die down atleast somewhat, allowing for more reasonable network fees. However, what about the long term? Ethereum will surely have to scale in order to accommodate spikes like this in the future and even sustain high continuous usage. This is where L2 solutions and Eth 2.0 come in. Eth 2.0 is unfortunately still a long-term solution as it likely won’t see a full working public release till sometime late 2021 or early 2022, however, when it comes it is expected to have orders of magnitude higher throughput than Eth 1.x, which is rather promising. In the shorter term however, there needs to be a solution. That is where Layer 2 comes in, essentially moving most of the big calculations from being directly on the layer 1 blockchain and only recording results or other important data on the blockchain. This would move the bulk of the operation of the main Eth blockchain and thus reduce usage (and by extension fees) quite significantly. Fortunately, L2 solutions are already available and are being offered on more and more DeFi platforms every day. It is only a matter of time before fees calm down and Ethereum becomes fast and cheap again.

 

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